Insolvency Law Committee submits its 2nd Report on Cross Border Insolvency

Recommends adoption of the UNCITRAL Model Law of Cross Border Insolvency, 1997

The Insolvency Law Committee (ILC) constituted by the Ministry of Corporate Affairs to recommend amendments to Insolvency and Bankruptcy Code of India, 2016,  has submitted its 2^nd Report to the Government, which deals with cross border insolvency.  The  Report  was  handed  over today to Shri Arun Jaitley, Minister of Finance and Corporate Affairs by  Corporate Affairs Secretary, Shri Injeti Srinivas.

The ILC has recommended the adoption of  the UNCITRAL Model Law of Cross Border Insolvency, 1997, as it provides for  a comprehensive framework to deal with cross  border insolvency issues.  The Committee has also recommended a few carve outs to ensure that there is no inconsistency between the domestic insolvency framework and the proposed Cross Border Insolvency Framework.

The UNCITRAL Model Law has been adopted in as many as 44 countries and, therefore, forms part of international best practices in dealing with cross border insolvency issues.  The advantages of the model law are the precedence given to domestic proceedings and protection of public interest. The other advantages include greater confidence generation among foreign investors, adequate flexibility for seamless integration with the domestic Insolvency Law and a robust mechanism for international cooperation.

The model law deals with four major  principles of cross-border insolvency, namely  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 & provision of remedies; cooperation between domestic and foreign courts & domestic and foreign insolvency practioners; and coordination between two or more concurrent insolvency proceedings in different countries.  The main proceeding is determined by the concept of centre of main interest (“COMI”).

The necessity of having Cross Border Insolvency Framework  under the Insolvency and Bankruptcy Code arises from the fact that many Indian companies have a global footprint and many foreign companies have presence in multiple  countries including India.  Although the proposed Framework for Cross Border Insolvency will enable us to deal with Indian companies having foreign assets and vice versa, it still does not provide for  a framework for dealing with enterprise groups, which is still work in progress with UNCITRAL and other international bodies.  The inclusion of the Cross Border Insolvency Chapter in the Insolvency and Bankruptcy Code of India, 2016, will be a major step forward and will bring Indian Insolvency Law  on a par with that of matured jurisdictions.

Cross-border insolvency frameworks enable recognition of foreign proceedings and participation by foreign representatives in domestic insolvency. Adoption of a statutory cross-border insolvency framework by incorporating the UNCITRAL Model Law with specified carve-outs is recommended to preserve domestic primacy and public interest while enabling recognition of foreign proceedings, participation by foreign creditors and practitioners, and enhanced international cooperation; the regime emphasises direct access, recognition and remedies, cooperation between courts and practitioners, coordination of concurrent proceedings, and identification of the main proceeding via the centre of main interest (COMI).