Cross-border insolvency: the UN model allows automatic recognition of foreign decisions

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The Ministry of Commercial Affairs (MCA) has published a draft framework for cross-border insolvency proceedings based on the UNCITRAL (United Nations Commission on International Trade Law) model under the Insolvency Code and the bankruptcy.

Cross-border insolvency proceedings

Cross-border insolvency proceedings are relevant for the resolution of distressed businesses with assets and liabilities in multiple jurisdictions. A framework for cross-border insolvency proceedings allows for the location of the foreign assets of such a company, the identification of creditors and their claims and the establishment of payment of claims as well as a process of coordination between the courts of different country.

Current status of foreign stakeholders and courts in other jurisdictions under IBC

While foreign creditors can make claims against a domestic company, the IBC currently does not allow automatic recognition of insolvency proceedings in other countries. In the case of Jet Airways, when one of the company’s planes was grounded in Amsterdam for non-payment of contributions to a European freight company, the National Company Law Court refused to “take into account” any order. of a foreign court concerning insolvency proceedings in the absence of an enabling provision in the IBC.

The National Company Law Appeals Tribunal, however, allowed recognition of the Dutch proceedings as “non-main insolvency proceedings” by recognizing India as the center of main interests (CIP) of the company.

However, the current provisions of the IBC do not allow Indian courts to deal with the issue of foreign assets of a company that is the subject of parallel insolvency proceedings in other jurisdictions.

The UNCITRAL model

The UNCITRAL model is the most widely accepted legal framework for dealing with cross-border insolvency issues. It has been adopted by 49 countries, including the UK, US, South Africa, South Korea, and Singapore.

The law allows the automatic recognition of foreign proceedings and court decisions in cases where the foreign jurisdiction is designated as the COMI for the company in difficulty. The recognition of foreign proceedings and reparations is left to the discretion of national courts when the foreign proceedings are non-main proceedings.

A company’s CIM is determined based on where the company operates on a regular basis and the location of its head office.

The framework for cross-border insolvency adopted in India may, as in the case of some other countries, require reciprocity from any country seeking to have its insolvency proceedings recognized by Indian courts. This would allow Indian procedures for foreign debtor companies to be recognized in foreign jurisdictions.

Difference of the Indian framework from the model law

Many countries that adopt the UNCITRAL Model Law make certain changes to meet their national requirements. An MCA report recommended that India’s cross-border insolvency framework exclude financial service providers from being subject to cross-border insolvency proceedings, noting that many countries “exempt companies providing essential financial services, such as banks and insurance companies, provisions of cross-border insolvency frameworks.

The report also recommended that companies subject to the prepackaged insolvency resolution process be exempted from cross-border insolvency proceedings, as provisions relating to the PIRP were recently introduced and “case law and practice in the part of the pre-pack mechanism are at an incipient stage ”.

PIRP was introduced earlier this year as part of the IBC to enable rapid resolution of micro, small and medium enterprises.


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