Just about 5% of cases under the Insolvency & Bankruptcy Code (IBC) involve real estate, and the sector has one of the lowest resolution rates but also highest claim realisations, according to a joint analysis by law firm Khaitan & Co and property consultancy Anarock Capital. Since IBC was implemented in 2016, 25,225 cases involving a total of ₹10.5 lakh crore have been disposed of under Sections 7, 9 and 10 of the Code.
The study said the IBC had driven superior value realisation by financial creditors in real estate – with this class of creditors realising 66% of the admitted claims as compared to just 31% of admitted claims realised in other sectors.
“Given the complexities involved in the real estate sector, it is very challenging for the resolution professional to run the business of insolvent real estate companies and ensure completion of the projects,” said Sudip Mullick, partner, Khaitan & Co. As per data, an additional 23,608 cases involving ₹7.2 lakh crore have been settled before admission. Resolution plans have been approved in 565 cases, involving ₹3 lakh crore.
“The Insolvency and Bankruptcy Code has been very effective in helping lenders secure their dues in a much quicker timespan than witnessed earlier. Moreover, IBC has also delivered superior value realisation to real estate stakeholders compared to other industries,” said Anarock Capital managing director Shobhit Agarwal.
According to experts, one of the most important milestones in the evolution of the IBC was an amendment that recognises homebuyers as financial creditors. This meant homebuyers will effectively be considered at par with banks and other institutional creditors when it comes to recovering dues from real estate developers who have gone bankrupt.
Source: Economic Times