Companies
How cross-border bankruptcy resolution might work out
Summary
The incorporation of cross-border insolvency, where an insolvent debtor has assets and creditors in more than one country, into India’s IBC, will aid banks as foreign assets of large companies could now be brought under the ambit of the resolution process, improving recovery prospects, legal experts said
MUMBAI : The incorporation of cross-border insolvency, where an insolvent debtor has assets and creditors in more than one country, into India’s Insolvency and Bankruptcy Code (IBC), will aid banks as foreign assets of large companies could now be brought under the ambit of the resolution process, improving recovery prospects, legal experts said.
Some experts said lenders to companies like Videocon group, which have sizeable foreign assets, would stand to benefit.
According to Nirav Shah, partner at law firm DSK Legal, India will have to adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross Border Insolvency, 1997 into IBC to give effect to cross-border insolvency. This has been adopted by 49 countries, including Singapore, the UK, US, South Africa and South Korea.
Currently, cross-border insolvency is regulated under Sections 234 and 235 of the IBC. The Union government can enter into bilateral agreements with other countries to resolve issues related to cross-border insolvency. The current provisions, however, cause delays in recovery.
Experts said that the implementation of a uniform framework like UNCITRAL would be beneficial for both local and foreign creditors.
“Foreign creditors and their representatives will be able to participate in proceedings in India. If there is a contrary order in a foreign jurisdiction, then in such an event, the same shall be subject to proceedings in India, thereby protecting the Indian creditors," said Ashish Pyasi, associate partner at law firm Dhir and Dhir Associates.
Some said that even after the amendments are made, and the framework for cross-border insolvency comes into force, there could be delays in getting access to assets lying in other countries.
Given that insolvency resolution or liquidation are time-bound processes, it is not clear how this objective can be achieved within the statutory timelines, said Srinivas Kotni, managing partner at law firm LexPort. On the whole, it is definitely an encouraging development for lenders, Kotni added.
Others pointed out that even without a uniform guideline, Indian tribunals have allowed cross-border insolvency in certain cases.
“An excellent example of successful cross-border insolvency proceedings in India is that of the Jet Airways," said Prashanth Shivadass, partner at law firm Shivadass and Shivadass.
Jet Airways was facing insolvency proceedings in both India and the Netherlands. When the Dutch bankruptcy administrator made an application to the National Company Law Tribunal (NCLT) for the recognition of the insolvency proceedings in the Netherlands and putting a temporary hold on the resolution process in India, the NCLT rejected it, citing an absence of cross-border insolvency laws in India.
But on a subsequent appeal to the National Company Law Appellate Tribunal (NCLAT), the tribunal’s decision was reversed, and it directed the Indian and Dutch resolution professionals to ensure coordination and cooperation through an agreement in September 2019, Shivadass said
