The long wait is finally over. More than a month after classifying ‘home buyers’ as ‘financial creditors’, the insolvency regulator IBBI has now spelt out the mechanism, albeit indirectly, through which these home buyers’ voice would be heard in the ‘committee of creditors’.
The Insolvency and Bankruptcy Board of India (IBBI) has made changes to the Corporate Insolvency Resolution Process (CIRP) regulations to provide this new mechanism.
With instances of several hundreds of home buyers getting aggrieved over non delivery of flats by developers within stipulated time coming to the fore, a mechanism was needed for their representation in CoC under the corporate insolvency process. This problem now stands resolved.
The new mechanism — without direct reference to home buyers — provides that for every class of creditors having at least ten creditors in the class, the interim resolution professional will have to offer a choice of three insolvency professionals in the public announcement to act as the authorised representative of creditors in each class.
How does it work?
Each home buyer (creditor in a class) may indicate his or her choice of an insolvency professional, from amongst the three choices provided by the interim resolution professional to act as its authorised representative.
The insolvency professional, who has been chosen by the highest number of home buyers (creditors on the class), would be appointed as the authorised representative of the home buyers.
It may be recalled that the Centre had consciously kept away from treating home buyers as either ‘secured’ or ‘unsecured’ financial creditor. Being treated as ‘secured’ or ‘unsecured’ is important in the “waterfall” mechanism which sets out the order of priority in which, proceeds from the sale of liquidation assets are to be distributed under the Insolvency and Bankruptcy Code (IBC).
Experts’ take
Punit Dutt Tyagi, Executive Partner, Lakshmikumaran & Sridharan, a law firm, said that the June Amendment, in the IBC granted Home Buyers in Real Estate projects the status of a Financial Creditor. This (latest IBBI July 3 move) would directly entitle the Home Buyers a place in the Committee of Creditors and voting rights.
Aseem Chawla, Managing Partner, ASC Legal, a law firm, said the IBC addresses the situation of home buyers by envisioning a situation which deals with claims of a class of creditors, which can nominate an insolvency professional to represent them as their representative before the committee of creditors.
Pankaj Mahajan, Head-Restructuring & Insolvency, Mazars Advisory LLP, said that hitherto ignored class of creditors ie home buyers have got due representation mechanism vide the notified regulations. “Clear regulations have been notified for their inclusion in the process through a resolution professional who shall be selected by majority of the creditors in this class,” he said.