NEW DELHI: Home buyers can now seek relief as financial creditors from bankrupt builders, and resolution professionals will have to determine within a stipulated time whether a corporate debtor undergoing bankruptcy resolution had indulged in a fraudulent transaction.
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The Insolvency and Bankruptcy Board of India (IBBI) has notified revised regulations for insolvency law, incorporating the amendments made through an ordinance last month. The amended law has placed home buyers on par with other creditors and allowed withdrawal of insolvency proceedings under certain conditions.
The regulations provide for a model timeline of the corporate insolvency resolution process so that the 180-day timeline is met for resolving a bankruptcy case under the Insolvency and Bankruptcy Code. A resolution professional should be appointed by the 40th day of admission of the corporate insolvency resolution process. It provides for the interim resolution professional to take over this role if the appointment does not happen by that time.
The clear timeline will ensure that procedural issues do not delay the resolution process.
The resolution professional is required to ascertain if the corporate debtor has been subjected to certain transactions such as preferential transactions, undervalued transactions, extortionate transactions or fraudulent transactions by the 75th day.
A firm determination of the same is required by the 115thday of insolvency commencement date.
This is significant considering allegations of fraud in a number of cases undergoing resolution.
The amended norms provide procedural clarity for the various classes of creditors, including home buyers. “Wherever the corporate debtor has classes of creditors having at least 10 creditors in the class, interim resolution professional shall offer a choice of three insolvency professionals... to act as the authorised representative of creditors in each class.
“... The insolvency professional, who is the choice of the highest number of creditors in the class, shall be appointed as the authorised representative of the creditors of the respective class,” a statement released by the government said.
In cases where there is no agreed interest rate, the voting share of such a class of creditor would be in proportion to the financial debt that includes an annual 8% interest rate.
It provides clarity on calculation of the total financial debt of homebuyers of stalled projects.
The new rules provide for withdrawal of insolvency proceedings if approved by the committee of creditors (CoC) with a 90% voting share. The application for withdrawal has to be made before the issue of invitation for expression of interest, along with a bank guarantee towards estimated cost incurred for certain purposes under the process. A CoC meeting can be called by giving not less than five days’ notice in writing to every participant.