GLOBAL WINGS FOR INSOLVENCY LAW

The Insolvency and Bankruptcy Code, 2016 (IBC Code) is still in a nascent stage in India which is frequently getting amended and fine tuned with learning and experiences. The law, regulation, procedures and practices are evolving continuously and Insolvency Resolution Professionals (IRPs) are also adding in numbers as well as settling down in this new area of professional practice. While the opportunities are galore, one needs to be diligent, prudent and cautious in handling corporate insolvency resolution processes.

Government of India had on 16 November, 2017 appointed ‘Insolvency Law Committee’ headed by Secretary of Ministry of Corporate Affairs (MCA) to suggest / recommend on adoption of UNCITRAL model law on Cross Border Insolvency, 1997.

This Committee submitted its first report in March, 2018 recommending certain recent amendments carried out in the IBC. It has submitted its second report on 16 October, 2018 on proposed law to be adopted for cross border insolvency.

Accordingly, the UNCITRAL Model Law has emerged as the most widely accepted legal framework, globally to deal with cross-border insolvency issues and legislation based on the Model Law has been adopted in 44 countries in a total of 46 jurisdictions. The UNCITRAL Model Law ensures full recognition of a country’s domestic insolvency law by giving precedence to domestic proceedings and allowing denial of relief under the Model Law if such relief is against the public policy of the enacting country.

It has the following underlying advantages: 

(i) Increasing foreign investment

(ii) Flexibility amongst different insolvency laws 

(iii) Protection of domestic interest / public interest 

(iv) Preference to domestic proceedings 

(v) Mechanism for cooperation and coordination between courts, professionals etc.

It has recommended application of cross-border insolvency provisions to corporate debtors to start with and based on the experience gained, it could be extended to individual insolvency in due course of time. Similar approach has been followed in Singapore and some other countries.

The proposed law on CBI is  likely to be framed as under:

Cross border insolvency framework will be applicable to all corporate debtors where :

1. assistance is sought in India by a foreign court or a foreign representative in connection with a foreign proceeding, or
2. assistance is sought in a foreign country in connection with a proceeding under this Code, or
3. a foreign proceeding and a proceeding under this Code in respect of the same corporate debtor are taking place concurrently, or
4. creditors in a foreign country have an interest in requesting the commencement of, or participation in, a proceeding under this Code.

It is expected that incorporation of cross-border insolvency provisions as recommended by the Committee, will create an internationally aligned and comprehensive insolvency framework for corporate debtors under the Code, which is most essential in a globalised environment.

The model to be adopted (UNCITRAL Model) will provide a mechanism to liquidate on recover from foreign assets of Indian corporate debtors which are undergoing insolvency or vice-versa also.

The Model law deals with four major principles of cross border insolvency- direct access to foreign insolvency professionals and foreign creditors to participate in or commence domestic insolvency proceedings against a defaulting debtor, recognition of foreign proceedings and provision of remedies, cooperation between domestic and foreign courts and domestic and foreign insolvency practitioners and coordination between two or more concurrent insolvency proceedings in different countries.

In India, cross border insolvency is yet to be implemented. In 44 jurisdictions, cross border insolvency law already exists and in such cases, complaints can be filed directly. Once the law is in place which may take few more months, insolvency cases will become a global phenomena and an aid to corporate world and opportunity to insolvency professionals.