builder files for insolvency

What to do if your builder files for insolvency?

If you keep a track of the Noida real estate market then you must be aware that some builders have filed for insolvency. ATS group has gone into an insolvency state and similar is the case with Logix group and Supertech group. In fact, the UP govt is going to form a panel to probe why Delhi NCR builders are going bankrupt.

On the other hand, as a buyer or a homeowner in these projects, you must be feeling scared and terrified about your invested money and time. This kind of information can hamper a lot of things, the under-construction project can go standstill, there might be a delay in the registry process, the possession time can get extended, and in fact, buyers may be at the losing end in such a scenario, especially if the builder owes massive debts to creditors such as banks and other financial institutions.

What are the provisions under these Insolvency and Bankruptcy Code?

If a builder is declared insolvent, IBC provides two options – resolution or liquidation. The resolution process will involve an analysis of the builder’s financial position to see if the business can be rescued or revived. If the first option is not viable, the builder’s assets will be liquidated and the proceeds will be used to clear the creditors’ claims

What to do when your builder files for insolvency?

Once a builder files for insolvency, the National Company Law Tribunal (NCLT) will appoint an insolvency resolution professional who will attempt to resolve the builder’s financial situation. If a revival is not possible, he will verify the claims of creditors, and oversee the liquidation and settlement process.

Buyers may use Form F issued by the Insolvency and Bankruptcy Board of India (IBBI) to raise their claims, which can be for the refund of the amount they had invested in the builder’s project, the damages suffered by them due to the non-execution of their purchase agreement, or for receiving possession of the property they had paid for. However, primary creditors such as banks are likely to get the first right to receive payments if the builder’s assets are liquidated.

What to do if the builder is declared insolvent?

As per industry experts, the following can be the scenarios:

  • Some of the funds raised by selling off the builder’s assets may be used to complete the project and hand over the units to the buyers
  • Buyers may be asked to pay the balance pending for their units, which will be used to complete the project
  • Buyers may form a resident welfare association, acquire the under-construction project, and oversee its completion through personal contributions
  • Creditors may take over and attempt to revive the project in order to earn value appreciation
  • Buyers can claim a monetary refund but it is advisable for those whose projects are in the early stage. Meanwhile, buyers of projects which were close to completion when the builder filed for insolvency are better off filing a claim for possession.
Some tips for the buyers:
  • Do not stop paying EMIs for your home loans even after your builder becomes insolvent
  • File your claims within the timelines announced by the insolvency resolution professional
  • It would be wiser for homebuyers to form a group and work together with the authorities

About the author

Hi I am Avi, a seasoned real estate professional and a blogger. I express my personal opinion about Noida real estate here on my Blog. You are welcome to share your suggestions with me :)

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