The Indian government’s consideration to amend insolvency laws, using guidelines provided by the United Nations Commission on International Trade Laws (UNCITRAL), is an initiative expected to provide a robust legal framework for addressing cross-border insolvency issues. The move involves amendments to Section 234 and Section 235 of the existing Insolvency and Bankruptcy Code (IBC), which currently lacks provisions for effectively dealing with such cases. This article reveals the intricacies of the proposed amendments in the IBC, the significance of incorporation of UNCITRAL Model Law and what it entails for corporate debtors and the banking sector.
Individual Insolvency: A New Categorization
Under the modified framework, individuals are divided into three distinct categories: personal guarantors, proprietors, and common individuals. This classification is set to streamline the initiation of resolution processes, particularly in relation to personal guarantors to corporate debtors, proprietorship, and partnerships.
Cross-Border Insolvency and Its Impact
Interestingly, the new provisions for cross-border insolvency apply solely to corporate debtors and exclude personal cases. Their inclusion aims to facilitate Indian firms in claiming their dues from foreign companies. Similarly, it provides a route for foreign creditors to recover loans from Indian companies. Further, it offers a significant aid to the foreign branches of Indian banks in recovering their dues domestically.
The Four Cornerstones of UNCITRAL Model Law
The UNCITRAL Model Law on Cross-Border Insolvency of 1997 outlines four primary principles of cross-border insolvency. These include provision for direct access to foreign insolvency professionals and foreign creditors to participate in or instigate domestic insolvency proceedings against a defaulting debtor, recognition of foreign proceedings and provision of remedies, cooperation between domestic and foreign courts and insolvency practitioners, as well as coordination between two or more concurrent insolvency proceedings in different countries. The primary proceeding is determined by the concept of Centre of Main Interest (COMI).
An Insight Into UNCITRAL
| Established in: | 1966 |
|---|---|
| Main Function: | International Trade Law |
| Recognition: | Promoting friendly relations among States through international trade cooperation |
| Member Countries: | India is a member among eight others |
The Advantages of Cross-Border Insolvency Provisions
The inclusion of cross-border insolvency provisions not only brings the overseas assets of a domestic corporate debtor under Indian insolvency resolution consideration but also expedite the resolution of stressed assets, thereby avoiding delays. The United Nations Commission on International Trade Law (UNCITRAL) is essentially the legal cornerstone of the United Nations system that caters to international trade law. UNCITRAL’s various model laws, conventions, legislative guides, and well-considered debates in its working groups offer countries an excellent platform to compare, scrutinize, debate, and adopt the principles of international commercial and trade law that suit their circumstances best. Since its inception in 1966, UNCITRAL has garnered recognition for fostering international trade cooperation among States, thus promoting friendly relations and maintaining peace and security. With India being one of merely eight member countries of UNCITRAL, these changes will likely have a significant impact on the country’s insolvency resolution processes and outcomes.
