Revamping the Insolvency Process: New Rules for Bankrupt Real Estate Projects
The Insolvency and Bankruptcy Board of India (IBBI) has introduced significant amendments to the Insolvency and Bankruptcy Code, 2016, aimed at enhancing the resolution process, especially for real estate projects. These changes include better handover pr
Insolvency ProcessReal EstateBankruptcyCommittee Of CreditorsFacilitatorsReal Estate NewsFeb 05, 2025
These changes, published in the Official Gazette, aim to enhance the efficiency and transparency of the insolvency resolution process, especially in cases involving real estate projects and large-scale creditor classes.
One of the most significant changes is the insertion of Regulation 4E, which mandates that, after securing approval from the Committee of Creditors (CoC) with at least 66% of the votes, the Resolution Professional (RP) must hand over the possession of real estate assets, including plots, apartments, or buildings.
This must be done if the allottee has fulfilled their part of the agreement.
The RP is also required to facilitate the registration process for the allottee, making the resolution of real estate-related insolvencies more seamless.
This change aims to provide better clarity and assurance to creditors involved in real estate projects, ensuring that agreements are honored swiftly during the insolvency process.
For cases where the number of creditors in a class exceeds 1,000, the new amendments introduce a provision for the appointment of facilitators.
Regulation 16C outlines that the CoC may appoint a facilitator to assist in communication between the authorized representative and the creditors.
This appointment can only be made if at least 100 creditors from the class request it after the first CoC meeting.
The number of facilitators cannot exceed five, and their fees will be capped at 20% of the fees charged by the authorized representative.
This move is designed to improve communication and ensure that the interests of large creditor classes are represented more efficiently.
Under Regulation 16D, the roles and responsibilities of facilitators have been clearly defined.
Facilitators will help maintain communication between the sub-classes of creditors and the authorized representative.
They will also attend CoC meetings as observers and provide necessary clarifications to creditors regarding the insolvency resolution process.
This will ensure a smoother flow of information and enhance the overall transparency of the process.
A critical change affecting real estate projects is the new provision in Regulation 18, which allows the Resolution Professional to invite the competent authority, as defined under the Real Estate (Regulation and Development) Act, 2016 (RERA), to attend CoC meetings.
This step is intended to improve the decision-making process related to real estate developments by bringing in expertise from the relevant regulatory bodies.
However, the competent authority will not have voting rights in these meetings.
Regulation 30C introduces a new requirement for Resolution Professionals (RPs) in real estate insolvency cases.
RPs are now tasked with preparing a detailed report on the status of development rights and permissions related to the corporate debtor’s real estate projects.
This report must be submitted to the CoC for review.
This provision aims to ensure that the CoC has a clear understanding of the project’s regulatory status, which will help them make informed decisions during the resolution process.
Overall, the amendments to the Insolvency and Bankruptcy Code reflect a significant shift towards enhancing communication, transparency, and accountability in the insolvency resolution process.
By introducing facilitators for large creditor groups, clarifying the roles of professionals, and ensuring smoother handling of real estate projects, these regulations aim to create a more structured and efficient framework for corporate insolvencies.
Frequently Asked Questions
What is the new Regulation 4E in the Insolvency and Bankruptcy Code?
Regulation 4E mandates that the Resolution Professional (RP) must hand over the possession of real estate assets, including plots, apartments, or buildings, to the allottee if they have fulfilled their part of the agreement. The RP must also facilitate the registration process for the allottee.
What is the role of facilitators in the insolvency resolution process?
Facilitators help maintain communication between sub-classes of creditors and the authorized representative. They attend CoC meetings as observers and provide necessary clarifications to creditors regarding the insolvency resolution process.
How are large creditor classes managed under the new amendments?
For cases where the number of creditors in a class exceeds 1,000, the Committee of Creditors (CoC) may appoint facilitators to assist in communication. This can only be done if at least 100 creditors request it after the first CoC meeting.
What is the new requirement for Resolution Professionals in real estate insolvency cases?
Resolution Professionals are now required to prepare a detailed report on the status of development rights and permissions related to the corporate debtor’s real estate projects. This report must be submitted to the CoC for review.
Can the competent authority defined under RERA attend CoC meetings?
Yes, the Resolution Professional can invite the competent authority, as defined under the Real Estate (Regulation and Development) Act, 2016 (RERA), to attend CoC meetings to improve decision-making related to real estate developments. However, the competent authority will not have voting rights.
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