Government-appointed panel suggests UN model law for Cross-Border Insolvency

•  The Insolvency Law Committee (ILC) submitted its 2nd Report on Cross Border Insolvency to Minister of Finance and Corporate Affairs.
• The ILC was constituted by the Ministry of Corporate Affairs to recommend amendments to Insolvency and Bankruptcy Code of India, 2016.
• The ILC recommended the adoption of the UNCITRAL Model Law of Cross Border Insolvency, 1997 as it provides for a comprehensive framework to deal with cross border insolvency issues. The Committee also recommended a few steps to ensure that there is no inconsistency between the domestic insolvency framework and the proposed Cross Border Insolvency Framework.

About UNCITRAL Model Law of Cross Border Insolvency:

The Model Law focuses on four elements identified as key to the conduct of cross-border insolvency cases: access, recognition, relief (assistance) and cooperation.

• Access: These provisions give representatives of foreign insolvency proceedings and creditors a right of access to the courts of an enacting State to seek assistance and authorize representatives of local proceedings being conducted in the enacting State to seek assistance elsewhere.
• Recognition: One of the key objectives of the Model Law is to establish simplified procedures for recognition of qualifying foreign proceedings in order to avoid time-consuming legalization or other processes that often apply and to provide certainty with respect to the decision to recognize.
• Relief: A basic principle of the Model Law is that the relief considered necessary for the orderly and fair conduct of cross-border insolvencies should be available to assist foreign proceedings.
• Cooperation and coordination: These provisions address cooperation among the courts of States where the debtor's assets are located and coordination of concurrent proceedings concerning that debtor.

Analysis:

• 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.
• Inclusion of cross-border insolvency framework will further enhance 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.

By: Vishal