Cross-border insolvency cases: Govt-appointed panel suggests UN model law

“The ILC has 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 has also recommended a few carve outs to ensure that there is no inconsistency between the domestic insolvency framework and the proposed Cross Border Insolvency Framework,” the government said in the statement.

“The UNCITRAL Model Law has been adopted in as many as 44 countries and, therefore, forms part of international best practices in dealing with cross border insolvency issues. The advantages of the model law are the precedence given to domestic proceedings and protection of public interest. The other advantages include greater confidence generation among foreign investors, adequate flexibility for seamless integration with the domestic Insolvency Law and a robust mechanism for international cooperation,” it added.

While the IBC has been dealing with cases of domestic insolvency, default cases with cross-border implications are currently outside its purview. The Code at present does not explicitly provide a framework to deal with the issues of cross-border insolvency. The necessity of having such a framework under the IBC arises as many Indian companies have a global presence and many foreign companies have operational across countries including India.

“The model law deals with four major principles of cross-border insolvency, namely 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 practioners; and 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”),” the government said.

In the 32 resolution cases that have been resolved under the IBC till June-end, banks and other creditors recovered nearly 55 per cent of the total claims, including from large accounts such as Bhushan Steel and Electrosteel Steels, as per the latest data available with the Insolvency and Bankruptcy Board of India. This does not include companies for which liquidation orders were passed. Financial and operational creditors could recover around Rs 49,800 crore out of the total claims of Rs 90,000 crore in these 32 companies.