Status as on- 23/02/2020
The IBBI has disclosed that work is in progress to amend the IBC to make it compliant with cross border insolvency processes. A robust Cross border insolvency framework if successful would ensure predictability and certainty of the insolvency process such a move would make India an attractive investment destination by promoting coordination amongst states, ensuring relief and assistance to foreign creditors in inter-country insolvency cases.
WHAT IS CROSS BORDER INSOLVENCY PROCEEDING?
When an MNC or Corporation owning assets and properties in multiple jurisdictions (i.e. Countries) is unable to repay its debts such proceedings enable foreign financial creditors to recover money lent to Indian Companies while also protecting the interests of domestic Indian creditors. In October 2018 the Insolvency Law Committee has mooted amendments in the IBC to be based alongside the United Nations Commission on International Trade Law’s model insolvency norms with the aim to create an “internationally aligned and comprehensive insolvency framework for corporate debtors under the Code, which is most essential in a globalized environment.”
INTERNATIONAL MODEL ON INSOLVENCY LAW
The UNCITRAL Model Law on Cross Border Insolvency, 1997, stipulates rules that empower domestic courts to have jurisdiction to open insolvency proceedings in foreign countries who are also members of UNCITRAL. However, the most striking feature is that it recognizes the importance of ensuring equitable treatment to similarly placed creditors.
Thus creditors with similar legal rights are treated fairly, receiving a distribution on their claim in accordance with their relative ranking and interests irrespective of the nationality of the Corporate Debtor or where in world their assets are located. This key objective recognizes that all creditors do not need to be treated identically, but in a manner that reflects the different bargains, they have struck with the debtor.
A CASE OF JET AIRWAYS
The most relevant example for the pressing need of India to implement a proper cross border insolvency framework is of Jet Airways against whom insolvency proceedings were initiated in Dutch Courts which subsequently led to the court declaring Jet Airways bankrupt. A lack of proper legal framework led to Foreign Creditors sizing an aircraft of Jet Airways in Amsterdam thus jeopardizing the interests of domestic Indian Financial Creditors.
PRESENT LAW DEALING WITH CROSS BORDER INSOLVENCY
Under Part V of the IBC, Cross Border Insolvency is presented in the form of a bilateral agreement entered between the Central Government and the Government of a foreign Nation-State.
Section 234 thus empowers the Government to enter into Bilateral Agreements to resolve insolvency proceedings with foreign countries. Whilst Section 235 permits the Adjudicating Authority a letter of request to countries with whom a bilateral agreement has been entered. However, both sections are yet to be notified.
In absence of a uniform framework for cross border insolvency, the present provisions are at risk of creating a cumbersome situation of several unique insolvency frameworks being applicable on a case by case basis as per multiple bilateral agreements.
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