On Wednesday, President Ram Nath Kovind gave his stamp of approval to an ordinance issued by the Central government amending the bankruptcy code, putting home buyers on par with banks as financial creditors.
In other words, akin to banks, homebuyers will also receive a share of the money earned through the sale of a bankrupt real estate firm’s assets, reported IANS.
“The Ordinance provides significant relief to home buyers by recognising their status as financial creditors. This would give them due representation in the Committee of Creditors (CoC) and make them an integral part of the decision-making process. It will also enable home buyers to invoke Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against errant developers,” said a press release published by the Minister of Corporate Affairs.
Section 7 provides the procedure for the initiation of insolvency resolution process by a financial creditor. This gives significant power to home buyers who have often been left high and dry by errant real estate companies that take their money, go bankrupt, and receive nothing in return because they weren’t recognised as creditors under the unamended bankruptcy code.
Now investments by home buyers look a lot more secure, although there is a caveat. “Whether they are secured or unsecured financial creditors, will depend on how the homebuyers fight their case,” said Injeti Srinivas, Secretary, Ministry of Corporate Affairs, to the Hindustan Times.
“But rules about the mechanism through which representatives of homebuyers will secure a position in the CoC are being worked out,” Srinivas added.
An ordinance to amend Insolvency and Bankruptcy Code promulgated today; this will help in faster turnaround of MSME sector during insolvency, protect interests of home buyers and streamline various provisions to improve recovery from NPAs https://t.co/QmP4HWHfK0 pic.twitter.com/h9oo1h1yJE
— Piyush Goyal (@PiyushGoyal) June 6, 2018
Another significant aspect of Wednesday’s ordinance is the amendment to Section 29(A) of the bankruptcy code which earlier stated that promoters who have defaulted on their loans could not bid for their enterprise undergoing bankruptcy proceedings.
The ordinance has relaxed this provision for small businesses, and they can now bid for and retrieve their own companies undergoing bankruptcy proceedings provided they aren’t wilful defaulters.
“The immediate benefit it provides is that it does not disqualify the promoter to bid for his enterprise undergoing Corporate Insolvency Resolution Process (CIRP) provided he is not a willful defaulter and does not attract other disqualifications not related to default. It also empowers the Central Government to allow further exemptions or modifications with respect to the MSME Sector, if required, in public interest,” the Centre’s release added.
(Edited by Gayatri Mishra)
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