In the interest of buyers

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When faced with an insolvency proceeding, here's what you can do to ensure that your rights are safeguarded when the builder fails to complete the project.

What is insolvency?

Insolvency is not a recovery proceeding, but a process of resolution of debts of the corporate debtor who is unable to discharge his liabilities.

Since secured creditors have seniority in waterfall over other creditors (including home-buyers), any compensation in priority over secured creditors is very unlikely.

In case of insolvency:

Insolvency proceedings should ensure that buyers get their homes and the flow of money remains nondisruptive by bringing in a co-developer or government agency to complete the project when a builder fails to do so.

Escrow account can help buyers: An escrow account can be a useful tool when a builder files for bankruptcy as this money is not the property of the company and can be used to complete stalled projects.

How it works

It involves a new/ongoing project where it requires 70 percent amount in an escrow account; That escrow account may be a separate account, started and maintained by the company, but is not the property of the company; Money in that account will become the property of the company in proportion to the completion of the project; If it is not the property of the company, it cannot be taken away in the insolvency proceedings for distribution of secured creditors.

How it can be resolved:

The best possible resolution could be the completion of the project through change of developer (if the existing developer is insolvent) so that homebuyers get the unit, which was promised to them.