Homebuyers to gain from IBBI’s new rules on assets attached by ED, say experts

Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Board of India’s (IBBI) latest framework, which expedites the resolution of bankrupt companies whose assets are frozen by the Enforcement Directorate (ED), will be a game-changer for homebuyers and creditors, experts have said.

Assets of bankrupt firms and their promoters attached by the ED under the anti-money laundering law can now be restored to the affected parties such as banks or home buyers, the agency said in a circular issued on November 4.

The new framework will help speed up the resolution of bankrupt real-estate projects stuck under the Prevention of Money Laundering Act (PMLA), experts said.

In certain cases of insolvency, the assets of the corporate debtor are attached by the ED under PMLA. "The restitution (return or unfreeze) of such attached assets can significantly enhance the value of the corporate debtor, thereby leading to higher realization," it said.

“Accordingly, it is hereby advised that in cases where assets of the corporate debtor are attached by the ED under the provisions under PMLA, the insolvency professional may file an application before the Special Court under sections 8(7) or 8(8) of the PMLA for restitution of such assets,” the circular said.

The insolvency professional will now be able to include the assets, frozen by ED, in the IBC process.

In several real estate insolvencies, projects are stalled because of ED action, Vijay K Singh, senior partner at S&A Law Offices, said.

“The attached assets are needed for completion of the projects. By enabling resolution professionals to seek restitution of the attached assets, this circular can help speed up the completion of the projects and improve recovery for homebuyers,” he said.

In real estate transactions, where ED attachments are routine, the move will bring clarity and stuck projects may find a viable and clearer resolution with proper transparency, Anjali Jain, Partner, Areness, said.

To facilitate the expeditious disposal of such applications, the IBBI, in consultation with ED, has put in place a standard undertaking to be furnished by the insolvency professional along with the application for restitution of assets.

The standard undertaking format provides “end-use restrictions” on the restituted assets, quarterly reporting by the resolution professional to the ED, and disclosure to potential resolution applicants, experts said.

“These should give enough comfort to the ED and help in expeditious release of such assets, benefitting all bona fide stakeholders such as homebuyers,” said Anoop Rawat, Partner, Shardul Amarchand Mangaldas & Co.

“However, the practical challenges with respect to the undertaking for the purposes of restitution would be tested by time,” Jain said.