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, a member of the Insolvency and Bankruptcy Board of India (IBBI) told FE.
“At present, the UNCITRAL Model Law on Cross-Border Insolvency (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,” the member said.
At present, the Insolvency and Bankruptcy Code has no instrument to restructure firms involving cross-border jurisdictions. Since several domestic companies now have a foreign presence, experts say that it’s necessary to ensure that the assets of corporate debtors be brought under the fold of the IBC process and claims of foreign lenders are also met.
On the other hand, a lack of cross-border mechanisms also keeps IBC helpless in proceeding against foreign companies that have assets and debt outstanding in India.
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 Model Law on Cross-Border Insolvency and UNCITRAL Model Law on Enterprise Group Insolvency, in India. In December 2021, the committee had submitted its report, but the proposals are yet to be implemented.
Pulkit Gupta, Partner – Debt and Special Situations, EY said that the MLCBI promotes the principle of “main proceedings” in the debtor’s home jurisdiction, which may not always be favourable to developing nations, as this can limit their ability to protect their interests and assets. “There is a need to negotiate for greater flexibility in cross-border insolvency proceedings to ensure that their local laws and interests are adequately considered,” Gupta said.
Also, since cross-border insolvency proceedings often prioritize the interests of creditors, which can be detrimental to developing nations if they are the debtor, “a balanced approach is required that takes into account not only the rights of creditors but also the interests of debtors and the broader economic impact of insolvency proceedings,” he said.