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.

About Insolvency and Bankruptcy Code (IBC)

• The IBC, 2016 is the bankruptcy law of India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
• It is a one-stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
• The code aims to protect the interests of small investors and make the process of doing business less cumbersome.

Cross border insolvency proceedings

• 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.
• This helps establishing payment towards claims as well as a process for coordination between courts in different countries.

Current status of foreign stakeholders and courts in other jurisdictions under IBC

• While foreign creditors can make claims against a domestic company, the IBC currently does not allow for automatic recognition of any insolvency proceedings in other countries.
• 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

• The UNCITRAL model is the most widely accepted legal framework to deal with cross-border insolvency issues.
• It has been adopted by 49 countries, including the UK, the US, South Africa, South Korea and Singapore.
• The law allows automatic recognition of foreign proceedings and rulings given by courts in cases where the foreign jurisdiction is adjudged.
• Recognition of foreign proceedings and reliefs is left to the discretion of domestic courts when foreign proceedings are non-main proceedings.
• 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).
      • The COMI for a company is determined based on where the company conducts its business on a regular basis and the location of its registered office.
  • It is designed to assist States in reforming and modernizing their laws on arbitral procedure so as to take into account the particular features and needs of international commercial arbitration.

Issues with Indian framework

• The framework for cross-border insolvency adopted in India may require reciprocity from any country which seeks to have its insolvency proceedings recognized by Indian courts.
• This would allow Indian proceedings for foreign corporate debtors to be recognized in foreign jurisdictions.

Back2Basics: UNCITRAL

• It is an affiliate organization to the UN made up of business and legal professionals.
• This group develops model standards and procedures for dealing with issues affecting international business.
• Perhaps most notably, UNCITRAL promulgated the Convention on International Sale of Goods (CISG).
• The CISG is a model law commonly used as the governing provisions in contracts between parties from different nations.

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