The Insolvency and Bankruptcy Board of India (IBBI) has requested public feedback on a number of proposed changes to India’s bankruptcy code, including a separate framework for dealing with insolvent real estate companies and the ability for lenders to hire companies, LLPs, and partnerships to act as administrators of bankrupt businesses.
IBBI is also attempting to make the current liquidation system more efficient. As the government ramps its attempts to improve the track record of rescuing failed enterprises, the action signals significant changes to the bankruptcy resolution system.
The IBBI is also attempting to make the current liquidation system more efficient. As the government ramps up attempts to improve the track record of rescuing failed enterprises, the action signals major changes to the bankruptcy resolution system.
In the case of real estate firms going bankrupt, IBBI has asked for input on important public-interest issues such as how to treat home buyers who have taken possession of the house and those who have not, in the event that corporate rescue efforts fail and the real estate firm is forced to liquidate.
This is a significant topic since it concerns the rights of different house buyers based on their purchase status. IBBI also wants to know if the position of the house purchasers’ authorised representative in the panel of creditors deciding on the bankrupt company’s destiny needs to be reconsidered.
Also, whether particular real estate projects of a bankrupt developer require separate approved representatives of home buyers to be on the creditors’ committee must be decided.
IBBI has proposed in a separate discussion paper that incorporated entities such as firms, limited liability partnerships (LLPs), companies, trusts, and any other entity established under a statute be allowed to act as administrators or insolvency resolution professionals, overseeing the rescue and operations of a bankrupt company.
Currently, only natural individuals are permitted to function as such administrators, despite the fact that the IBC authorises incorporated organisations to do so. The regulatory effort is focused on amending IBBI regulations to make this feasible.
On June 11th, Mint announced that incorporated companies would soon be permitted to operate bankrupt firms. According to the IBBI, while many nations allow people to serve as insolvency experts, Switzerland, Austria, the Czech Republic, Hungary, and Spain allow entities to do so.
“Entities entering the bankruptcy profession are expected to provide a variety of benefits to the insolvency landscape.” On the one hand, it will institutionalise the insolvency profession; on the other, it will provide the benefits of a strengthened governance framework,” according to IBBI.
The regulator also stated that this step will address an individual’s limits in executing a wide range of demanding jobs. “Because of their resourcefulness, corporate governance, and risk management procedures, the firms’ institutional design would assist in better conducting the activities,” IBBI added.
The deadline for submitting proposals is July 5th.
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