Parliament has passed Insolvency and Bankruptcy Code (Amendment) Bill, 2018 to bring relief to home buyers and Micro, Small and Medium Enterprises (MSMEs). The Bill replaces ordinance promulgated in this regard and amends Insolvency and Bankruptcy Code, 2016.
Key Features of Bill
The Bill recognises home buyers as financial creditors in the real estate project and giving them due representation in the Committee of Creditors (CoC), thus providing significant relief to home buyers. It will allow home buyers to invoke Section 7 of IBC, 2016 against errant developers.
This will allow financial creditors to file application seeking insolvency resolution process. As financial creditors, home buyers will be able to participate in decision-making process when developers are declared bankrupt under IBC, 2016. The bill also proposes to reduce minimum voting threshold for Committee of Creditors (CoC) to 66%, from 75% for key decisions.
Besides, the Bill also benefits Micro, Small and Medium Enterprises (MSME) sector from IBC. It allows promoter of MSME to bid for their own enterprise undergoing the insolvency resolution process as long as they are not wilful defaulters.
The IBC, 2016 provides time-bound process to resolution of insolvency among companies and individuals. Insolvency is situation where individual or company is unable to repay their outstanding debt. Government in November 2017 had set up Insolvency Law Committee to review IBC and identify issues in its implementation and suggest changes. The Committee had made several recommendations such as exempting MSMEs from certain provisions of IBC, treating allottees under real estate project as financial creditors, reducing voting thresholds of committee of creditors (CoC), among others. Subsequently, President had promulgated Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 in June 2018 after approval of Central Government.