Cross Border Insolvency Framework

When an insolvent debtor has assets or creditors in more than one country, it is called Cross Border Insolvency.

So, it seems difficult that what if a person is unable to pay a certain amount of debt, but can’t just because of their assets located across the other country. Nevertheless, many countries faced this problem and few common things which assist each other to deal with this.

Cross-Border Insolvency for Indian insolvent debtors is dealt with under IBC (Insolvent Bankruptcy Code). The Central Government plays a vital role in entering into bilateral agreements and letters of request on how to deal with assets within their boundaries. With the assistance of another country, the legal law of India will be applicable for proceedings and similarly vice-versa for any proceedings in India.

Now, let’s have a look at the law…, what is it?

On May 30, 1997, the 13th UNCITRAL was held in Vienna where UNCITRAL is the United Nations Commission on International Trade Law. The legal framework to deal with cross-border insolvency issues can be adopted by countries with modifications, which suit their domestic courts or vice-versa and provide for recognition of orders and judgments passed by courts located in foreign jurisdictions.

49 countries have accepted this model of law. In budget 2022 cross insolvency debtors were mentioned and a few new amendments will be brought to tackle complex insolvency cases. In one of the situations in the Air Industry, we can see that the National Company Law Tribunal, dealt with the case State Bank of India v. Jet Airways (India) Ltd.

In 2019, the National Company Law Appellate Tribunal (NCLAT) gave a ruling, consequent to which Jet Airways became the first Indian company to be subjected to cross-border insolvency. State Bank of India filed a section 7 application against Jet Airways, followed by Dutch court initiating insolvency proceedings in the Netherlands to take Jet Airways’ assets located. Also, European creditors took the same action to recover nearly 280 crores. The hired bankruptcy administrator helped the Dutch court for the recognition of insolvency proceedings in the Netherlands. Two parallel insolvency proceedings in different jurisdictions would adversely affect the restricting process and have a devastating impact on creditors. However, the NCLT refused to withhold the Indian insolvency proceedings. The basis provided for the same was that Section 234 and Section 235 of the Code, deal with cross-border insolvency and they were not yet brought into effect. Hence, the NCLT held that in absence of such a law, the Bankruptcy Administrator was barred from participating in the Indian insolvency proceedings and further declared that ongoing proceedings in Netherlands were null and void. Hence, the proposed rules are very much a work in progress. It involves multiple jurisdictions and hence laws, rules, and regulation of all the jurisdictions involved need to be taken care of.

Comment below and let us know what is your take on the amendments proposed for Cross Border Insolvency cases...

Thank you.

Regards,

Akash Rathod,

Kautilya,

IBS Mumbai.