Govt plans law on cross-border insolvency

With merger and acquisition activity by Indian companies across the globe increasing,the government is planning to facilitate cross-border insolvency for corporates. Official sources told The Indian Express that the government is considering inclusion of a model law related to cross-border insolvency in the Companies Bill 2009,which is being currently vetted by the Parliamentary Standing Committee on Finance.

According to the sources,the international developments in the recent past have set the government thinking that a model law should be included in the Act to facilitate the process of bankruptcy for companies which are located in more than one jurisdiction. A model law is one according to which if two countries adopt a particular law,their courts can cooperate and the proceedings of insolvency can be initiated in any one country with the consent of the other. “This would help corporates in a big way. Right now,we don’t have any provision for cross-border insolvency in our Act. It will be incorporated in the bill,” the sources said.

The government will incorporate the UN-adopted model law,United Nations Commission on International trade Law,(UNCITRAL). The UNCITRAL,set up in 1966,is tasked with further progressive harmonisation and unification of the law of international trade.

Reacting to the move,legal counsel for Tata Sons Bharat Vasani said,“Our insolvency law is very outdated. It takes,in some cases,around 25 years to liquidate a company. During the period,the value of assets is diluted. We need to protect the assets. If the National Company Law Tribunal is properly constituted,this (cross-border insolvency) will function wonderfully.”