Bought a house and builder went broke? There’s hope

As of September 2024, only 160 cases of distressed builders stood resolved out of 1,760 admitted, according to IBBI data.
As of September 2024, only 160 cases of distressed builders stood resolved out of 1,760 admitted, according to IBBI data.

Summary

  • Bankruptcy regulator allows administrators of insovent developers to hand over properties even when the debt resolution is pending; also proposes a common administrator for multiple sick companies with the same group

Indian buyers who wait for their homes for years after a developer goes bankrupt have a reason to hope: they can now get their properties even as the case winds through courts.

The Insolvency and Bankruptcy Board of India (IBBI) has amended its regulations, allowing administrators of bankrupt real estate companies to hand over plots, apartments or buildings to owners even while the debt resolution process is still on.

Also read |  NCLT member crunch slows down bankruptcy resolution

Owners, however, must have met the terms of their purchase contract and will need two-thirds of the lenders to the insolvent builder to agree, the IBBI said on Tuesday. “Thus, the distressed homebuyers would not have to wait for long periods in order to get possession of their properties."

The bankruptcy regulator’s decision will bring relief to thousands of homebuyers locked out their properties for years after lenders initiated insolvency action against stressed projects. As of September 2024, only 160 cases of distressed builders stood resolved out of 1,760 admitted, according to IBBI data.

‘Facilitators’ allowed

IBBI also allowed large groups of homebuyers to appoint ‘facilitators’ for attending crucial lender meetings to ensure their effective participation in debt resolution.

Creditor meetings can also have representatives of land agencies such as the New Okhla Industrial Development Authority (Noida) and the Haryana Urban Development Authority (Huda), said the regulator, citing its latest Insolvency Resolution Process for Corporate Persons (Amendment) Regulations, 2025. Participation of land authorities would not only enhance the viability and feasibility of resolution plans but also build confidence among homebuyers and other stakeholders, the IBBI said.

Also read |  Vendors, suppliers may get to try mediation before moving bankruptcy courts

“The proposed regime would now do away with that indefinite waiting period and would now require the resolution professional to handover the plot, despite the ongoing resolution process formalities," said Anjali Jain, partner at Areness Law, a law firm. Allowing the allottees of a large real estate project to appoint a facilitator representative indicates that the legislature “intends inclusive and enhanced participation of all stakeholders", she said.

While the IBBI's decision is expected to provide process clarity in such matters, Anoop Rawat, partner (insolvency and bankruptcy), at law firm Shardul Amarchand Mangaldas & Co., said, “It may however pose problems where the projects and the units are charged to the lenders and, in such cases, such lenders would be forced to forego the charge if 66% in value vote is in favour of the transfer."

Common administrator proposed

Separately, IBBI brought out a discussion paper proposing a common administrator for multiple sick companies with the same group. The move is aimed at smooth revival of bankrupt groups as the law is yet to incorporate a tailored group insolvency framework.

While the government has done groundwork on the group debt resoulution process, the Insolvency and Bankruptcy Code (IBC) is yet to be amended to include that.

Also read |  Why are creditors going after bankruptcy professionals now?

The regulator’s latest rules approach the problem within the existing regulations by enabling coordination between the debt resolution of inter-connected businesses, allowing joint hearings, and co-ordinated timelines. This, the IBBI said, aims to increase efficiency, reduce costs, and improve outcomes.

Rawat said the statutory amendment to bring group insolvency principles has been pending for a long time and the discussion paper attempts to provide an enabling mechanism for coordinated insolvency processes in fit cases.

Public feedback sought

IBBI also sought public feedback on selling a distressed company in parts when efforts are still on to sell it as a going concern. Inviting bids concurrently for both the bankrupt business as a whole and for its specific businesses or assets can save time, prevent value erosion in viable segments and encourage broader investor participation, the regulator said. 

Also read |  Bankruptcy code has helped rescue 109 businesses so far this fiscal year

At present, bids for assets are called only after efforts to sell the business as a going concern fail. Also, according to the insolvency code, liquidation starts after all efforts to keep the company as a going concern fails.

The provision for sale of company as a going concern during the liquidation process has been a matter of great debate, said Rawat. “It is a wise decision to remove this provision from the liquidation regulation since the code itself never envisaged such a possibility."

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