Cross-Border Insolvency Economic Investigation – Insolvency/Bankruptcy/Restructuring
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The Economic Survey prepared by the Economic Division, Department of Economic Affairs, Ministry of Finance, Government of India is an annual report on the performance of the country’s economy which focuses on the economic developments in the country from each sector and assists in the better use of resources and their allocation in the Union budget. The economic study is presented before the budget and the theme of the 2021-22 economic study concerns the art and science of policy-making under conditions of extreme uncertainty.
Cross-border insolvency refers to circumstances where an insolvent debtor has assets and/or creditors in more than one country. There are usually national laws governing insolvency proceedings for domestic creditors/debtors. However, in some cases of insolvency, a company may have assets and liabilities in more than one country.
CURRENT STATUS OF CROSS-BORDER INSOLVENCY CASES
Currently, the Insolvency and Bankruptcy Code 2016 provides the national laws for dealing with an insolvent business. There is no standard instrument for restructuring companies involving cross-border jurisdictions in the Insolvency and Bankruptcy Code, 2016. The same issue has been dealt with by the National Company Law Tribunal (NCLT), Mumbai, in its order of June 20, 2019 adopted in
State Bank of India v Jet Airways (India) Ltd.1 stating that “there is no provision or mechanism in the IPC, at present, for recognizing the judgment of an insolvency court of a foreign nation. Thus, even if the judgment of the foreign court is checked and found to be true, despite the relevant provision of the IPC, we cannot register this order. »
A foreign creditor can enforce his rights against a domestic company in India, but the Insolvency and Bankruptcy Code 2016 does not allow automatic recognition of any insolvency proceedings in other countries. Section 234 of the 2016 Insolvency and Bankruptcy Code empowers the central government to enter into bilateral agreements with other countries to resolve cross-border insolvency situations. In addition, the contracting authority may make a request to a court or an authority under section 235 of the Insolvency and Bankruptcy Code, 2016 competent to deal with a request for evidence or an action in relation with insolvency proceedings under the Code in countries where the agreement under Section 234 of the Insolvency and Bankruptcy Code, 2016.
PROBLEMS WITH THE CURRENT SITUATION
The current provisions of the Insolvency and Bankruptcy Code 2016 are ad hoc in nature and are subject to delay. The conclusion of mutual (reciprocal) agreements requires lengthy individual negotiations with each country, which leads to uncertainty as to the results of the claims. The absence of a cross-border insolvency framework creates various problems such as:
- The extent to which an insolvency administrator can access assets held in a foreign country.
- Priority of payments – Whether local creditors can access local assets before funds go to the foreign administration or not.
- Recognition of claims of local creditors in a foreign administration.
- Recognition and enforcement of local titles, tax system on local assets when a foreign administrator is appointed, etc.
RECOMMENDATIONS OF THE ECONOMIC SURVEY
The Committee had suggested the need for a standardized framework for cross-border insolvency and recommended adoption by the United Nations Commission on International Trade Law (UNCITRAL) with some amendments to make it suitable for Indian law. So far, UNCITRAL has been adopted by 49 countries such as Singapore, UK, USA, South Africa, Korea, etc. because it deals with the main problems of cross-border insolvency according to the following four main principles:
- Access: it allows professionals and foreign creditors direct access to national courts and enables them to participate and initiate domestic insolvency proceedings against a debtor.
- Recognition: It allows recognition of foreign proceedings and allows the courts to determine the remedy accordingly.
- Cooperation: It provides a framework for cooperation between insolvency professionals and the courts of countries.
- Coordination: It allows for coordination in the conduct of concurrent proceedings in different jurisdictions.
The budget was presented to Parliament on February 1, 2022 by Nirmala Sitharaman, Minister of Finance of the Government of India, in which she said that necessary amendments to the Insolvency and Bankruptcy Code 2016 would be made to enhance efficiency. of the resolution. deal with and facilitate the resolution of cross-border insolvency.
The government has recognized the need to adapt to global scenarios and amend the Insolvency and Bankruptcy Code 2016 to improve the existing resolution process. This is indeed a step forward which will enable it to facilitate the claims of creditors against the debtor company even when it comes to cross-border insolvency.
1. CP 2205 (IB)/MB/2019, CP 1968(IB)/MB/2019, CP 1938(IB)/MB/2019
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The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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