The Insolvency Law Committee (ILC) has recently submitted its second report to the Indian Government in connection with the issue of cross-border insolvency. The ILC was established by the Ministry of Corporate Affairs with an aim to recommend amendments to the Insolvency and Bankruptcy Code of India, 2016. Given that many Indian firms are operating on a global level and multiple foreign corporations have their presence in India, the development of a concrete framework under the Insolvency and Bankruptcy Code is indeed critical.
Committee Recommendations
The ILC has advised the government to adopt the UNCITRAL Model Law on Cross-Border Insolvency, 1997, which provides an all-encompassing structure to handle cross-border insolvency matters. Alongside this, the committee suggested certain measures to ensure alignment between the domestic insolvency framework and the proposed Cross-Border Insolvency Framework.
UNCITRAL Model Law on Cross-Border Insolvency, 1997
The model law was designed to aid nations in equipping their insolvency laws with an advanced legal structure for dealing more effectively with cross-border insolvency processes pertaining to debtors experiencing severe financial trouble or bankruptcy. The law focuses on four key principles of cross-border insolvency which include Access, Recognition, Cooperation, and Coordination.
Adoption by International Community
This Model Law, which forms part of international best practices for managing cross-border insolvency issues, has been adopted by 44 countries including the UK, the USA, Japan, South Korea, and Singapore.
UNCITRAL’s Role
The United Nations Commission on International Trade and Law (UNCITRAL) is the principal legal entity within the United Nations system in the field of international trade law. It comprises 60 member states elected by the United Nations General Assembly for a term of six years. India has been a member of UNCITRAL and will continue to serve until 2022.
Table of Benefits from Adopting Model Law
| Factor | Benefit |
|---|---|
| Foreign investment | Positive signaling to global investors, increasing foreign investments. |
| Flexibility | Model Law is designed to respect differences among national insolvency laws. |
| Domestic interest protection | Model Law provides public interest protection. |
| Priority to domestic proceedings | Model Law prioritizes domestic insolvency proceedings over foreign ones. |
| Cooperation mechanism | Model Law facilitates cooperation and coordination between courts and professionals. |
| Global standards | Inclusion of the Cross-Border Insolvency Chapter aligns India with matured jurisdictions. |
Insolvency and Bankruptcy Code, 2016
The code creates a framework for resolving insolvency in India. It applies to companies, partnerships, limited liability partnerships, individuals, and any other body specified by the Central Government. The resolution process will be conducted by a licensed insolvency professional (IP). The IP will control the debtor’s assets during the process. Insolvency professional agencies will be created to regulate these IPs. The agencies will conduct examinations for enrolling IPs and enforce a code of conduct for their functioning.
Salient Features of the Insolvency and Bankruptcy Code
The Code outlines the establishment of multiple information utilities to collect, collate and distribute financial info about a debtor, including a record of their debt and liabilities. It also proposes the establishment of the Insolvency and Bankruptcy Board of India as a regulator to oversee the functioning of IPs, insolvency professional agencies, and information utilities. The Board will consist of 10 members, including representatives from the Central Government and the Reserve Bank of India. Additionally, the Code proposes setting up an Insolvency and Bankruptcy Fund which will receive voluntary contributions from any person. In case of insolvency proceedings being initiated against the contributor, they will be allowed to withdraw their contribution for making payments to workmen or for protecting their assets.