CIRP Amendments: Positive Stride Towards Enhancing Framework

The Insolvency and Bankruptcy Board of India (IBBI), vide notifications dated February 12, 2024, and February 15, 2024, amended the IBBI (Liquidation Process) Regulations, 2016,[1] and the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016,[2] respectively, in order to streamline and optimise the insolvency resolution process.

The key amendments brought in, and their potential implications are as follows:

  • Mandatory for separate bank account to be operated for each real estate project

Regulation 4D has been introduced in the 2016 Regulations, requiring the operation of separate bank accounts for each real estate project. This requirement aligns with the standards set forth by RERA, granting the resolution professional financial autonomy in managing the project affairs. By doing so, it delinks the liabilities of each project from others under the corporate debtor, thereby providing independent financial autonomy or management for each project.

  • Resolution professional can invite resolution plan for each real estate project

Under the amendment regulations, the resolution professional is enabled to invite a resolution plan for each real estate project or group of projects of the corporate debtor. For this purpose, the committee’s approval has to be taken beforehand. This is made possible through the addition of a clarification to Regulation 36A(1). The said Regulation provides for the publication of particulars of the invitation for expression of interest from prospective resolution applicants.

The project-wise CIRP ensures that a tailored resolution process is made available for each project or phase of construction that lies in the hands of the corporate debtor. However, it is important to observe that a larger committee of creditors decide the outcomes of each project-wise CIRP, defeating the decentralised approach as adopted under the latest amendments.

  • Valuation methodology to be explained to committee members

To enhance transparency and minimise disputes regarding valuation, the amendment regulations now include a proviso in Regulation 35(1)(a), requiring the resolution professional to organise a meeting where the registered valuers will elucidate the methodology used for valuation to the members of the committee of creditors before finalising the estimates. 

  • Setting up of monitoring committee to oversee implementation of resolution plan

The IBBI, vide Regulation 38(4), has permitted the establishment of a monitoring committee, facilitating the involvement or participation of technical experts in overseeing the completion of real estate projects of the corporate debtor. This amendment will aid in ensuring the quality and standards of the projects, thereby safeguarding the interest of homebuyers.

  • Electronic voting – period of opening of voting window to be determined by committee

Previously, the resolution professional was required to seek votes from members (who did not vote) by electronic voting, which remained open for 24 hours after the circulation of the meeting minutes. By way of amendment to Regulation 25(5)(b), the voting period has been extended to a minimum of 24 hours and a maximum of 7 days from the circulation of minutes, which would enable effective participation of all the members of the committee, fostering inclusive participation and promoting transparency in the decision-making process.

  • Monthly meetings of the committee of creditors

Prior to the amendment, the resolution professional was allowed to convene a meeting of the committee of creditors at his discretion. However, Regulation 18(1) now mandates that such meetings should occur at least once every 30 days, subject to the discretion of the committee of creditors to extend the interval between meetings, but a minimum of one meeting per quarter is mandatory.

  • Exclusion of assets handed over to allottees from liquidation process

Regulation 46A introduced in the IBBI (Liquidation Process) Regulations, 2016, stipulates that completed developments where the corporate debtor has handed over the possession of the units to the homebuyers result in those units being exempted from the liquidation process. This exemption does not extend to ongoing construction projects where possession has not yet been handed over to homebuyers. As a result, homebuyers involved in such ongoing projects remain unprotected by the provisions of this regulation.

Additionally, the draft amendment regulations, released in November 2023, expressly stated that the unit in possession of an allottee as “defined under clause (d) of section 2 of the Real Estate (Regulation and Development) Act, 2016” was to be excluded from the corporate debtor’s liquidation estate. It is unclear whether the omission of this portion from the finalised regulations is deliberate.

Conclusion

The amendments demonstrate IBBI’s commitment to proactively reign in working towards a more efficient and workable CIRP process, in view of the dynamic changes of the fast-growing market. These amendments signify a positive stride towards enhancing the current CIRP framework rendering it more efficient and transparent.

Regulation 46A introduced in the IBBI (Liquidation Process) Regulations, 2016, stipulates that completed developments where the corporate debtor has handed over the possession of the units to the homebuyers result in those units being exempted from the liquidation process. This exemption does not extend to ongoing construction projects where possession has not yet been handed over to homebuyers. As a result, homebuyers involved in such ongoing projects remain unprotected by the provisions of this regulation.

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