IBBI Plans Special Bankruptcy Lane for Real Estate Projects

The Insolvency and Bankruptcy Board of India (IBBI) is considering a framework to allow project-specific insolvency resolution in the real estate sector. The move aims to protect homebuyers in performing projects from being affected by defaults in a developer’s other stressed projects.

Current Scenario:

• Insolvency resolution is company-level, covering all projects under a developer, stressed or not.
• This can impact homebuyers of non-distressed projects, delaying possession and causing financial uncertainty.
• Real estate accounts for over a third of the 8,500 insolvency cases admitted under the Bankruptcy Code.

Proposed Framework:

• Enable insolvency resolution at the level of individual projects, instead of the entire company.
• Developers would maintain separate books of accounts for each project, allowing precise allocation of liabilities and restructuring efforts.
• The approach ensures that viable projects continue smoothly, safeguarding homebuyers’ interests.