The government has finalised amendments to the Insolvency and Bankruptcy Code (IBC) to bring in a cross-border resolution framework and may introduce a Bill in this regard as early as in the monsoon session of the Parliament starting next month, sources told FE.
The cross-border insolvency law aims to ensure lenders have easier access to overseas assets of stressed companies. It will enable India to seek cooperation from foreign countries to bring defaulters’ assets there under consideration for insolvency proceedings.
Such an insolvency framework would be tailored around a model law of the United Nations (United Nations Commission on International Trade Law or UNCITRAL) but the government will likely retain the power to intervene in cases, albeit only under exceptional circumstances. Several countries that follow the UNCITRAL have also built such provisions in their local laws.
The monsoon session is expected to be held from July 18 through August 12, although a formal announcement is yet to be made.
The Bill to amend the IBC is also likely to focus on changes to further bolster the IBC architecture to yield a quick resolution of toxic assets while preventing unscrupulous elements from gaming the system.
“It (the Bill) is ready. But it needs to be cleared by the Cabinet first. Once that is done, it will be introduced in Parliament. It can happen any time,” said one of the sources.
Analysts have been highlighting the need for a cross-border insolvency law during the bankruptcy proceedings against Amtek Auto, Videocon Industries, Essar Steel and even Jet Airways, citing the many obstructions these cases witnessed due to issues that traverse borders – in the form of the location of assets, complex procedures, etc.
Cross-border insolvency framework was expected to be a part of the Insolvency and Bankruptcy (Second Amendment) Bill, 2021, that the government wanted to introduce in the winter session of Parliament to further strengthen the Code, cut delay in the resolution of toxic assets to prevent value erosion. However, it didn’t introduce the Bill, as it wanted wider consultations on a raft of issues.
The cross-border insolvency law recognises that one country has to proceed with the main insolvency case and others with the supplementary case, depending on the location of defaulters’ assets. Similarly, if a foreign country has already initiated insolvency proceedings against a particular defaulter to recover stressed assets some of which are located here, India, too, will also have to cooperate with that nation.
In November 2021, the ministry of corporate affairs (MCA) put out a draft proposing that such a framework be applied to not just corporate debtors but even personal guarantors to them, in sync with the extant corporate insolvency resolution norms for stressed assets located within the country.
The MCA also recommended that financial service providers such as banks and insurance firms be excluded from the purview of cross-border insolvency.