Business

Home-buyers cheer revised bankruptcy code

Updated : May 24, 2018 08:18 PM IST

Out of 379 votes , almost 77% of respondents said the new IBC amendment will help home buyers while the remaining 23% said it will not help them.

Financial creditors like banks get to recover their dues first when a company or its assets are auctioned.

Home-buyers cheer revised bankruptcy code

Home buyers across the nation lauded the ordinance to amend the Insolvency and Bankruptcy Code (IBC) 2016 by Cabinet on Wednesday.

The proposal treats home buyers as financial creditors when a company that has defaulted on its loans is auctioned, a move that will help quickly recover investments in bankrupt real-estate companies.

Financial creditors like banks get to recover their dues first when a company or its assets are auctioned.

In a twitter poll conducted to gauge the mood of home buyers, CNBC-TV18 asked:

Cabinet approves changes to IBC to give homebuyers status of financial creditors. Will this help stuck buyers? What do you think?

— manisha natarajan (@manishanataraj) May 23, 2018

Out of 379 votes , almost 77% of respondents said the new IBC amendment will help home buyers while the remaining 23% said it will not help them.

The amendment comes months after a new Section 29A was added into the bankruptcy code in November, introducing four layers of ineligibility for potential bidders.

It is based on recommendations of a 14-member government appointed committee that had last month suggested a slew of measures, including addressing woes of home buyers and making recoveries easier for lenders.

One twitter user said that IBC will be the beginning of another story.

For those who seeking refund, yes, as for home seekers, it will be beginning of another story!!

— Capt Mrinal (@CaptMrinalC) May 23, 2018

Another user said there must be holistic solution to this issue.

When banks use project land as collateral they issue a release to permit the buyer to mortgage the flat. Rights of that portion rest with the flat buyer. Implementation of this will throttle funds for the sector. RERA provisions add further confusion. Holistic solution needed.

— Rohit Gera (@GeraRohit) May 24, 2018

Another user cast doubts over getting money back, once spent.

If I'm not wrong as a financial creditor they can be a part of the resolution process and probably try and stop the company from being liquidated...However will they get back the money or get the house is a big question

— Amitabh Kumar (@Amitabh_25) May 23, 2018

The whole process will create more ambiguity and confusion among all the stakeholder, said another twitter user.

It won't. As this will create more ambiguity & confusion among all the stakeholder. No way can few handful of buyers will be able to do anything in COC also.
This will keep the pot boiling. We r consumers not investors. Freezing the money taken from us should have been d clause.

— Amit Gupta (@amitgupta301279) May 24, 2018

The proposed revision of IBC by the government could be credit negative for the lenders of developers, since the recovery proceeds will now have another layer of distribution, which was not factored in at the time of origination of loan to the developer.

At the same time, the move will benefit housing financing companies’ asset quality.

Anuj Puri, Chairman, ANAROCK Property Consultants, said that builders will become more cautious while taking funds from financial institutions and banks, as they would now also be accountable to home buyers as well as the financial institutions if their business goes belly-up.

With realty firms, such as Jaypee Infratech, facing insolvency proceedings, the ordinance, once approved by President Ramnath Kovind and promulgated, will provide relief for home buyers facing hardships due to incomplete real estate projects.

Under the code, financial creditor implies any person to whom a financial debt is owed. The financial debt can include money borrowed for interest.

Have you signed up for Primo, our daily newsletter?

It has all the stories and data on the market, business, economy and tech that you need to know.

To keep watching CNBC-TV18, India's No. 1 English Business News Channel, call your Cable or DTH Operator and subscribe now for just Rs. 4 per month. You can also subscribe to CNBC-TV18 Prime HD for Re 1/- per month.Find out more