Bankruptcy reforms may spell relief for distressed real estate projects

The proposed revamp of the Insolvency and Bankruptcy Code (IBC) will increase the chances of a revival for real estate projects undergoing insolvency proceedings by discouraging litigation from dissenting creditors, providing greater flexibility to dispose assets, and offering more freedom to strike quick deals with potential investors, several experts told Mint.

- Madhurima Nandy & Gireesh Chandra Prasad

The overhauled IBC will also give property developers greater access to capital and lower funding costs, and help reduce project delays with a creditor-led, out-of-court insolvency route, they said.

The IBC Amendment Bill proposes an ingenious way to encourage creditors to choose a restructuring plan that benefits homebuyers over liquidation. It does so by introducing a new benchmark to decide the payout for dissenting creditors. Banks that don't back a restructuring plan will receive the lesser of the following two—their liquidation entitlement, or what they would have received if, hypothetically, the resolution plan value was disbursed based on the "waterfall mechanism" for distributing proceeds under the IBC.