The government is rethinking a plan to usher in the cross-border insolvency regime, as some sections feel that enforcement may be challenging in the current circumstances, multiple official sources told FE.
“It’s likely that the government may not introduce the cross-border insolvency norms anytime soon,” a senior official told FE on the condition of anonymity. One reason for the rethink is learnt to be the realisation that since many important countries with which India has strong investment relations haven’t adopted the relevant convention. So, reciprocity, which is crucial for implementing the regime, may be found wanting.
The government has drawn up a plan to introduce cross-border and group insolvency as part of the series of amendments to the Insolvency and Bankruptcy Code (IBC) to be pushed after the elections.
Currently, the IBC has no instrument to restructure firms involving cross-border jurisdictions. Cross-border insolvency law aims to ensure Indian lenders have access to overseas assets of stressed companies, and can get support of foreign jurisdictions to bring defaulters’ assets there under the ambit of insolvency resolution.
Many say the adoption of UNCITRAL Model Law on Cross-Border Insolvency (MLCBI) may not be sufficient to deal with cross-border cases, as only 60 countries have adopted the convention so far, which excludes several European countries, China, Russia, Hong Kong and Indonesia. Hence, in cases where the corporate debtor’s (CD) assets are situated in these countries, cross-border norms may not prove to be effective.
The UNCITRAL Model Law’s “principle of recognition” facilitates acknowledging court proceedings in foreign jurisdictions, helps in minimising delays and promotes efficient dispute resolution. It enables parallel and concurrent proceedings. And the Model Law’s “principle of access” grants foreign creditors and debtors the right to participate in court proceedings held in another jurisdiction.
Official sources say the government will have to necessarily sign bilateral pacts with several countries in order to enforce/recognise insolvency proceedings of a different jurisdiction in India or vice versa, in addition to adopting the MLCBI.
The ministry of corporate affairs in 2020 had constituted the Cross Border Insolvency Rules/Regulations Committee (CBIRC), which was asked to propose the regulatory framework that would enable the implementation of a cross-border insolvency mechanism, based on the lines of UNCITRAL models.
In December 2021, the committee had submitted its report, which suggested that MLCBI be implemented in India on a “legislative reciprocity” basis which means that insolvency proceedings of only those foreign countries would be recognised or enforced in India which have reciprocated the corresponding rights of recognition or enforcement in their jurisdiction vide enforcement of same or similar legislation.
“This would thus require the adoption of bilateral agreements or amendments to the existing pacts which invariably warrant intense discussions and dialogues as multiple layers of discussion are involved,” says Anjali Jain, partner, Areness.
“Thus, the instant enforcement of cross-border insolvency norms might be hurdled as the effective conclusion of a bilateral pact is generally shadowed by uncertainties,” she says.
Kumar Saurabh Singh, partner at Khaitan & Co, says that the government may enter into bilateral arrangements with other countries also to aid in coordination of the cross-border insolvency process, reduce costs and maximise value of assets of the corporate debtors.
“In this regard, the government may enter into bilateral treaties/arrangements with each other to strengthen the ecosystems in their respective countries to put in place the required infrastructure to enable the various stakeholders in an insolvency resolution ecosystem to better cooperate with each other,” he says.
That said, a 2018 report by the MCA had recommended a certain set of safeguards to be included in the cross-border protocol to protect the substantive and procedural rights of stakeholders of the domestic insolvency resolution process. The MLCBI recognises safeguards which ensure that there may be no derogation of court authority.
The report recommends that if the assets of a borrower undergoing insolvency proceedings in a foreign jurisdiction is to be entrusted to a foreign representative, then such assets would only be entrusted upon the National Company Law Tribunal (NCLT) being satisfied that the interests of domestic creditors is sufficiently protected.
“These safeguards in place will ensure that cross-border insolvency proceedings are implemented effectively,” said an official.
Earlier this month, FE had reported that the government is also aiming to redefine and strengthen the out-of-court processes for bankruptcy resolution before introducing cross-border insolvency norms. “The idea is to make the processes more efficient and robust, so that the need for involvement of courts could be reduced and pace of resolution is quickened,” an official had told FE.
