CIRP Amendments Regulation Impact on CoC, Homebuyers, & MSME

CIRP Amendments Regulations Impact on CoC, Homebuyers, & MSME

The recent amendments to the Insolvency Resolution Process for Corporate Persons Regulations by the Insolvency and Bankruptcy Board of India have introduced key changes that will impact the Committee of Creditors, homebuyers, and Micro, small, and medium enterprises. These amendments, effective from 3rd February 2025, aim to streamline insolvency proceedings, particularly for real estate projects, and ensure better transparency and protection for stakeholders. Here’s a summary of the key features and their implications:

Key Features of the CIRP Amendments Regulations

1. Homebuyer Relief: Resolution professionals can now hand over possession of property to homebuyers during the resolution process once they receive approval from at least 66% of the total votes of the CoC. This is a major step forward in addressing the concerns of homebuyers in ongoing real estate projects.
2. Enhanced Creditor Representation: Facilitators will now be appointed to ensure better representation of creditors, especially when the number of creditors is large. This will make the process more inclusive and balanced.
3. Increased Transparency: The participation of land authorities in CoC meetings will bring much-needed transparency to the process, especially in real estate projects, where land issues often complicate resolution efforts.
4. Informed Decision-Making: Resolution professionals must now submit a report to adjudicating authorities on the real estate development rights within 60 days of the commencement of CIRP. This will facilitate better decision-making based on clear insights into the project’s status.
5. Relaxed Eligibility for Homebuyer Associations: CoCs have been granted the flexibility to relax eligibility and financial requirements for homebuyer associations submitting resolution plans, which will encourage more participation from such associations.
6. Monitoring Committee: A monitoring committee may be formed to oversee the implementation of the resolution plan, providing quarterly progress reports. This ensures continued supervision and adherence to the approved resolution plans.
7. Boosting MSME Participation: Corporate debtors will now be required to disclose their MSME registration status, encouraging greater participation from MSMEs in the resolution process.
8. Regulatory Refinements: The amendments aim to enhance efficiency, transparency, and stakeholder confidence in the insolvency resolution process, strengthening the overall framework for resolving corporate insolvencies.

Specific Clauses from IBBI Notification:

1. Appointment of Facilitators (Clause 16C):

   • Facilitators can be appointed when the number of creditors in a class exceeds 1,000. The appointment will only occur if 100 or more creditors request it after the first CoC meeting.
   • The total number of facilitators in the CoC or any sub-class cannot exceed five, and their fees will be 20% of the fees for authorized representatives, which will form part of the insolvency resolution process costs.
   • Facilitators may be replaced upon the recommendation of the majority of creditors in their sub-class.

2. Roles and Responsibilities of the Facilitator (Clause 16D):

   • Communication Facilitator: The facilitator will help bridge communication between the authorized representative and creditors of their sub-class.
   • Attendance in CoC Meetings: Facilitators will attend CoC meetings as observers to ensure clear communication between creditors in the sub-class.
   • Information and Clarifications: Facilitators will provide relevant information to creditors regarding the insolvency process based on the authorized representative’s guidance.
   • Other Tasks: Facilitators will carry out additional tasks assigned by the committee to improve overall representation and communication.

3. Mandatory Monitoring Committee for Resolution Plan Implementation

   • Monitoring Committee Ensures better accountability in resolution execution and Aligns with Supreme Court recommendations on monitoring committees
   • New Regulations 38(4) & 38(5): CoC must consider forming a Monitoring Committee to oversee implementation of resolution plans. Committee Composition:
     • RP, creditor representatives, and successful resolution applicant.
     • Quarterly progress reports must be submitted to the adjudicating authority.

4. Relaxations for Homebuyer Groups to Submit Resolution Plans

   CoC can relax eligibility criteria for homebuyer associations (representing at least 10% of creditors in a class or 100 creditors, whichever is lower) to participate in the resolution process. Which effect that Increases homebuyer participation in CIRP. And Prevents external bidders from acquiring real estate projects at unfairly low valuations. Key relaxations:

   • • Eased eligibility norms.
     • Lower performance security requirements.
     • Refundable deposit relaxations.

5. Report on Development Rights and Permissions

   RPs must submit a detailed report on real estate project permissions to the CoC and adjudicating authority within 60 days of insolvency commencement. Which fullfil the following objective

   • Gives early-stage clarity on project viability.
   • Helps CoC make informed decisions on resolution plans.

6. Participation of Land Development Authorities in CoC Meetings

• • IBBI New Regulation 18(4) allows regulatory bodies like NOIDA, HUDA, etc., to attend CoC meetings and provide inputs on real estate projects. Due to the following reason, this matters:
    • Previously, land authorities (operational creditors) were excluded from CoC discussions, leading to regulatory delays.
    • Their inclusion enhances clarity on land-related approvals and compliance issues.
    • However, they do not get voting rights in CoC decisions.

7. Handover of Possession During Resolution Process

• • As per New IBBI New Regulation 4E, permit RP to hand over possession of plots, apartments, or buildings to homebuyers during CIRP, subject to 66% CoC approval. This is matters due to the following reason:?
    • Ensures that homebuyers who have fulfilled obligations can get possession without waiting for CIRP completion.
    • Aligns with past court rulings that flats/houses under construction are not corporate debtor assets and should be transferred to rightful owners.
    • Protects homebuyer interests and keeps the real estate project running as a going concern.

8. Appointment of Facilitators for Large Creditor Classes

New IBBI Regulation 16D allows CoC to appoint up to five facilitators to assist sub-classes within creditor groups (if the class has more than 1,000 creditors). Allows CoC to appoint up to five facilitators for the purpose of enhancing communication in large CIRPs where creditor interests vary. And it reduces the burden on authorized representatives and ensures better representation. The following conditions for appointment:

• • • At least 100 creditors must request a facilitator.
    • Facilitators act as liaisons between creditors and authorized representatives.

Potential Challenges in CIRP Amendments Regulations

• Operational complexities in handover of possession: Will financial creditors dominate CoC decisions? If lenders prioritize debt recovery over homebuyer interests, handovers might not be uniformly approved.
• Multiple facilitators may create confusion: Their roles need clear definition to avoid overlapping responsibilities with authorized representatives.
• Real estate project insolvencies remain complex: Land approvals, funding gaps, and regulatory bottlenecks could still delay project completion, despite these reforms.

Summary of Impact:

The CIRP Amendments Regulations 2025 mark a progressive step towards making real estate insolvency proceedings more homebuyer-friendly while improving governance and transparency in CIRP. But effective implementation will be crucial.

• The facilitator appointments in both the CoC and Monitoring Committee will improve communication among stakeholders, particularly for large groups of creditors. This will help resolve disputes quickly and effectively.
• Fee structure for facilitators has been clearly outlined to prevent conflicts over costs.
• The inclusion of land authorities in CoC meetings will be a significant improvement, bringing more clarity and transparency to the process.
• Key stakeholders—including CoCs, RPs, homebuyers, and regulators—must collaborate to ensure that these reforms deliver practical benefits and streamline real estate resolutions under IBC.
• These amendments reflect a clear intent to enhance the efficiency, transparency, and effectiveness of the insolvency resolution process in India, particularly in sectors like real estate and MSMEs. They are expected to streamline processes, address longstanding concerns of stakeholders (especially homebuyers and MSMEs), and create a more robust framework for resolving corporate insolvencies.