In order to strengthen the Insolvency and Bankruptcy Code, the government on Wednesday released a draft on cross-border insolvency that would help banks access overseas assets of a company undergoing resolution. Similarly, the Indian authorities will also be required to cooperate with foreign creditors to a domestic company.
The draft favours adoption of the UNCITRAL (United Nations Commission on International Trade Laws) model on dealing with cross-border insolvency. The UNCITRAL model law envisages a balance between liquidation and reorganisation of global companies going in for resolution.
“On the global scale, the UNCITRAL 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 US,” the ministry of corporate affairs said in the draft.
As per the draft law, the central government after entering into agreement with other countries, may bring overseas asset of a domestic corporate debtor into consideration of insolvency resolution in India. While initially the cross border insolvency framework will apply only to corporate debtors, it can be extended to cases of personal insolvency resolution as well. The draft says India will also cooperate with foreign creditors and enable them to initiate insolvency against local corporate debtors.
The existing IBC provides for two Sections –234 and 235 — relating to cross border insolvency but these are not adequate to effectively deal with default cases such as that of Kingfisher Airlines. In many of the ongoing cases under the IBC, several companies have assets and operations outside India, for which a legal framework is required to deal the assets overseas.
Existing provisions only allow the Central government to enter into an agreement with a foreign country for enforcing provisions of the Code. Second, the government can issue a letter of request to a country outside India seeking information.
The draft norms have now been issued to plug these loopholes and have any effective resolution mechanism in place for cross-border insolvency.