Cross border insolvency

Cross border insolvency

Subject: Economy

Context:

The ministry of Corporate Affairs (MCA) has published a draft framework for cross border insolvency proceedings based on the UNCITRAL (United Nations Commission on International Trade Law) model under the Insolvency and Bankruptcy Code.

Concept:

• Cross border insolvency proceedings are relevant for the resolution of distressed companies with assets and liabilities across multiple jurisdictions. A framework for cross border insolvency Proceedings allows for the location of such a company’s foreign assets, the identification of creditors and their claims and establishing payment
• towards claims as well as a process for coordination between court in different countries.
• While foreign creditors can make claims against a domestic company, the IBC currently doesnot allow for automatic recognition of any insolvency proceedings in other countries. In the case of Jet Airways, when one of the company’s
• aircraft was grounded in Amsterdam over non-payment of dues to a European cargo firm, the National Company Law Tribunal had declined to “take on record” any orders of a foreign court regarding domestic insolvency proceedings in the absence of enabling provision in the IBC.
• The National Company Law Appellate Tribunal, however, permitted the recognition of Dutch proceedings as “non-main insolvency proceedings” recognising India as the Centre Of Main Interests(COMI) for the company.
• However, current provisions under the IBC do not allow Indian courts to address the issue of foreign assets of a company being subjected to parallel insolvency proceedings in other jurisdictions.
• The UNCITRAL model is the most widely accepted legal framework to deal with cross- border insolvency
• It has been adopted by 49 countries, including the UK, the US, South Africa, South Korea and Singapore.

UNCITRAL:

• The United Nations Commission on International Trade Law is the core legal body of the United Nations system in the field of international trade law.
• UNCITRAL was established in 1966 with a recognition that international trade cooperation among States is an important factor in the promotion of friendly relations and, consequently, in the maintenance of peace and security.
• Through its several model laws, conventions, legislative guides and robust debates in working groups, UNCITRAL has provided a valuable platform for countries to compare, examine, debate and adopt principles of international commercial and trade law appropriate to their circumstances.
• Since its inception, India is only one of eight countries that has been a member of UNCITRAL.

UNCITRAL Model Law- 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 & provision of remedies.
• Cooperation between domestic and foreign courts & domestic and foreign insolvency practitioners.
• 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).