Cross-border insolvency proceedings enable foreign creditors to recover money lent to any insolvent Indian company and vice-versa.
The initiation of insolvency proceedings against Jet Airways by a Dutch court has prompted the government to strengthen India’s cross-border insolvency norms. The insolvency law committee, which monitors the implementation of the Insolvency and Bankruptcy Code (IBC) and suggests changes, will meet on June 12 to deliberate upon the amendments to deal with cross-border insolvency, sources said. The aim is to introduce the amendments in the Budget session of Parliament, which begins from June 17.
Last month, the lenders and management of Jet Airways were in a fix over the legal implications of a Dutch court declaring the defunct airline bankrupt following pleas of two foreign lenders. No appeal on behalf of the grounded airline has been filed till date, as lenders and what remains of Jet’s management are still “deliberating ways to control the damage”, a person involved in the proceedings said.
Cross-border insolvency proceedings enable foreign creditors to recover money lent to any insolvent Indian company and vice-versa. The insolvency law committee had in October 2018 submitted a report suggesting amendments to the bankruptcy code for the same. The report suggested the adoption of a legal framework based on the United Nations Commission on International Trade Law’s model insolvency norms. The model norms focus on legal coordination among nation states to provide relief and assistance to creditors in cross-border insolvency cases.
Currently, India’s insolvency laws are ill equipped to handle cross-border cases of insolvency. The IBC mentions it in two sections — 234 and 235. Section 234 of the code says the government may enter into an agreement with a foreign government to enforce insolvency provisions as per the Indian Act, but does not elaborate on legal
provisions for cross-border insolvency.
On May 22, a district court in north Holland declared Jet Airways bankrupt, in response to a complaint filed by two European creditors. A Dutch government-appointed trustee, an equivalent of an insolvency professional in India, then wrote to the ministry of corporate affairs and lenders of Jet Airways, including State Bank of India and IDBI Bank, seeking access to the airline’s assets and financial records. An aircraft parked in the Schiphol airport of Amsterdam had already been seized by one of the creditors.
Meanwhile, the seizure of aircraft and multiple ongoing investigations on the affairs of Jet Airways have been a dampener for potential buyers of the airline. The lenders had initiated the sale of Jet Airways in April, after the airline failed to meet its debt obligations. Abu Dhabi-based Etihad Airways, a strategic partner of Jet Airways, was the only party to show any interest but said it needed partners to bring in the required funds. The matter is stuck since then. Jet Airways halted operations on April 17 after lenders rejected its request to provide emergency funding.