Cross Border Insolvency – Key Takeaways
| Indian Observer Post - 24 Oct 2018

Cross Border Insolvency – Key Takeaways

Editor's Note:

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 2nd Report to the Government, which deals with cross border insolvencyThe 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 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. “The advantages of the UNCITRAL 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,” Ministry of Finance, Government of India said in a statement.

Gaurav Gaur, a seasoned Insolvency professional and advocate analyses the report which deals with the proposed Cross Border Insolvency Framework exclusively for the INDIAN OBSERVER POST.

 

By Gaurav Gaur
(Advocate & Insolvency Professional)

New Delhi, Oct 25, 2018: The current cross-border insolvency framework in India is incoherent, patchy and ineffective at best. The provisions of cross-border insolvency as contained in the Insolvency and Bankruptcy Code 2016 and enforcement of foreign judgements under the Civil Procedure Code are devoid of certainty in procedure and prone to delays for all the stakeholders thus in this backdrop the Insolvency Law Committee has minutely analysed the UNCITRAL Model Law and has recommended the adoption of the same subject to necessary modifications. The Insolvency Law Committee 2nd report recommending the adoption of UNCITRAL Model Law of cross-border insolvency shall be a major step forward in creating a robust Insolvency law in India, bringing the current law at par with other developed jurisdictions.

 

The UNCITRAL Model Law has already been adopted in 44 countries and provides the adopting countries a modern, efficient and flexible law to address the issues faced in cross-border insolvencies. The Model Law is essentially a framework for cooperation between countries to address the issues arising out of variation in procedural laws and harmonising as well as promoting a uniform mechanism for cross-border insolvency. The Model Law addresses four elements upon which different jurisdictions need to be in agreement to facilitate the cross-border insolvency proceedings. To be precise the elements are providing access to local courts for representatives of foreign creditors or insolvency professionals, recognition of specific orders and proceedings of foreign courts against defaulting debtors, cooperation and relief to assist the foreign proceedings and last but not the least cooperation between the courts of different jurisdictions where debtors assets are located.

 

The significant recommendations and modifications made by the committee for the adoption of the Model Law are pivoted on the four key elements of the UNCITRAL Model Law, however as the development of insolvency law is still in its nascent stage  in India the Insolvency Law Committee recommended that the draft recommendation be applicable only with respect to Corporate Debtors. With regard to the concept of providing direct access to foreign insolvency professionals and foreign creditors to domestic courts, the Insolvency Law Committee recommended that a conservative approach be adopted in providing access to foreign representatives. It has been suggested that such an access be granted through domestic Insolvency representatives. This in the opinion of the author augur well for the new breed of Insolvency professional’s in India.

As far as recognition of foreign proceedings and provision of remedies by domestic courts is concerned the Insolvency Law Committee recommended that complete disclosure be made by the foreign representatives of the pending foreign and domestic insolvency proceedings against the corporate debtor to ensure the Adjudicating authorities in India have complete information of all the foreign proceedings as well as that of domestic proceedings pending against the Debtor. The place of centre of main interest (COMI) is the place which has the principal obligation for administration of insolvency proceeding against the corporate debtor determination of centre of main interest (COMI) of the corporate debtor is critical for determining the foreign main proceeding against the debtor and is central to the operation of the Model Law as it assigns greater significance to the proceedings at COMI. In the Model Law the presumption is that a corporate debtor’s registered office shall be the COMI of the debtor, unless the contrary is proved, the Insolvency Law Committee has adopted this article of Model Law in determining the COMI of a debtor, however the Insolvency Law Committee also stipulated in the recommendations that for determination of COMI the Adjudicating Authority may adopt a proactive approach and conduct an enquiry with a look back period of up to 3 months while determining the COMI of a corporate debtor.

An important feature of the UNCITRAL Model Law is provisions pertaining to cooperation and communication with foreign courts and representatives. This provision assumes significance as it provides a mechanism on the issue of cooperation with foreign courts and foreign representatives, the Insolvency Law Committee recommended that such an exercise of cooperation should be based on a framework to be notified by the Central Government after due consultations with stakeholders. It further recommended adoption of guidelines for communication and cooperation between courts in cross-border insolvency matters as framed by the Judicial Insolvency Network as the same have also been adopted by the more mature jurisdictions. Additionally the Committee also recommended setting up of an authority to facilitate transmission of notices and communication between Adjudicating authorities and foreign courts to alleviate the constraints of Adjudicating Authorities. Furthermore recommendations were also made for cooperation between insolvency professionals and foreign courts, direct communications with foreign courts and joint hearings in concurrent proceedings.

Amongst a host of other recommendations, the Insolvency Law Committee also recommended that while granting relief in recognition of foreign proceedings a delicate balance needs to be maintained to ensure consistency with the provisions of IBC 2016 and discretionary relief be exercised sparingly and cautiously keeping in mind the interests of the domestic creditors.

The recommendations which lay down a nuanced approach to adoption of UNCITRAL model law on cross border law on insolvency shall truly shrink geographical borders and enable the creditors to pursue and recover debts in foreign courts and jurisdictions and vice versa. The Government of India with enactment of IBC 2016 has already shown its intent in resolving bad debts. It is hoped that Government shall enact and incorporate the recommendations of Insolvency Law Committee with alacrity and make IBC 2016 a globally effective and efficacious remedy.

(The writer Gaurav Gaur is an Advocate & Insolvency Professional based in Delhi-NCR. He can be contacted on ip.gauravgaur@gmail.com)

 Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of Indian Observer Post and Indian Observer Post does not assume any responsibility or liability for the same. 

 


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