June 07, 2018
The President yesterday gave his assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.
The legal development comes as a huge relief to home buyers as the same brings home buyers at par with the secured or financial creditors.
Previously Section 6 of the Code stated that when a corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process…
Thus, under the Code, an aggrieved home buyer to claim his funds could not file an application for corporate insolvency process against a bankrupt real estate developer.
The proposed Ordinance by placing the home buyers under the umbrella of secured creditors entrusts them with the right to claim their money back and initiate the process of insolvency under the Code.
Key Highlights of the Ordinance:
- The Ordinance amends Section 5 to provide that any amount raised from an allottee under a Real Estate Project shall be deemed to be an amount to having the commercial effect of a borrowing.
- The Ordinance amends Section 7 of the Act which provides for Initiation of corporate insolvency resolution process by financial creditors. The amended provision stipulates that in the provision for the words “other financial creditors”, the words “other financial creditors or any other person on behalf of the financial creditor as may be notified by the Central Government” shall be substituted.
- Another major beneficiary under the Ordinance is Micro, Small and Medium Sector Enterprises (MSME. The Ordinance empowers the Government to provide them with a special dispensation under the Code. Under the Ordinance, the promoter is not disqualified from bidding for his enterprise undergoing Corporate Insolvency Resolution Process 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 Ordinance also provides for a mechanism to allow participation of security holders, deposit holders and all other classes of financial creditors that exceed a certain number, in meetings of the Committee of Creditors, through the authorized representation.
- Section 29(A) of the IBC, 2016 has been also amended to exempt pure play financial entities from being disqualified on account of NPA (Non-Performing Assets). Similarly, a resolution application holding an NPA by virtue of acquiring it in the past under the IBC, 2016, has 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.
The ordinance can be accessed here.