No IBC amendment for real estate sector; regulations to act as sandbox
New Delhi: The government has dropped its plan to amend the bankruptcy law to introduce a special regime for real estate developers, letting creditors instead decide whether individual projects of a distressed developer should be sold piecemeal or as a whole. Last month, the bankruptcy rule maker granted creditors such flexibility, and the government wants to first see how this works, two persons informed about the development said.
The bankruptcy law treats a distressed company as a single entity for debt resolution; however, given the complexities of the real estate sector, the corporate affairs ministry had considered treating individual real estate projects separately. The ministry's original idea was to modify provisions of the Insolvency and Bankruptcy Code (IBC) for this purpose, and to specify such a carveout for the sector in law.
However, this proposal will not make it to the IBC Amendment Bill, said one of the two persons quoted above. “IBBI’s regulations enabling creditors to propose project-wise insolvency resolution will act as a regulatory sandbox.
It has to be seen how it works under the existing ecosystem before further modifications to the Code," said the first person quoted above, who spoke on condition of anonymity. Depending on the experience, the regulations can be modified, the person said.
The thinking in the government now is that amending the Code to give a special regime for one sector, for which Parliament’s nod is needed, will complicate the Code and spark similar demands from other sectors. The move to give some flexibility for project-wise debt resolution through regulations signals the government's resolve to let creditors decide the direction of debt resolution, rather than writing it
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