IBC, prima facie, doesn’t address the issues pertaining to cross border insolvency. But seeks to promote an ad-hoc framework through S. 234 and S. 235. It provides bilateral agreement with foreign countries and the option of sending letters of request to foreign courts for information of CD’s assets. The problem I feel in this is that with the current position, it involves a very lengthy negotiation with individual counties to conclude treaties/agreements which will have different terms and procedures to follow.
When an insolvent debtor has creditors or assets in various jurisdictions or when simultaneous insolvency proceedings are initiated in more than one jurisdiction, Cross Border comes into play.
The above mechanism of Cross Border comes at the cost of certainty and consistency. It falls short in dealing with the challenges related to simultaneous legal proceedings, collaboration, and coordination between judicial bodies and legislative authorities.
Imagine this scenario: ‘X’ company faces insolvency with its assets scattered across different countries and pending claims from multiple lenders. When the company becomes incapable of repaying its debts, lenders in country ‘A’ initiate an insolvency procedure. The court appoints an administrator to handle the company’s assets. At the same time, lenders in country ‘B’, let’s say India, also commence an insolvency procedure. The court initiates the Corporate Insolvency Resolution Process (CIRP) and appoints an Interim Resolution Professional (RP) to initiate the process.
Such a situation raises several complex questions that are not easily answered:
– Can these two insolvency processes occur simultaneously?
– Which administrator/RP should take the lead, establish the Committee of Creditors (CoC), and assume control of the company’s assets (CD)?
– Which jurisdiction’s laws will govern the distribution of the proceeds from a resolution plan?
– Is there a mechanism to consolidate these proceedings to achieve an effective and comprehensive resolution?
ILC recommended the adoption of UNCITRAL Model, 1997 as a separate part of IBC. Adoption of the same will enable India to align its insolvency laws with internationally accepted standards. Presently the government is still considering and soon anytime is expected to release an amendment but this absence of law has not prevented NCLAT from allowing Cross Border for Jet airways case where Indian RP and Dutch administrator sat together and framed protocol largely based on Model law. It made the first Indian company to undergo cross-border treatment. Another decision wherein NCLT Mumbai allowed inclusion of Videocon’s foreign assets in its CIRP in India. The overseas branches or subsidiaries of the company in insolvency should also be considered as part of its assets, which encompass foreign oil and gas assets, as well as any associated interests or claims.
The rationale behind such is that under the garb of insolvency law one should not find an easy exit leaving corporate creditor remedies less and it will be fraud when these companies have strong backup plans in foreign countries. For example, we have the Nirav Modi – PNB Bank case wherein the creditors have not been able to get access to his assets which were in the USA. Thus, calling for special law.
Australia uses the principle of comity of courts which gives them discretion to decide steps w.r.t foreign representatives. The UK and Canada introduced regulations based on the UNCITRAL Model. Singapore is also quick in adaptation. In 2013, it formed a committee to review existing matters.
This Model has 5 principles:
- Access: Access to foreign assets and liabilities will keep faith and trust to investors and creditors.
- Recognition: COMI is presumed to be registered unless proved contrary.
- Coordination.
- Co-operation.
- Public Policy: This is given utmost importance and if stands contrary, it empowers domestic courts to reject/rectify foreign orders if detrimental to public policy.
Government has not put the concept of cross border at its top-list for now. As of now, I feel we should have rules in place because the judiciary has its own limitations to extend judicial interpretations. Adoption will give more aid and access. This will help to achieve maximum value of CD’s assets and successful IRP can be done after taking all considerations.
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