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Cross Border Insolvency Resolution

  • 04 Jun 2019
  • 3 min read

A panel led by Ministry of Corporate Affairs had suggested adopting the United Nations Commission on International Trade Laws on cross-border insolvency.

  • UNCITRAL Model Law on Cross-Border Insolvency, 1997 (Model Law) provides legal framework to deal with cross-border insolvency issues while ensuring the least intrusion into the country’s domestic insolvency law.
  • The Insolvency and Bankruptcy Code, at present, does not effectively deal with cases involving cross-border insolvency.
  • The government is expected to amend Section 234 and Section 235 of the IBC and introduce provisions for:
    • Individual insolvency: new framework divides individuals into three categories: personal guarantors, proprietors and common individuals.
    • Cross border insolvency: provisions will apply to corporate debtors and not in personal cases.

UNCITRAL Model Law- 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).

Significance

  • The changes will enable initiation of resolution process in case of personal guarantors to corporate debtors, proprietorship and partnerships.
  • Provisions for cross border insolvency would enable Indian firms to claim their dues from foreign companies, while allowing foreign creditors to recover loans from Indian companies.
    • Will also help foreign branches of Indian banks to recover their dues in India.
  • Cross border insolvency provision will bring overseas asset of a domestic corporate debtor into consideration of insolvency resolution in India and will avoid delays in resolution of stressed assets.

UNCITRAl

  • The United Nations Commission on International Trade Law is the core legal body of the United Nations system in the field of international trade law.
  • UNCITRAL was established in 1966 with a recognition that international trade cooperation among States is an important factor in the promotion of friendly relations and, consequently, in the maintenance of peace and security.
  • Through its several model laws, conventions, legislative guides and robust debates in working groups, UNCITRAL has provided a valuable platform for countries to compare, examine, debate and adopt principles of international commercial and trade law appropriate to their circumstances.
  • Since its inception, India is only one of eight countries that has been a member of UNCITRAL.
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