The Ministry of Corporate Affairs (MCA) has published a draft framework for cross border insolvency proceedings based on the UNCITRAL (United Nations Commission on International Trade Law) model under the Insolvency and Bankruptcy Code.
Cross border insolvency proceedings
Cross border insolvency proceedings are relevant for the resolution of distressed companies with assets and liabilities across multiple jurisdictions. A framework for cross border insolvency proceedings for the location of such a company’s foreign assets, the identification of creditors and their claims and establishing payment towards claims as well as a process for coordination between courts in different countries.
Current status of foreign stakeholders and courts in other jurisdictions under IBC
While foreign creditors can make claims against a domestic company, the IBC currently does not allow for automatic recognition of any insolvency proceedings in other countries. In the case of Jet Airways, when one of the company’s aircraft was grounded in Amsterdam over non-payment of due to a European cargo firm, the National Company Law Tribunal had declined to “take on record” any orders of a foreign court regarding domestic insolvency proceedings in the absence of enabling provision in the IBC.
The National Company Law Appellate Tribunal, however, permitted the recognition of Dutch proceedings as “non-main insolvency proceedings” recognizing India as the Center Of Main Interests (COMI) for the company.
However, current provisions under the IBC do not allow Indian courts to address the issue of foreign assets of a company being subjected to parallel insolvency proceedings in other jurisdictions.
The UNCITRAL model
The UNCITRAL model is the most widely accepted legal framework to deal with cross-border insolvency issues. It has been adopted by 49 countries, including the UK, the US, South Africa, South Korea and Singapore.
The law allows automatic recognition of foreign proceedings and rulings given by courts in cases where the foreign jurisdiction is adjudged as the COMI for the distressed company. Recognition of foreign proceedings and reliefs is left to the discretion of domestic courts when foreign proceedings are non-main proceedings.
The COMI for a company is determined based on where the company conducts its business on a regular basis and the location of its registered office.
The framework for cross border insolvency adopted in India may like in the case of some other countries require reciprocity from any country which seeks to have its insolvency proceedings recognized by Indian courts. This would allow Indian proceedings for foreign corporate debtors to be recognized in foreign jurisdictions.
Indian framework’s difference with the model law
Many countries that adopt the UNCITRAL model law do make certain changes to suit their domestic requirements. A report by the MCA has recommended that the Indian cross border insolvency framework exclude financial service providers from being subjected to cross border insolvency proceedings, noting that many countries “exempt businesses providing critical financial services, such as banks and insurance companies, from the provisions of cross-border insolvency frameworks. ”
The report has also recommended that companies undergoing the Pre-packaged Insolvency Resolution Process be exempted from cross border insolvency proceedings as the provisions for PIRP have been introduced recently, and the “jurisprudence and practice under the pre-pack mechanism are at a nascent stage” .
The PIRP was introduced earlier this year under the IBC to permit speedy resolution of Micro, Small and Medium Enterprises.