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Insolvency Law Committee bats for financial creditor status to homebuyers: Report

This is significant as the status of financial creditors to homebuyers - if given - will make them a part of the committee that passes an insolvency resolution plan.

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Insolvency Law Committee bats for financial creditor status to homebuyers: Report

In a move that could change the relationship between real estate developers and homebuyers, the Insolvency Law Committee has called for treating realty customers as financial creditors and the money raised from such people for housing projects as financial debt. This is significant as the status of financial creditors to homebuyers - if given - will make them a part of the committee that passes an insolvency resolution plan.

The Economic Times today reported that the committee has made a recommendation to give the homebuyers the status of financial creditors. Banks are treated as financial creditors under the new code. The Committee feels that due to the titles banks are in a more favourable position now and that home buyers should also get the same status. "Given the confusion and multiple interpretations...it may be prudent to explicitly clarify that such creditors fall within the definition of financial creditor," the ET quoted the committee as saying.  

The process of insolvency resolution plan or IRP begins after any financial creditor makes an appeal in the adjudication authority under the IBC for commencing the IRP against any corporate defaulter. Once the application is submitted, a resolution professional is appointed to constitute a committee of creditors - financial creditors and operational creditors -  to work on a resolution plan to revive the debt-stressed firm.

The IBC has the provision that the resolution plan must have an approval of at least 75 per cent of the creditors. Currently, there is no provision under which the homebuyers can stall the resolution plan if their interests are not protected. However, if the committee's  new recommendations are accepted, the homebuyers will directly have their say during  the finalisation of such resolution plan.  

Last year in November, the government had constituted the Insolvency Law Committee to take stock of the functioning and implementation of the Insolvency and Bankruptcy Code, identify the issues that may impact the efficiency of the Corporate Insolvency Resolution and the Liquidation Framework prescribed under the Code. The Committee was  asked to make suitable recommendations to address such issues, enhance efficiency of the processes prescribed and the effective implementation of the Code.

 

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