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Insolvency regulator IBBI has come up with slew of proposals to improve real estate resolutions under IBC including mandating the inclusion of Land Authorities in Committee of Creditors (CoC) meetings in cases involving real estate companies.
The discussion paper issued on Thursday by the Insolvency and Bankruptcy Board of India (IBBI) for this purpose seeks to enhance the efficiency and effectiveness of real estate insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). Stakeholders will have to electronically submit their views on the seven proposals and draft amendments to CIRP regulations by November 27, IBBI has said.
In corporate insolvency resolution processes (CIRP) involving real estate companies, land authorities play a crucial role but currently lack mandatory representation in the CoC.
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At present, financial creditors are included in the CoC, while land authorities, generally being operational creditors, are not. This absence may lead to insufficient consideration of land authorities’ perspectives on land-related issues and regulatory requirements, potentially causing delays or complications in implementing resolution plans due to unforeseen challenges.
Moreover, valuable input from land authorities that could enhance the viability and feasibility of resolution plans is often missed, reducing coordination between the insolvency proceedings and land-related matters. “Given the significance of land assets and associated regulatory compliance in real estate projects, there is a clear need to ensure that land authorities have a formal channel to provide input during the CIRP, while maintaining the decision-making authority of financial creditors”, said the discussion paper.
Competent authorities
IBBI has therefore proposed the inclusion of competent authorities ( including land-owning authorities) as invitees to CoC meetings in cases involving real estate companies, without voting rights.
By providing competent authorities, including the land-owning authorities, with the opportunity to offer input and raise concerns during the CIRP, while preserving the decision making authority of the CoC, the proposed changes address a significant issue in the regulatory framework.
From a stakeholder perspective, the presence of such competent authorities in CoC meetings can enhance transparency and build confidence among homebuyers and other stakeholders in the resolution process.
critical player
Siddharth Srivastava, Partner at Khaitan & Co, said, “While all the changes proposed in the discussion paper will benefit the stake holders, in my view the most important suggestion is inclusion of land authorities in CoC (without voting rights)”. Land authority being a critical player in successful resolution, needs to be aware of the contours of the resolution plan and CIRP and should give inputs to ensure future compliance, he said.
“This will also likely address the implementation problems being faced by successful bidders on account of lack of cooperation by the land authorities because of treatment of their claim”, Srivastava added.
Hari Hara Mishra, CEO, Association of ARCs in India, said that the most recent IBBI newsletter of June 2024 rightfully in its edit emphasised on ‘reviving real estate’. “The present discussion paper tries to plug all operational bottlenecks in real estate revival by taking all stakeholders on board and removing information asymmetry among them. For the first time it proposes inclusion of land authorities in CoC meetings. Overall the measures intend to facilitate better resolution outcome in real estate projects and in safeguarding interests of homebuyers”, Mishra said.
Seven Key Proposals:
• Include land authorities in CoC meetings
• Address cancelled land allotments in real estate insolvency
• Empower CoC to enable associations of allottees to participate as resolution applicants
• Clarify inclusion of interest in homebuyers’ CIRP claims
• Facilitate large creditor representation through appointed facilitators
• Share CoC meeting minutes with all creditors in class of real estate projects
• Streamline possession handover in real estate projects