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 insolvency. The Report was handed over today to Shri Arun Jaitley, Minister of Finance and Corporate Affairs by Corporate Affairs Secretary, Shri Injeti Srinivas.
The ILC has recommended the adoption of the UNCITRAL Model Law on 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.
As the size of the Indian economy grows, business and trade have adopted an increasingly international character. Creditors and corporates frequently transact business in more than one jurisdiction. Foreign banks and creditors finance Indian companies and Indian banks have foreign exposure. Also, as part of its Ease of Doing Business and Make in India policies, India seeks to attract foreign companies to set up manufacturing facilities in India.
Besides, global experience demonstrates that cross-border investment decisions and their outcomes are considerably affected by the insolvency laws in force in a country. Towards this end, even though the Insolvency and Bankruptcy Code, 2016 has resulted in significant improvement in India’s insolvency regime, there is a need to include cross-border insolvency in the Code to provide a comprehensive insolvency framework.
- The inclusion of cross-border insolvency framework will further enhance the ease of doing business, provide a mechanism of cooperation between India and other countries in the area of insolvency resolution, and protect creditors in the global scenario.
- Also, it will make India an attractive investment destination for foreign creditors given the increased predictability and certainty of the insolvency framework.
- The UNCITRAL Model Law has till now been adopted in 44 countries and forms part of international best practices in dealing with cross-border insolvency issues. The model law gives precedence to domestic proceedings and protection of public interest.
- The advantages of the model law include greater confidence generation among foreign investors, adequate flexibility for seamless integration with the domestic Insolvency Law and a robust mechanism for international cooperation.
- Four major principles of UNCITRAL Model Law- The model law deals with four major principles of cross-border insolvency, namely:
- 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 center of main interest (COMI).
On the global scale, the UNCITRAL (United Nations Commission on International Trade Law) Model Law on Cross-Border Insolvency, 1997 (Model Law) has emerged as the most widely accepted legal framework to deal with cross-border insolvency issues while ensuring the least intrusion into the country’s domestic insolvency law. Due to the growing prevalence of multinational insolvencies, the Model Law has been adopted by 44 States till date, including Singapore, UK, and the US.