The Insolvency & Bankruptcy Board of India has amended rules to mandate that any resolution plan for a company has to explicitly state how it has dealt with the interest of all stakeholders.
This move is aimed at protecting the interests of home buyers of real estate players such as Jaypee Infratech and some of the entities of Amrapali Group .
The revised rules were notified by the regulator for insolvency and bankruptcy proceedings last week and will ensure that banks and other creditors do not get away by protecting their own interests at the expense of others who are impacted by the action.
Banks are part of the creditors’ committee, the key decision-making body after a company is admitted for bankruptcy.
“The change in the rules has plugged a gap as flat buyers are of the view that there is nothing to protect their interests,” said a lawyer specialising in bankruptcy cases.
The new law, enacted last year, aims to speed up the resolution process in a period of 180 days, with a possible extension of 90 days, by appointing insolvency resolution professionals who will take charge of the company’s operations and prepare plan. Under the law, if the creditors’ committee agrees, it will call for applications from other interested companies to take over the company after finalising an information memorandum.
Insolvency experts said the law provided for the plan being binding on the corporate debtor (the company) and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.
But there was no obligation in the rules to give any treatment to the stakeholders other than the financial creditors (the banks) and operational creditors, which includes vendors and others who may have dues.
Based on the comfort provided by the revised rules, the National Company Law Tribunal will decide on the final resolution plan, based on bids that are received. “The tribunal will not clear the resolution plan without giving notice to all stakeholders and the flat buyers can raise objections at that point of time,” said a lawyer.
The government and IBBI have been trying to come up with solutions to ensure that the interests of home buyers hit by a spate of insolvency proceedings against builders are fully protected.