Showing posts with label Insolvency Resolution Process. Show all posts
Showing posts with label Insolvency Resolution Process. Show all posts

Friday, May 25, 2018

With IBC norms changed, Jaypee homebuyers to rerun case


Hopeful of getting a fair treatment after reclassification as financial creditors, the homebuyers of Jaypee Infratech are planning to approach the court to rerun the ongoing resolution process under the amended Insolvency and Bankruptcy Code (IBC).

The government on Wednesday approved changes in the IBC through an ordinance that gives homebuyers the status of financial creditors at par with banks in the insolvency resolution process. "Once the ordinance is promulgated upon getting President's assent, we will approach the National Company Law Tribunal (NCLT) to rerun the resolution process,".

Jaypee has failed to deliver 25,000 flats to the buyers citing lack of funds. The realtor had raised around Rs 12,000 crore from the buyers for its Wishtown housing project in Noida in the National Capital Region.

Rerunning the case would mean starting the process from the stage of invitation of fresh bids and reconstitution of the Committee of Creditors (CoC). So, even if the changes are prospective, it would not matter in this case, Rai said.

Currently, the resolution process is heavily tilted in favour of banks, whereas homebuyers have little say in it, homebuyers and lawyers feel.

Even as their contribution in most real estate projects is more than that of banks, homebuyers are unable to participate equitably, leave aside preferential treatment, rue lawyers and homebuyers.

Jaypee raised about Rs 12,000 crore from homebuyers in instalments and booking amount which was much higher than Rs 8,276 crore raised by it from the banks. However, homebuyers were offered only 30% as compared to banks which were offered 70% of the bid price of around Rs 10,000 crore earlier quoted by a company during the resolution process.

With better representation on the CoC, homebuyers hope to get this order reversed.

"This is likely to get reversed if the new bids are invited. Given that Rs 3,500 crore is required to complete the remaining 60% construction in the project, the homebuyers are likely to get 4-5% of the principal amount as delay compensation," Rai said.

However, even in this scenario, the homebuyers are looking at 20% haircut on an average instead of 42% expected earlier, experts point out.

Classification as financial creditors will allow homebuyers to have a greater say in the resolution process and protect their rights. Homebuyers will have voting rights and can now participate in the CoC meetings. Till now, they had no voting rights and were sitting outside the CoC.

A total of 66% members of the CoC can decide on a resolution process. This will allow homebuyers to insist the bidders to include delay compensation in the resolution plan.

However, "placing thousands of homebuyers on CoC could be tricky. Some of them may not come to vote, while others may have a different opinion,", one of Jaypee homebuyers.

Homebuyers will be treated at par with banks during the insolvency resolution process. However, if the resolution process fails and the company is forced into liquidation, homebuyers will be placed after the banks as realtor has given land assets as collateral.

http://www.dnaindia.com/business/report-with-ibc-norms-changed-jaypee-homebuyers-to-rerun-case-2618540

Sunday, May 13, 2018

NCLT suggests IBBI review insolvency code regulations


The National Company Law Tribunal (NCLT) has suggested to IBBI that there is a need to review the insolvency code regulations to ensure that they are not "misused or misinterpreted". 

It also said that the resolution professional (RP) should be competent and independent so that there are no interruptions in the process which lead to delays in disposal of insolvency cases. 

Besides, it has said the claims of operational creditors are neglected or ignored as the Committee of Creditors (CoC) has supremacy of the financial creditors (banks and financial institutions) who have control over the entire process. 


Nobody is taking care of operational creditors' claim, said the NCLT Kolkata Bench in its order passed last week on the Binani Cement.

"It is time to recognise their voice also in the committee of creditors," it said, suggesting changes to the Insolvency and Bankruptcy Board of India (IBBI). 

In the 60-page order, the tribunal has also raised concern about the functioning of RPs, saying it has been receiving several pleas from stakeholders on issues such as transparency, arbitrariness and delays in the process. 


"The adjudicating authority (NCLT) is facing too much interruption from various stakeholders. Till date we have never come across any frivolous application. All come with a genuine grievance. All challenge the independence of the resolution professional and lack of transparency, competency and arbitrariness in the matter of resolution process," said NCLT. 

While citing Binani Cement case, the tribunal said: "In the case in hand, 12 applicants came forward ...for not following the process mandated under the code by the resolution process. The arbitrary way of dealing with the cases has always led to interruptions and also caused delay in disposal of cases." 

According to NCLT, while there is a need for reforming the regulations of the insolvency code to ensure that it is not misused or misinterpreted, there can not be any question that independence and competency of RPs are essential for preserving the objective of the code in a transparent manner leaving no room for interruption from any corner. 

The NCLT Bench of Member-Judicial Madan B Gosavi and Jinan K R said: "Hopefully, we believe that IBBI take note of all the above observations and do the needful review of the code and regulation." 

Referring to the Binani Cement case, NCLT said here the RP is a CA by profession and he failed to take business decisions to run the corporate debtor on his own. He managed to run the company by appointing about 22 representatives, who are from his own partnership. 


A resolution professional, like the RP in a case of this nature, needs some basic training for handling the resolution independently, efficiently and tackle the multiple questions from different stakeholders, said NCLT order, passed on May 2. 

"Whenever a question arises, even if answerable by the RP independently or with advice from his advisors, he comes to adjudicating authority... He shifts that burden too to the adjudicating authority," the bench said. 

https://economictimes.indiatimes.com/news/economy/policy/nclt-suggests-ibbi-review-insolvency-code-regulations/articleshow/64052545.cms