Why in the News?

It is essential to incorporate the significance of insolvency laws into global trade discussions through both multilateral and bilateral channels.

What are the key challenges in managing cross-border insolvency cases?

Jurisdictional Conflicts: Difficulty in determining which country’s courts have jurisdiction over insolvency proceedings, especially when a company has assets and creditors in multiple countries.
Recognition of Foreign Proceedings: Some countries may not recognize foreign insolvency proceedings, leading to inconsistent outcomes.
Coordination Issues: Lack of cooperation between courts and administrators in different countries can complicate the resolution of cross-border insolvency cases.
Legal and Cultural Differences: Variations in legal systems, insolvency laws, and business practices across countries make harmonization challenging.
Enforcement of Judgments: Difficulty in enforcing insolvency-related judgments or agreements across different jurisdictions.

Limited Provisions: The IBC, 2016, has provisions for handling cross-border insolvency on a case-by-case basis through bilateral agreements, but it lacks a comprehensive framework.
Bilateral Arrangements: India’s approach currently relies on ad hoc bilateral agreements to manage cross-border insolvency cases, making the process fragmented and less efficient.
No Adoption of the UNCITRAL Model Law: Despite several recommendations by committees, India has yet to adopt the UNCITRAL Model Law on Cross-Border Insolvency, which would provide a more standardized and efficient resolution mechanism.

UNCITRAL Model Law on Cross-Border Insolvency (1997): A widely recognized framework designed to facilitate cooperation between courts and administrators in different countries.
- It operates on four pillars: access, recognition, cooperation, and coordination. It has been adopted by over 60 countries.
EU Insolvency Regulation: Provides a framework for handling insolvency within EU member states, facilitating the recognition of insolvency proceedings across borders within the EU.
NAFTA/US-Mexico-Canada Agreement (USMCA): Includes provisions for resolving insolvencies with cross-border implications between member countries.
Bilateral and Multilateral Trade Agreements: Some international agreements include limited provisions on cross-border insolvency, though most focus on general trade and dispute resolution, leaving a gap in addressing insolvency directly.

Adopt the UNCITRAL Model Law: India should expedite the adoption of the UNCITRAL Model Law on Cross-Border Insolvency to establish a standardized framework, improving cooperation, recognition, and legal certainty in international insolvency cases.
Integrate Cross-Border Insolvency in Trade Agreements: India should incorporate cross-border insolvency provisions in Free Trade Agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPAs) to ensure seamless insolvency resolution in international trade.