The government is trying to develop a framework on cross-border insolvency with a “cautious approach”, and is simultaneously working on the group-insolvency framework as well, said Sudhaker Shukla, member, Insolvency and Bankruptcy Board of India (IBBI) on Saturday.
Shukla mentioned that the ministry of corporate affairs shall issue discussion papers on the two frameworks soon, and the new norms would likely come into effect post elections. He was speaking at an event organised by Indian Institute of Insolvency Professionals of ICAI.
Shukla also mentioned that record-high resolutions under the Insolvency and Bankruptcy Code (IBC), totalling 269 in FY24, as against 189 in FY23, was possible due to speedy disposal of cases done by the National Company Law Tribunal (NCLT).
On March 8, FE had reported that the government has drawn up a plan to introduce cross-border and group insolvency norms simultaneously through amendments to the Insolvency and Bankruptcy Code (IBC), shortly after polls.
“The ministry of corporate affairs has made representations in this regard to the Cabinet. With its approval, the IBC Bill is likely to be tabled in Parliament by the new government shortly after it assumes office,” an official had told FE last month.
The government is focussing on out-of-the court settlements and providing latest technological platforms to insolvency professionals (IPs) for better management of cases, thereby enhancing effectiveness of the insolvency processes, including cross-border and group insolvency, said Shukla.
Group insolvency refers to clubbing the assets and liabilities of all companies in a corporate group and undertaking resolution proceedings, before dealing with each firm. Cross-border insolvency, on the other hand, helps in dealing with a situation when the insolvent debtor has assets and creditors in multiple countries.
At the same event, former chairperson of NCLAT Justice Mukhopadhaya underscored the importance of a robust cross-border insolvency framework in India and highlighted the need to make a feasible balance between the Indian and foreign jurisdictions.
“We will have to respect the law of other countries, but it does not mean superseding our law. The dominance should be of our law in our jurisdiction,” said Mukhopadhaya.
Currently, the IBC has no instrument to restructure firms involving cross-border jurisdictions, and in the absence of a legislative framework, the cases involving resolution of groups and any cross-border elements are decided by the National Company Law Tribunal on an ad-hoc basis. According to sources, the new cross-border insolvency norms will be based on UNCITRAL Model Law on Cross-Border Insolvency (MLCBI).
Mukhopadhaya also highlighted the plight of operational creditors under the current resolution mechanism of the IBC, and emphasised that the new cross-border insolvency framework needs to address this contentious issue.
“Currentky, the operational creditors are getting pittance from the resolution plan. Whether we can offer the same treatment to foreign operational creditors, that could be big overseas industries?,” he said.
According to the latest IBBI newsletter, the amount distributed to OCs under liquidation stands at a mere 0.8% of the total amount recovered. The share is not very different in cases of corporate insolvency resolution process (cases that haven’t slipped into liquidation), but the data are not publicly available.