BAC Rules on Liquidation, Real Estate Segment May Change

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The Insolvency and Bankruptcy Board of India (IBBI) has sought public comment for a series of amendments to India’s bankruptcy code, including a separate framework for dealing with insolvent property companies and allowing corporations, LLPs and partnerships to be hired by lenders to act as administrators of bankrupt companies.

IBBI is also working to streamline the current liquidation framework. The decision signals sweeping changes in the bankruptcy resolution framework as the government steps up its efforts to improve the rescue track record of bankrupt businesses.

In the case of the bankruptcy of real estate companies, IBBI has asked for suggestions on important aspects of public interest, such as the treatment of home buyers who have taken possession of the house and those who have not, in case the company’s rescue efforts fail, and the real estate company ends up going into liquidation. This is an important question as it relates to the rights of different homebuyers depending on their purchase status.

IBBI is also seeking comments on whether the role of the homebuyers’ authorized representative in the panel of creditors deciding the future of the bankrupt business needs to be rethought. Also, consider whether a bankrupt developer’s individual real estate projects require separate authorized representatives from homebuyers to serve on the creditors’ committee.

In a separate discussion paper, IBBI has proposed that incorporated entities such as corporations, limited liability companies (LLPs), corporations, trusts and any other entity established under any statute may be permitted to function as administrators or insolvency resolution professionals, overseeing the rescue of the bankrupt business and the management of its operations. Currently, the procedures only allow natural persons to act as directors, although the IBC allows incorporated entities to perform this role. The regulatory effort is to change IBBI regulations to make this practically possible. Mint announced on June 11 that incorporated entities would soon be allowed to run failed businesses. The IBBI said that although individuals act as insolvency professionals in many countries, Switzerland, Austria, the Czech Republic, Hungary and Spain allow entities to play this role.

“The entry of entities into the insolvency profession is envisioned to provide multi-pronged benefits to the insolvency landscape. On the one hand, it will institutionalize the insolvency profession; on the other hand, it will bring the benefits of a stronger governance system,” IBBI said. The regulator also explained that the move would address an individual’s limitations in performing a myriad of complex tasks. contribute to better conduct of processes due to their ingenuity, corporate governance and risk management mechanisms,” IBBI said. The deadline for giving suggestions is July 5th.

In a third discussion paper, the regulator also proposed procedural changes that will help complete the liquidation process within a specified time frame.

The IBBI said in a separate press release on Wednesday that it had amended regulations relating to corporate insolvency resolution. This allows operational creditors such as vendors to submit certain GST return forms and electronic bills of lading as proof of transaction with the defaulting debtor business to establish debt and default. This should help in the speedy admission of the bankruptcy case to court.

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