Q What is the context ?
A The Ministry of Corporate 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 and Bankruptcy Code.
Q What is Insolvency and Bankruptcy Code (IBC) ?
- The IBC, 2016 is the bankruptcy law of India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
- It is a one-stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
- The code aims to protect the interests of small investors and make the process of doing business less cumbersome.
Q What are Cross border insolvency proceedings ?
- Cross-border insolvency proceedings are relevant for the resolution of distressed companies with assets and liabilities across multiple jurisdictions.
- A framework for cross-border insolvency proceedings allows for the location of such a company’s foreign assets, the identification of creditors and their claims.
- This helps establishing payment towards claims as well as a process for coordination between courts in different countries.
Q What is 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 for automatic recognition of any insolvency proceedings in other countries.
- Current provisions under the IBC do not allow Indian courts to address the issue of foreign assets of a company being subjected to parallel insolvency proceedings in other jurisdictions.
Q What is the UNCITRAL model ?
- The UNCITRAL model is the most widely accepted legal framework to deal with cross-border insolvency issues.
- It has been adopted by 49 countries, including the UK, the US, South Africa, South Korea and Singapore.
- The law allows automatic recognition of foreign proceedings and rulings given by courts in cases where the foreign jurisdiction is adjudged.
- Recognition of foreign proceedings and reliefs is left to the discretion of domestic courts when foreign proceedings are non-main proceedings.
Q What are issues with Indian framework ?
- The framework for cross-border insolvency adopted in India may require reciprocity from any country which seeks to have its insolvency proceedings recognized by Indian courts.
- This would allow Indian proceedings for foreign corporate debtors to be recognized in foreign jurisdictions.
Q What are the details about UNICTRAL ?
- It is an affiliate organization to the UN made up of business and legal professionals.
- This group develops model standards and procedures for dealing with issues affecting international business.
- Perhaps most notably, UNCITRAL promulgated the Convention on International Sale of Goods (CISG).
- The CISG is a model law commonly used as the governing provisions in contracts between parties from different nations.