Banking News

IBC ordinance: Now home buyers are on par with banks in the resolution process

The ordinance passed by Government of India on Wednesday (June 06, 2018) to Insolvency and Bankruptcy Code (IBC) treats home buyers in ailing real estate companies on par with banks in the resolution process. The new IBC ordinance tags the buyers of home buyers with financial creditors which empowers even a single home buyer to approach the National Company Law Tribunal to initiate insolvency proceedings against the realtor. The ordinance provides due representation to the home buyers in the Committee of Creditors (CoC) and makes them an integral part of decision-making process.
However, the rules regarding representation of home buyers on Committee of Creditors (CoC), a mechanism to allow participation of security holders and other financial creditors exceeding a certain number of COC meetings is yet to be decided. As per the statements, it is learned that the home buyers will have to prove that they are the secured creditors and they have the same rights as the lenders in case the company goes into liquidation. Hence, it will depend on the agreement entered into by the home buyer with the realtor whether they are the secured creditors. It is given to understand that in many states there are two agreements viz. one for the part of the land and other for the house which allows home buyers to be treated as secured creditors. The Government will soon notify the clarification in this regard.
Ordinance on the participation of MSMEs:
The ban on the participation of promoters of MSME in bidding for resolution process has been lifted. The Financial companies that had picked up shares of ailing companies are also eligible to bid now. The statement of Department of Corporate affairs said that the Ordinance also empowers Central Government to allow further exemptions or modifications related to MSMEs.

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