PROJECT

REGULATORY             2018-05-18

THE INSOLVENCY AND BANKRUPTCY CODE 2018

The IBC provides a balanced approach between resolution & recovery and compulsory liquidation. The whole process or proceedings get resolved within a stipulated time frame

1. Recognition of Allottee of Real Estate Project as Financial Creditors :

Any amount raised from an allottee under a Real Estate Project Home shall be deemed to be an amount having commercial effect of a borrowing.   This gives the Allottee of Real estate project the status of financial creditors.   It will enable them to invoke Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against errant developers.

The allottees to move an application with Adjudicating Authority with name of an IP for appointment as their representative at CoC.  

2. Certificate from Banks/FI as proof of non receipt of  payment made optional:

The requirement of certificate to be appended with application filed under Section 9 of the Code is made optional.    Any other proof confirming that there is no payment of an unpaid operational debt suffice

3. Approval of shareholders/partners:

 Approval of share holders by way of special resolution or resolution passed by atleast three forth of the total number of partners of the corporate debtor is required for filing an application for CIRP under Section 10 by corporate applicant.   

4. Special Dispensation For MSMEs:

Promoter of MSMEs allowed to bid for their own companies, provided he is not a willful defaulter and does not attract other disqualifications not related to default.  

5. Withdrawal of IBC Proceedings post admission:

Adjudicating Authority may allow withdrawal of application admitted on an application made by the applicant with the approval Committee of Creditor holding 90% voting share.  

6. No role for financial creditor who is a related party:  

It is categorically provided that financial creditor who is related party shall not be allowed to play any role in the CoC

7. Voting Threshold:

With a view to encouraging resolution as opposed to liquidation, the voting threshold has been brought down to 66% from 75% for all major decisions such as approval of resolution plan, extension of CIRP period, etc. Decisions for which no voting percentage is provided under the Code shall be taken by simple majority vote of 51%.

8. Resolution Applicants:

The existing Section 29(A) of the IBC, 2016 has been fine-tuned to exempt pure play financial entities from being disqualified on account of NPA. 

Resolution applicants holding an NPA by virtue of acquiring it in the past under the IBC, 2016, have been provided with a three-year cooling-off period, from the date of such acquisition. In other words, such NPA shall not disqualify the resolution application during the currency of the three-year grace period.

Taking into account the wide range of disqualifications contained in Section 29(A) of the Code, the Resolution Applicant is required to submit an affidavit certifying its eligibility to bid. This places the primary onus on the resolution applicant to certify its eligibility.

9. Grace period for fulfilling obligations:

Minimum one-year grace period granted for the successful resolution applicant to fulfill various statutory obligations and obtaining approvals under different laws. This would go a long way in enabling the new management to successfully implement the resolution plan.

10. Law of limitation made applicable:

Provisions of Limitation Act, 1963 are made applicable to proceedings or appeals before the Adjudicating Authority.  

11. Non applicability of  moratorium period to Guarantor and Surety:

After the amendment moratorium is not available to the assets of the guarantors and surety.

12. Timelines For CIRP Specified:

Clarity on mandatory timelines, processes for CIPR to be laid down. Rules on non-entertainment of late bids, no negotiation with late bidders to be laid down. Rule on well laid down procedure for maximising value of assets to be specified.