India should “absolutely” consider the adoption of the UNCITRAL Model Law on Cross-Border Insolvency (MLCBI) in the next version of its IBC, and mull ways to accelerate its domestic insolvency processes, a paper released by the Insolvency and Bankruptcy Board of India (IBBI) has said.
Currently, the Insolvency and Bankruptcy Code (IBC) has no instrument to restructure firms involving cross-border jurisdictions. Cross-border insolvency law aims to ensure Indian lenders have access to overseas assets of stressed companies, and can get support of foreign jurisdictions to bring defaulters’ assets there under the ambit of insolvency resolution.
The necessary amendments to the IBC have been under preparation for long, but haven’t yet been enacted.
The paper, titled, ‘Thinking Beyond Borders: Cross-Border Insolvency in IBC 2.0’, added that, in addition, the country ought to speed up its domestic insolvency processes, along with ways to incorporate mediation and alternative dispute resolution procedures into both domestic and cross-border cases.
According to the authors, however, the proposed model law is not a holistic solution to the problems of cross-border insolvencies. Instead, India should view it one brick in the all of cross-border structures and frameworks.
The Ministry of Corporate Affairs in 2020 had constituted the Cross Border Insolvency Rules/Regulations Committee (CBIRC), which was asked to propose the regulatory framework that would enable the implementation of cross-border insolvency mechanism, based on the lines of UNCITRAL models. In December 2021, the committee had submitted its report, which incorporated a set of draft guidelines, titled ‘Part Z’, regarding cross-border insolvency, but the proposals are yet to be implemented.
A cross-border insolvency mechanism is necessary in the country since several domestic companies now have a foreign presence, and it is pertinent to ensure that the assets of corporate debtors are brought under the fold of the IBC process and claims of foreign lenders are also met.
The IBBI paper has been authored by Laura N Coordes, professor of law, Arizona State Univeristy, and it is part of ‘IBC – Evolution, Learnings and Innovation,’ an annual report prepared by the board.
A lack of cross-border mechanisms also keeps IBC helpless in proceeding against foreign companies that have assets and debt outstanding in India.
In the IBBI paper, Coordes also asked for India to consider adopting MLCBI without the reciprocity requirement. “Reciprocity, or the requirement that Model Law proceedings will only apply if the foreign jurisdiction has also adopted the Model Law, presents another barrier to the Model Law’s effectiveness,” it said. India enacts the
Last week, FE had reported that the government is negotiating with United Nations Commission on International Trade Law (UNCITRAL) to amend provisions related to cross-border insolvency, which will be in favour of the developing nations. “At present, the MLCBI is not in the interests of developing nations, like India. We have working to develop a legal framework on the lines of UNCITRAL’s model law, however, it will take some time,” an IBBI member had told FE.