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NEW DELHI : Representatives of foreign creditors could be in charge of distributing the local assets of defaulting Indian companies in cases where an Indian tribunal recognizes overseas bankruptcy proceedings under New Delhi’s proposed cross-border insolvency regime.

New rules to be framed under a proposed section in the Insolvency and Bankruptcy Code (IBC) would allow local courts to entrust foreign creditors’ representatives to distribute these assets once it is satisfied that the interests of creditors in India are adequately protected. This would be one of the benefits to be granted to overseas creditors under the cross-border insolvency regime, said a person familiar with the matter.

Foreign creditors would get this right irrespective of whether the overseas proceeding gets recognized as the main bankruptcy proceedings or as ‘non-main’ proceedings. If the overseas legal action is recognized as the main proceeding, there would also be a moratorium on other recovery action in India by creditors.

The new section will also apply to Indian lenders requiring assistance in another country for their IBC proceedings against Indian businesses and corporate guarantors with overseas assets. This would be a major shot in the arm for lenders fighting promoters who shift funds out of the company by manipulating books. One key corporate governance challenge for regulators and lenders is the diversion of funds from a company with public interest to a firm closely held by major shareholders.

Whenever a notice is to be issued to creditors of a defaulter, overseas creditors will also be kept in the loop. The government is conducting public consultation till 15 December before a bill for further amending the IBC is placed before Parliament.

The Insolvency and Bankruptcy Board of India (IBBI), the regulator, would make regulations under the new regime for a principle-based, light-touch code of conduct for the representatives of foreign creditors. It will also provide for investigation and disciplinary action against misconduct by foreign representatives.

The proposed new part of the IBC to deal with the failure of businesses with assets and liabilities in multiple markets marks a major improvement in the scope of IBC. This is a much-awaited requirement that will strengthen the insolvency resolution regime in India, experts said.

“Being part of the global economy and trade, it is only justifiable that we adopt the international framework widely used by more than 50 countries with appropriate amendments. It is proposed to cover corporate borrowers and personal guarantors and this will help in global asset tracing and recoveries for Indian creditors," said Ashish Chhawchharia, resolution professional and partner at Grant Thornton Bharat.

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