Insolvency Law Committee Report
- 23 Oct 2018
- 7 min read
The ILC has submitted its 2nd Report to the Government, which deals with cross-border insolvency.
- The Insolvency Law Committee (ILC) was constituted by the Ministry of Corporate Affairs to recommend amendments to Insolvency and Bankruptcy Code of India, 2016.
- The necessity of having such Framework under the Insolvency and Bankruptcy Code arises from the fact that many Indian companies have a global footprint and many foreign companies have the presence in multiple countries including India.
- 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 measures to ensure that there is no inconsistency between the domestic insolvency framework and the proposed Cross-Border Insolvency Framework.
- UNCITRAL Model Law on Cross-Border Insolvency, 1997
- The model law is designed to assist States to equip their insolvency laws with a modern legal framework to more effectively address cross-border insolvency proceedings concerning debtors experiencing severe financial distress or insolvency.
- The model law deals with four major principles of cross-border insolvency:
- Access: direct access to foreign insolvency professionals and foreign creditors to participate in or commence domestic insolvency proceedings against a defaulting debtor
- Recognition: recognition of foreign proceedings & provision of remedies
- Cooperation: cooperation between domestic and foreign courts & domestic and foreign insolvency practitioners
- Coordination: coordination between two or more concurrent insolvency proceedings in different countries.
- The UNCITRAL Model Law forms part of international best practices in dealing with cross-border insolvency issues and has been adopted in 44 countries including the United Kingdom, the United States of America, Japan, South Korea, and Singapore.
UNCITRAL (United Nations Commission on International Trade Law)
- The United Nations Commission on International Trade and Law is the core legal body of the United Nations system in the field of international trade law.
- Membership: The Commission comprises 60 member States elected by the United Nations General Assembly for a term of six years.
- India is currently a member of UNCITRAL and will serve till 2022.
Key advantages of adopting the Model Law
- Increasing foreign investment: there will be significant positive signaling to global investors, creditors, governments, international organizations such as the World Bank as well as multinational corporations with regard to the robustness of India's financial sector reforms.
- Flexibility: The Model Law is designed to be flexible and to respect the differences amongst national insolvency laws.
- Protection of domestic interest: The Model Law enables refusal of recognition of foreign proceedings or provision of any other assistance if such action contradicts domestic public policy. Hence, it provides protection to the public interest.
- Priority to domestic proceedings: The Model Law gives precedence to domestic insolvency proceedings in relation to foreign proceedings. For example, a moratorium due to the recognition of a foreign proceeding will not prevent the commencement of domestic insolvency proceedings.
- Mechanism for cooperation: The Model Law incorporates a robust mechanism for cooperation and coordination between courts and insolvency professionals, in foreign jurisdictions and domestically. This would facilitate faster and effective conduct of concurrent proceedings.
- Global Standards: The inclusion of the Cross-Border Insolvency Chapter in the Insolvency and Bankruptcy Code of India, 2016, will be a major step forward and will bring Indian Insolvency Law on a par with that of matured jurisdictions.
Insolvency and Bankruptcy Code, 2016
- The Code creates a framework for resolving insolvency in India.
- The Code will apply to companies, partnerships, limited liability partnerships,
individuals and any other body specified by the Central Government.
- Insolvency professionals and agencies: The resolution process will be conducted by a licensed insolvency professional (IP). The IP will control the assets of the debtor during the process. Insolvency professional agencies will be created to regulate these IPs. The agencies will conduct examinations to enroll IPs and enforce a code of conduct for their functioning.
- Information utilities: The Code establishes multiple information utilities to collect, collate and disseminate financial information related to a debtor. This will include a record of debt and liabilities of the debtor.
- Insolvency regulator: The Insolvency and Bankruptcy Board of India will be established as a regulator to oversee the functioning of IPs, insolvency professional agencies and information utilities. The Board will have 10 members, including representatives from the Central Government and the Reserve Bank of India.
- Adjudicatory authorities: The Code proposes two tribunals to adjudicate insolvency resolution cases: The National Company Law Tribunal will adjudicate cases for companies and limited liability partnerships. The Debt Recovery Tribunal will adjudicate cases for individuals and partnership firms.
- Insolvency and Bankruptcy Fund: The Code creates an Insolvency and Bankruptcy Fund. The Fund will receive voluntary contributions from any person. In case of insolvency proceedings being initiated against the contributor, he will be allowed to withdraw his contribution for making payments to workmen, protecting his assets, etc.