NEW DELHI: The insolvency regulator -- Insolvency and Bankruptcy Board of India (IBBI) – has proposed that resolution professional (RP) overseeing the insolvency process of a real estate project must include details of all homebuyers in the Information Memorandum (IM), irrespective of whether allottees have filed claims or not. This is intended to protect all genuine claimants, particularly those who may have failed to file a formal claim with the Resolution Professional (RP) within the stipulated timeframe.
The proposal is part of a new discussion paper that seeks significant amendments to the corporate insolvency resolution process (CIRP) to enhance safeguards and transparency for homebuyers whose projects enter bankruptcy. The proposals aim to address practical difficulties and legal gaps that often leave individual allottees—the term for homebuyers—vulnerable during the insolvency of real estate developers.
As per the proposal, the Information Memorandum (IM) must include the names, units allotted, and amounts due for all allottees as reflected in the corporate debtor's (developer's) own books of account, irrespective of whether they have formally submitted a claim. The resolution plan subsequently prepared by prospective buyers must provide for the treatment of these allottees.
The discussion paper claims that the change is intended to prevent post-resolution issues, uncertainty, and litigation when non-filing homebuyers approach the successful resolution applicant seeking inclusion.
An information memorandum is a detailed document that includes all information about a company undergoing an insolvency process. The memorandum must have information on assets, liabilities, financial statements, etc of the corporate debtor.
The IBBI has previously made other key proposals aimed at expediting the resolution process for real estate projects and protecting the rights of existing homebuyers.
For example, it has proposed that properties where the allottee is already in possession should be excluded from the corporate debtor's liquidation estate. The Resolution Professional (RP) may be permitted, with the Committee of Creditors (CoC) approval, to hand over possession of units to allottees on an "as is where is" basis. This option allows homebuyers to take possession of incomplete units and use their balance funds to finish the construction, thus avoiding unnecessary delays.
For better outcomes of the insolvency process of a real estate company, the insolvency regulator has allowed CoC to facilitate the participation of associations of allottees (homebuyers) as resolution applicants, and proposed the inclusion of land authorities in CoC meetings as invitees (without voting rights) to ensure clarity on regulatory compliance and improve the feasibility of resolution plans.