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Insolvency Rules Being Changed, Homebuyers to Get Benefits

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Insolvency Rules Being Changed, Homebuyers to Get Benefits

Unlike earlier, when homebuyers had no say in the insolvency proceedings of real estate companies in spite of being on the receiving end. Now they will hold the same place as unsecured financial creditors in the proceedings of insolvency. This came as a respite for homebuyers who have invested in residences like Jaypee Inftratech, Unitech and Amrapali and have been facing the brunt of being the last ones considered for compensation.

Two senior officials informed about the latest development mentioned that this proposal among many others was planned by a committee commissioned to review the Insolvency and Bankruptcy Code (IBC) and under consideration by the government.

After IDBI Bank and Bank of Baroda, both reported about Jaypee Inftratech and Amrapali as they failed to pay back the money, thousands were left in jeopardy on how to deal with the situation. In light of this and to protect the interest of every stakeholder involved with the company when it files for bankruptcy, such a step is being proposed. Apart from this, the ministry of corporate affairs has asked the bankruptcy court to take charge of realtor Unitech.

In order to identify the factors that are “impacting the efficiency of the corporate insolvency resolution and liquidation framework”, a 14-member insolvency law committee was formed to address the issue and make recommendations.

Injeti Srinivas, Corporate affairs secretary, in an interview said that “the recommendations along with draft amendments to the IBC are likely to be given at the end of the month. If the measure considering homebuyers is adopted, the biggest advantage for them will be the right to participate in the insolvency resolution process and be part of the committee of creditors. It would also give them voting rights on resolution plans.”

One of the senior officials said, “A proposal is actively considered to give home buyers a status of unsecured financial creditors — a step which is intended to take care of the interests of all the stakeholders.”

The IBC norms functioning currently have a waterfall mechanism — with eight levels for the distribution of proceeds by order from the sale of liquidated assets among stakeholders. First in the line of compensations are the professionals, administrators, financial creditors, workmen’s dues, unpaid dues of employees, then unsecured financial creditors, followed by government dues and equity shareholders. In all of this, the homebuyers always came at the end of the line.

With the latest proposed amendment homebuyers will be able to leap to a higher position and also have a say in the plan for resolution.

The Supreme Court was appealed by 31,000 homebuyers of Jaypee Infratech and 41,000 of Amrapali’s Silicon City project that they should be treated on a par with financial creditors. Following this appeal and to safeguard the interest of homebuyers the Supreme Court has ordered the promoters of Jaypee Infratech, Manoj Gaur and family, to deposit s 2,000 crores with the court instead of selling the assets.

On the contrary the Supreme Court has asked the developer of Amrapali to submit a plan to deliver apartments to all homebuyers. While in the Unitech matter close to 19,000 homebuyers have been left hanging with the corporate affairs ministry has moved the National Company Tribunal Law under the Companies Act to take control of the company over accusations of fund diversion. The Supreme Court has stayed this move ensuing an appeal by Unitech.

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