Priority for homebuyers in recovery of dues from bankrupt real estate firms

In a big relief, home buyers will now be treated at par with banks and institutional creditors that would enable them to get priority while recovering of dues from bankrupt real estate companies.

The Insolvency and Bankruptcy Code (Amendment) Ordinance, promulgated by President Ram Nath Kovind on Wednesday, grants the status of “financial creditors” on home buyers, a move that would allow them to participate in the insolvency resolution process.

The law also allowed home buyers to invoke Section 7 of the IBC against errant developers seeking to launch insolvency resolution process.

The amendments also provided relief to micro, small and medium enterprises (MSME) by exempting them from various provisions in the dispute resolution process. It also does not disqualify the promoter of a MSME to bid for his enterprise undergoing Corporate Insolvency Resolution Process (CIRP) provided he is not a wilful defaulter.

The Ordinance also permitted the withdrawal of an insolvency application if approved by 90% vote share of the Committee of Creditors (CoC) and only before publication of notice inviting Expressions of Interest.

In a bid to encourage resolution versus liquidation, the CoC voting threshold has been brought down to 66% from 75% for all major decisions including approval of resolution plan, extension of insolvency period. The voting threshold for routine decisions has been reduced to 51%.

The Ordinance also attempts to bring more clarity by laying down mandatory timelines, processes and procedures for corporate insolvency resolution process. Though this will be done via regulations.

Other changes in the Code include non-applicability of moratorium period to enforcement of guarantee and liberalising conditions of interim finance for corporate debtor during resolution period.

It also allows corporate debtors to themselves trigger insolvency resolution after taking approval from shareholders through via special resolution.