Cross Border Insolvency

The "Centre of Main Interests" (COMI) is a crucial concept in cross-border insolvency proceedings, particularly when dealing with multinational corporations that have assets and operations in multiple countries.

•Significance of COMI: The COMI is essentially the location where the debtor conducts its regular business and where the majority of its creditors would reasonably expect the debtor to administer its interests. It is presumed to be the location of the debtor's registered office unless proven otherwise.

•Influence on Recognition and Enforcement: The determination of the COMI is significant because it influences the recognition and enforcement of foreign insolvency proceedings in India. Under the IBC, if a foreign insolvency proceeding is recognized in India, the Indian courts may grant relief to the foreign representative of the debtor, such as a stay on legal proceedings against the debtor's assets in India.

•Factors Considered: To determine the COMI, Indian courts consider various factors, including:

•Impact on Indian Proceedings: If the COMI is determined to be in a foreign jurisdiction, Indian courts are more likely to recognize and cooperate with the foreign insolvency proceedings. This can facilitate a coordinated and efficient resolution of the debtor's financial distress across multiple jurisdictions.

•Importance of Evidence: The determination of COMI is a factual inquiry, and the burden of proof lies on the party asserting a particular location as the COMI. Therefore, it is essential to present sufficient evidence to support the claim.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6(c) (Syllabus 2022).

Key elements of the World Bank Principles for Effective Insolvency and Creditor Rights Systems:

1.Compatible Credit and Enforcement Systems:

•Scope and Objectives: The system should cover a broad range of debtors and aim to balance the interests of debtors and creditors, promote efficient resource allocation, and foster economic stability.

•Treatment of Creditors: The system should recognize and protect the rights of secured creditors while providing fair treatment of unsecured creditors. Clear rules for priority of claims are essential.

•Debtor's Rights and Obligations: Debtors should have rights (participation, discharge) and obligations (disclosure, cooperation).

•Transparency and Predictability: The system should be transparent, predictable, and consistently applied.

•Efficiency and Timeliness: Proceedings should be efficient and timely to minimize costs and maximize asset value.

2.Collateral Systems:

•This aspect is implicitly addressed within the "Treatment of Creditors" element. An effective system must have clear and enforceable rules regarding the creation, registration, and enforcement of security interests (collateral). This ensures that secured creditors can realize the value of their collateral in a predictable manner.

3.Enforcement Systems:

•Institutional Framework: An independent and impartial judiciary is crucial for resolving insolvency cases. Qualified insolvency professionals should be regulated and supervised.

•Commencement of Proceedings: Clear rules for initiating proceedings are necessary for both debtors and creditors.

•Reorganization and Liquidation: The system should provide for both reorganization and efficient liquidation to maximize asset recovery.

•Creditor Rights: A strong creditor rights system is essential for promoting lending and investment. Creditors should be able to enforce their claims effectively.

4.Credit Information System:

•While not explicitly stated as a separate principle, the existence of a reliable credit information system is implicitly linked to the overall effectiveness of the insolvency and creditor rights framework. Access to accurate and comprehensive credit information enables lenders to make informed lending decisions, assess risk, and manage their portfolios effectively. This, in turn, reduces the likelihood of defaults and the need for insolvency proceedings.

5.Informal Corporate Workouts:

•While the World Bank Principles primarily focus on formal insolvency proceedings, they recognize the importance of informal workouts as a means of resolving financial distress outside of the court system. An effective insolvency system should not discourage or impede informal workouts but rather provide a framework that supports and encourages them. This can be achieved by:

process provides a "fallback" option if informal workouts fail, which can incentivize parties to negotiate in good faith.

By addressing these key elements, countries can create an effective insolvency and creditor rights system that promotes economic growth, encourages investment, and provides a fair and efficient mechanism for dealing with financial distress.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6(d) (Syllabus 2022).

Article 30 of the UNCITRAL Model Law on Cross-Border Insolvency (and similar provisions in the EU Recast Insolvency Regulation) addresses the coordination of more than one foreign proceeding, specifically when a debtor is subject to multiple insolvency proceedings in different jurisdictions.

This article empowers a court to modify or terminate relief previously granted to a foreign representative to ensure that the proceedings are coordinated, preventing conflicting decisions and ensuring equitable treatment of creditors.

Coordination of more than one Foreign Proceeding (Article 30)

Article 30 deals with cases where the debtor is subject to insolvency proceedings in more than one foreign State and foreign representatives of more than one foreign proceeding seek recognition or relief in the enacting State. The provision applies whether or not an insolvency proceeding is pending in the enacting State. If, in addition to two or more foreign proceedings, there is a proceeding in the enacting State, the court will have to act pursuant to both Article 29 and Article 30.

In respect of more than one foreign proceeding regarding the same debtor, the court shall seek cooperation and coordination under Articles 25, 26 and 27, and the following shall apply:

(a)any relief granted under Article 19 or 21 to a representative of a foreign non-main proceeding after recognition of a foreign main proceeding must be consistent with the foreign main proceeding;

(b)if a foreign main proceeding is recognized after recognition, or after the filing of an application for recognition, of a foreign non-main proceeding, any relief in effect under Article 19 or 21 shall be reviewed by the court and shall be modified or terminated if inconsistent with the foreign main proceeding; and

(c)if, after recognition of a foreign non-main proceeding, another foreign non-main proceeding is recognized, the court shall grant, modify or terminate relief for the purpose of facilitating coordination of the proceedings.

The objective of Article 30 is similar to that of Article 29 in that the key issue in the case of concurrent proceedings is to promote cooperation, coordination and consistency of relief granted to different proceedings.

Such consistency will be achieved by appropriate tailoring of relief to be granted or by modifying or terminating relief already granted. Unlike Article 29, which, as a matter of principle, gives primacy to the local proceeding, Article 30 gives preference to the foreign main proceeding, if there is one.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6A(i) (Syllabus 2022).

According to Article 19 of the UNCITRAL, from the time of filing an application for recognition until the application is decided upon, the court may, at the request of the foreign representative, where relief is urgently needed to protect the assets of the debtor or the interests of the creditors, grant relief of a provisional nature, including: -

(a)Staying execution against the debtor’s assets;

(b)entrusting the administration or realization of all or part of the debtor’s assets located in a State to the foreign representative or another person designated by the court, in order to protect and preserve the value of assets that, by their nature or because of other circumstances, are perishable, susceptible to devaluation or otherwise in jeopardy; and

(c)any relief mentioned in Article 21.

Relief available under Article 19 is provisional in the sense that, the relief terminates when the application for recognition is decided upon; however, the court is given the opportunity to extend the measure, as provided in Article 21. The court may refuse to grant relief under this Article if such relief would interfere with the administration of a foreign main proceeding.

Article 20 enumerates the Effects of Recognition of a Foreign main Proceeding as follows:

Once foreign proceeding is recognized which is a foreign main proceeding, the following are the effects:

(a)Commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities is stayed;

(b)execution against the debtor’s assets is stayed; and

(c)the right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.

The effects provided by Article 20 are not discretionary in nature. These flow automatically from recognition of the foreign main proceeding. The automatic effects under Article 21 apply only to main proceedings.

However, the Article 20 does not affect

State relating to insolvency] or the right to file claims in such a proceeding.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6A(i) (Syllabus 2022).

The Ministry of Corporate Affairs has constituted the Insolvency Law Committee (ILC) to recommend amendments to the Insolvency and Bankruptcy Code of India, 2016. The Committee has submitted its 2nd report to the Government on 16 October 2018 recommending amendments in the insolvency and Bankruptcy Code, 2016 with respect to cross-border insolvency.

The necessity of having Cross Border insolvency Framework under the insolvency and Bankruptcy Code arises from the fact that many Indian companies have a global presence and many foreign companies have presence in India. Inclusion of comprehensive legal framework dealing with cross border insolvency will be a major step forward and will bring Indian insolvency law on a par with that of matured jurisdictions.

The ILC has recommended the adoption of the UNCITRAL Model law of Cross Border insolvency, 1997, as it provides for a comprehensive framework to deal with cross-border insolvency issues.

The Model law deals with four major principles of cross-border insolvency, namely direct access to foreign insolvency professionals and foreign creditors to participate in or commence domestic insolvency proceedings against a defaulting debtor; recognition of foreign proceedings & provision of remedies; cooperation between domestic and foreign courts & domestic and foreign insolvency practitioners; and coordination between two or more concurrent insolvency proceedings in different countries. The main proceeding is determined by the Concept of Centre of Main Interest (COMI).

The necessity of having Cross Border insolvency Framework under the insolvency and Bankruptcy Code arises from the fact that many Indian companies have a global footprint and many foreign companies have presence in multiple countries including India, although the proposed Framework for Cross Border insolvency will enable us to deal with Indian companies having foreign assets and vice versa, it still does not provide for a framework for dealing with enterprise groups, which is still work in progress with UNCITRAL and other international bodies. The inclusion of the Cross Border insolvency Chapter in the Insolvency and Bankruptcy Code of India, 2016, will be a major step forward and will bring Indian insolvency law at par with that of matured jurisdictions.

Applicability: the Committee recommended that at present, draft Part Z should be extended to corporate debtors only.

1.Duplicity of regimes: the Committee noted that currently the Companies act, 2013 contains provisions to deal with insolvency of foreign companies. It observed that once Part Z is enacted, it will result in a dual regime to handle insolvency of foreign companies. It recommended that the Ministry of Corporate Affairs undertake a study of such provisions in the Companies act, 2013 to assess whether to retain them.

2.Reciprocity: the Committee recommended that the Model law may be adopted initially on a reciprocity basis. This may be diluted subsequently upon re-examination. Reciprocity indicates that a domestic court will recognise and enforce a foreign court’s judgment only if the foreign country has adopted similar legislation to the domestic country.

3.Access to Foreign representatives: the Model law allows foreign insolvency professionals and foreign creditors access to domestic courts to seek remedies directly. Direct access with regards to foreign creditors is envisaged under the Code even presently. With respect to access by foreign insolvency professionals to Indian courts, the Committee recommended that the Central Government be empowered to devise a mechanism that is practicable in the current Indian legal framework.

4.Centre of Main interests (COMI): the Model law allows recognition of foreign proceedings and provides relief based on this recognition. Relief may be provided if the foreign proceeding is a main proceeding or non-main proceeding. If the domestic courts determine that the debtor has its COMI in a foreign country, such foreign proceedings will be recognised as the main proceedings. This recognition will result in certain automatic relief, such as allowing foreign representatives greater powers in handling the debtor’s estate.

For non-main proceedings, such relief is at the discretion of the domestic court. the Committee recommended that a list of indicative factors comprising COMI may be inserted through rule-making powers. Such factors may include location of the debtor’s books and records, and location of financing.

5.Cooperation : The Model law lays down the basic framework for cooperation between domestic and foreign courts, and domestic and foreign insolvency professionals. Given that the infrastructure of adjudicating authorities under the Code is still evolving, the cooperation between adjudicating authorities and foreign courts is proposed to be subject to guidelines to be notified by the Central Government.

6.Concurrent Proceedings : The Model law provides a framework for commencement of domestic insolvency proceedings, when a foreign insolvency proceeding has already commenced or vice versa. It also provides for coordination of two or more concurrent insolvency proceedings in diff countries by encouraging cooperation between courts. The Committee recommended adopting provisions in relation to these in draft Part Z.

7.Public policy considerations : Part Z provides that the adjudicating authority may refuse to take action under the Code if it is contrary to public policy. The Committee recommended that in proceedings where the authority is of the opinion that a violation of public policy may be involved, a notice must be issued to the Central Government. If the authority does not issue notice, the Central Government may be empowered to apply to it directly.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 6(b) (Syllabus 2017).

Actions to avoid acts detrimental to creditors (Article 23 of UNCITRAL Model Law)

Under many national laws both individual creditors and insolvency administrators have a right to bring actions to avoid or otherwise render ineffective acts detrimental to creditors. Such a right, insofar as it pertains to individual creditors, is often not governed by insolvency law but by general provisions of law (such as the civil code); the right is not necessarily tied to the existence of an insolvency proceeding against the debtor so that the action may be instituted prior to the commencement of such a proceeding. The person having such a right is typically only an affected creditor and not another person such as the insolvency administrator. Furthermore, the conditions for these individual-creditor actions are different from the conditions applicable to similar actions that might be initiated by an insolvency administrator.

The procedural standing conferred by Article 23 extends only to actions that are available to the local insolvency administrator in the context of an insolvency proceeding, and the Article does not equate the foreign representative with individual creditors who may have similar rights under a different set of conditions. Such actions of individual creditors fall outside the scope of Article 23.

The Model Law expressly provides that a foreign representative has “standing” to initiate actions to avoid or otherwise render ineffective legal acts detrimental to creditors. The provision is drafted narrowly in that it does not create any substantive right regarding such actions and also does not provide any solution involving conflict of laws. The effect of the provision is that a foreign representative is not prevented from initiating such actions by the sole fact that the foreign representative is not the insolvency administrator appointed in the enacting State.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 6(c) (Syllabus 2017).

The Model Law focuses on four elements identified as key to the conduct of cross-border insolvency cases: access, recognition, relief (assistance) and cooperation.

a)Access

These provisions give representatives of foreign insolvency proceedings and creditors a right of access to the courts of an enacting State to seek assistance and authorize representatives of local proceedings being conducted in the enacting State to seek assistance elsewhere.

b)Recognition

One of the key objectives of the Model Law is to establish simplified procedures for recognition of qualifying foreign proceedings in order to avoid time-consuming legalization or other processes that often apply and to provide certainty with respect to the decision to recognize.

These core provisions accord recognition to orders issued by foreign courts commencing qualifying foreign proceedings and appointing the foreign representative of those proceedings.

Provided it satisfies specified requirements, a qualifying foreign proceeding should be recognized as either a main proceeding, taking place where the debtor had its center of main interests at the date of commencement of the foreign proceeding or a non-main proceeding, taking place where the debtor has an establishment. Recognition of foreign proceedings under the Model Law has several effects — principal amongst them is the relief accorded to assist the foreign proceeding.

c)Relief

A basic principle of the Model law is that the relief considered necessary for the orderly and fair conduct of cross border insolvencies should be available to assist foreign proceedings. By specifying the relief that is available, the Model law neither imports the consequences of foreign law into the insolvency system of the enacting State nor applies to the foreign proceedings the relief that would be available under the law of the enacting State. Key elements of the relief available include interim relief at the discretion of the court between the making of an application for recognition and the decision on that application, an automatic stay upon recognition of main proceedings and relief at the discretion of the court for both main and non-main proceedings following recognition.

d)Cooperation and coordination

These provisions address cooperation among the courts of States where the debtor’s assets are located and coordination of concurrent proceedings concerning that debtor. The Model law expressly empowers courts to cooperate in the areas governed by the Model law and to communicate directly with foreign counterparts. Cooperation between courts and foreign representatives and between representatives, both foreign and local, is also authorized. The provisions addressing coordination of concurrent proceedings aim to foster decisions that would best achieve the objectives of both proceedings, whether local and foreign proceedings or multiple foreign proceedings.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(b) (Syllabus 2017).

Sections 234 and 235 of the Insolvency and Bankruptcy Code, 2016 make provisions to deal with cases involving cross border insolvency.

Agreements with foreign countries : Section 234 empower the Central Government to enter into an agreement with other countries to resolve situations pertaining to cross border insolvency.

Section 234 of the Code provides that:

•The Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of this Code. [Section 234(1)]

•The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified. [Section 234(2)]

Letter of request to a country outside India in certain cases –

Section 235 of the Code lays down that notwithstanding anything contained in this Insolvency and Bankruptcy Code or any law for the time being in force if, in the course of insolvency resolution process, or liquidation or bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquidator or bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India with which reciprocal arrangements have been made under section 234, he may make an application to the adjudicating authority that evidence or action relating to such assets is required in connection with such process or proceeding. [Section 235(1)]

The Adjudicating Authority on receipt of an application under sub-section (1) and, on being satisfied that evidence or action relating to assets under sub-section (1) is required in connection with insolvency resolution process or liquidation or bankruptcy proceeding, may issue a letter of request to a court or an authority of such country competent to deal with such request. [Section 235(2)]

The current cross border insolvency framework in India is dependent on India entering bilateral agreements with other countries. Finalisation of bilateral agreements is a long-drawn process as it involves long term negotiations and thus takes a lot of time. Moreover, every trade is distinct and thus it would be difficult for the adjudicating authorities to enforce the agreements/treaties entered into with other countries.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6A(iv) (Syllabus 2022).

Insolvency & Bankruptcy Code, 2016 (IBC) has enabling provisions to consider the cases of Cross Border insolvency matters involving corporate persons in India and their counter parts in any foreign nation.

Sections 234 and 235 of IBC make provisions to deal with cross border insolvencies. Section 234 of IBC empowers the Central Government to enter into agreements with other countries to deal with or resolve situations pertaining cross border insolvency. The current cross border insolvency framework in India is dependent on India entering bilateral agreements with other countries which is a long-drawn process requiring time consuming negotiations.

Section 235 requires Adjudicating Authority to file Letter of request to court or authority of a country of competent for cross border insolvency as follows:

(1)Notwithstanding anything contained in this Code or any law for the time being in force if, in the course of insolvency resolution process, or liquidation or bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquidator or bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India with which reciprocal arrangements have been made under section 234, he may make an application to the Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding.

(2)The Adjudicating Authority on receipt of an application under sub-section (1) and, on being satisfied that evidence or action relating to assets under sub-section (1) is required in connection with insolvency resolution process or liquidation or bankruptcy proceeding, may issue a letter of request to a court or an authority of such country competent to deal with such request.

Jet Airways (India) Ltd Vs State Bank of India & anr is the first case touching the realm of cross border insolvency. In the instant case, Jet Airways (India) Ltd was subjected to parallel insolvency proceedings in India as well as in Netherlands.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6A(ii) (Syllabus 2017).

The Insolvency Law Committee (ILC) on Cross Boarder insolvency constituted by the Ministry of Corporate Affairs recommended certain modifications in the existing Insolvency and Bankruptcy Code, 2016 to match with the models of United Nations Commission on International Trade Law (UNCITRAL). The necessity of having Cross Border insolvency framework arises from the fact that many Indian companies have global presence and many foreign companies are operating in India. Inclusion of comprehensive legal laws dealing with cross border insolvency will boost greater confidence among foreign investors, adequate flexibility for seamless integration with the domestic insolvency law and a robust mechanism for international cooperation.

The key recommendations of the ILC are as under:

i.The recommendation will enable Indian companies having foreign assets to proceed and take advantage of the framework of UNCITRAL.

ii.The Committee recommended that the Model Law may be adopted initially on a reciprocity basis. Reciprocity indicates that a domestic court will recognize and enforce a foreign court’s judgement only if the foreign country has adopted similar legislation to the domestic country.

iii.Access to foreign representatives- The Model Law allows foreign insolvency professionals and foreign creditors access to domestic courts to seek remedy directly.

iv.The model law will allow recognition of foreign proceedings and provides relief based on this recognition.

v.The model law lays down the basic framework for cooperation between domestic and foreign courts and domestic and foreign insolvency professionals.

vi.The model provides for commencement of domestic insolvency proceedings, when a foreign insolvency proceeding has already commenced or vice versa. It also provides for coordination of two or more concurrent insolvency proceedings in different countries by encouraging cooperation between courts.

vii.Part Z of the recommendation provides for the adjudicating authority may refuse to take action under the Code if it is contrary to public policy.

Thus, the recommendation of the Insolvency Law Committee (ILC) is completely on the lines of UNCITRAL.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(a) (Syllabus 2022).

Article 20 of the UNCITRAL Model Law provides that once foreign proceeding is recognized which is a foreign main proceeding, the following are the effects:

(a)Commenc ement or continuation of individual actions or individual proceedings concerning the debtor’s

assets, rights, obligations or liabilities is stayed;

(b)execution against the debtor’s assets is stayed; and

(c)the right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.

The effects provided by Article 20 are not discretionary in nature. These flow automatically from recognition of the foreign main proceeding. The automatic effects under Article 21 apply only to main proceedings.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 6A(ii) (Syllabus 2017).

The UNCITRAL Model Law on Cross-Border Insolvency adopted in 1997 is designed to assist States to equip their insolvency laws with a modern, harmonized and fair framework to address more effectively instances of cross border insolvency. Although the number of cross border insolvency cases has increased significantly, the adoption of national or international legal regimes equipped to address the issues raised by those cases have not kept pace.

The following circumstances necessitated the harmonization of legislations across nations with reference to cross border insolvency:

1.Continuing global expansion of trade and investment

2.Increasing evidence of cross border insolvency due to integration of trade across countries

3.National Insolvency Laws of different countries have by and large not kept pace with the trend.

Inadequate and inharmonious legal approach due to difference in regulatory platform across countries that hampers the rescue of financially troubled businesses and impede the protection of assets of the insolvent debtors against dissipation. The UNCITRAL Model law has been adopted in as many as 44 countries and therefore forms part of international best practices of cross border insolvency.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6A(i) (Syllabus 2017).

Article 29 of the of UNCITRAL Model Law gives guidance to the court that deals with cases where the debtor is subject to a foreign proceeding and a local proceeding at the same time. Where a foreign proceeding and a proceeding under the laws of the enacting State relating to insolvency are taking place concurrently regarding the same debtor, the court shall seek cooperation and coordination under Articles 25, 26 and 27, and the following shall apply:

(a)When the proceeding in the State (which has enacted Model Law) is taking place at the time the application for recognition of the foreign proceeding is filed-

(i)Any relief granted under Article 19 or 21 must be consistent with the proceeding in such State; and

(ii)If the foreign proceeding is recognized in such State as a foreign main proceeding, Article 20 does not apply;

(b)When the proceeding in such State commences after recognition, or after the filing of the application for recognition, of the foreign proceeding-

(i)Any relief in effect under Article 19 or 21 shall be reviewed by the court and shall be modified or terminated if inconsistent with the proceeding in this State; and

(ii)If the foreign proceeding is a foreign main proceeding, the stay and suspension referred to in Article 20 shall be modified or terminated, if inconsistent with the proceeding in such State;

(c)In granting, extending or modifying relief granted to a representative of a foreign non-main proceeding, the court must be satisfied that the relief relates to assets which, according to the law of the enacting State, should be administered in the foreign non-main proceeding or concerns information required in that proceeding.

The salient principle embodied in Article 29 is that the commencement of a local proceeding does not prevent or terminate the recognition of a foreign proceeding. This principle is essential for achieving the objectives of the Model Law in that it allows the court in the enacting State in all circumstances to provide relief in favour of the foreign proceeding.

***

© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(iv) (Old syllabus).

Upon recognition of a foreign proceeding, whether main or non-main, where it is necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including:

a)Staying the commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities, to the extent they have not been stayed under paragraph 1 (a) of Article 20;

b)Staying execution against the debtor's assets to the extent it has not been stayed under paragraph 1 (b) Article 20;

c)Suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been suspended under paragraph 1

(c)of Article 20;

d)Providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's assets, affairs, rights, obligations or liabilities;

e)Entrusting the administration or realization of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court;

f)Extending relief granted under paragraph 1 of Article 19; and

g)Granting any additional relief that may be available to a person or body administering a reorganization or liquidation under the law of the enacting State under the laws of that State.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(c) (Syllabus 2017).

The UNCITRAL Model Law aims at harmonization of legislations across countries. The United Nations Commission on International Trade Law (UNCITRAL) has a mandate from the General Assembly of the United Nations to harmonize and unify the law of international trade. The Model Law respects the differences among national procedural laws and does not attempt a substantive unification of insolvency law. It offers solutions that help in several significant ways to have harmony among regulatory frameworks.

The purpose of the Model Law is to provide effective mechanism for dealing with cases of cross -border insolvency so as to promote the objectives of:

(a)Cooperation between the courts and other competent authorities of different countries dealing with cases of cross-border insolvency;

(b)Greater legal certainty for trade and investment;

(c)Fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor;

(d)Protection and maximization of the value of the debtor’s assets; and

(e)Facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6(c) (Old syllabus).

Once foreign proceeding is recognized which is a foreign main proceeding, the following are the effects:

(a)Commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities is stayed;

(b)Execution against the debtor’s assets is stayed; and

(c)The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.

The effects provided by Article 20 of the UNCITRAL Law are not discretionary in nature. These flow automatically from recognition of the foreign main proceeding. The automatic effects under Article 21 apply only to main proceedings.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(ii) (Old syllabus).

Effective insolvency law systems have a number of aims and objectives. Systems should aspire to:

(i)integrate with a country’s broader legal and commercial systems;

(ii)maximize the value of a firm’s assets and recoveries by creditors;

(iii)provide for both efficient liquidation of nonviable businesses and those where liquidation is likely to produce a greater return to creditors and reorganization of viable businesses;

(iv)strike a careful balance between liquidation and reorganization, allowing for easy conversion of proceedings from one proceeding to another;

(v)provide for equitable treatment of similarly situated creditors, including similarly situated foreign and domestic creditors;

(vi)provide for timely, efficient and impartial resolution of insolvencies;

(vii)prevent the improper use of the insolvency system;

(viii)prevent the premature dismemberment of a debtor’s assets by individual creditors seeking quick judgments;

(ix)provide a transparent procedure that contains, and consistently applies, clear risk allocation rules and incentives for gathering and dispensing information;

(x)recognize existing creditor rights and respect the priority of claims with a predictable and established process; and

(xi)Establish a framework for cross-border insolvencies, with recognition of foreign proceedings.

***

© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(iv) (Old syllabus).

In order to create and maintain harmony in regulatory aspects of insolvency mechanism across countries the United Nations Commission developed a Model Law on Cross-Border Insolvency. The Model Law is not a law in its own right and has no force. It provides a legal text for incorporation into national law.

The following circumstances necessitated the harmonization of legislations across nations with reference to cross-border insolvency:

1.Continuing global expansion of trade and investment.

2.Increasing incidences of cross-border insolvency due to integration of trade across countries.

3.National insolvency laws of different countries have by and large not kept pace with the trend.

4.Inadequate and inharmonious legal approaches due to differences in regulatory platform across countries that hampers the rescue of financially troubled businesses and impede the protection of the assets of the insolvent debtor against dissipation.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(d) (Old syllabus).

(i)'The United Nations Commission on International Trade' (UNCITRAL) is a subsidiary body of the United Nations General Assembly, established in 1966. The Body is responsible for preparing international legislative texts for use by different Nations to have uniform and harmonious legislations to promote International Trade.

(ii)UNCITRAL has prepared the Legislative Guide on Insolvency Law with the objective to amicably settle the business deals. The Guide is divided into four parts.

(iii)Part One discusses the key objectives of an insolvency law , structural issues such as relationship between insolvency law and other law, the type of mechanisms available for resolving a debtor's financial difficulties, etc.

(iv)Parts Two to four deal with core features of an effective insolvency law, treatment of enterprise groups in insolvency and focus on the obligation that might be imposed upon those responsible for making decisions with respect to the management of an enterprise when such unit is facing insolvency or insolvency is inevitable.

(v)All Cross – border insolvency issues are thus tackled by the UNCITRAL as a guiding role.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(a) (Syllabus 2017).

(i)Article 14 of the UNCITRAL Model suggests the procedure for States (Member Nations) enacting Insolvency Law the manner of notification to be given to creditors.

(ii)Such notification shall also be given to the known creditors that do not have addresses in the state.

(iii)Notifications shall be made to the foreign creditors individually, unless the Authority/ Court that under the circumstances, some other form of notification would be more appropriate.

(iv)Notice shall indicate a reasonable time for filing claims, whether secured creditors need to file their secured claims and other information as required either by law or authority.

(v)The main purpose of notifying foreign creditors is to inform them of the commencement of insolvency proceedings and of the time limit to file their claims.

(vi)Contain any other information required to be included in such a notification to creditors pursuant to the law of this State and the orders of the court.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(i) (Syllabus 2017).

Obiter dicta refers to opinion expressed in a court by the Judge but not essential to the decision and hence is not binding. Thus the statement emphasizes to adopt the law as legislation in member countries but not binding on courts unless incorporated in a legislation. Framing of UNCITRAL Model Law is necessitated due to:

a)Global expansion of trade and investment;

b)Inadequate and inharmonious legal approaches due to difference in regulatory platform across countries that hampers the rescue of financially troubled businesses and impede the protection of the assets of the insolvent debtor against dissipation;

c)Increasing incidences of cross border insolvency due to integration of trade across countries;

d)National insolvency laws of different countries have by and large not kept pace with the trend.

Main thrust of the Model Law is to achieve fair and efficient administration of cross border insolvencies protecting the interest of every stakeholder.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(ii) (Old syllabus).

Sections 234 and 235 of the Insolvency and Bankruptcy Code, 2016 make provisions to deal with cases involving cross border insolvency. Section 234 empowers the Central Government to enter into an agreement with other countries to resolve situations pertaining to cross border insolvency.

Section 235 of the Code lays down that notwithstanding anything contained in this Code or any law for the time being in force if, in the course of insolvency resolution process, or liquidation or bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquidator or bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India with which reciprocal arrangements have been made under section 234, he may make an application to the Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding. [Section 235(1)].

The Adjudicating Authority on receipt of an application and, on being satisfied that evidence or action relating to assets is required in connection with insolvency resolution process or liquidation or bankruptcy proceeding, may issue a letter of request to a court or an authority of such country competent to deal with such request. [Section 235(2)].

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(ii) (Syllabus 2017).

Decision to recognize a foreign proceeding (Article 17 of the UNCITRAL Model Law)

Subject to Article 6, a foreign proceeding shall be recognized under UNCITRAL Model Law if:

(a)The foreign proceeding is a proceeding within the meaning as defined under Article 2;

(b)The foreign representative applying for recognition is a person or body within the meaning as defined under Article 2;

(c)The application meets the requirements of Article 15; and

(d)The application has been submitted to the court referred to in Article 4.

The foreign proceeding shall be recognized as a foreign main proceeding if it is taking place in the State where the debtor has the centre of its main interests (COMI); or as a foreign non-main proceeding if the debtor has an establishment. The purpose of Article 17 is to indicate that, if recognition is not contrary to the public policy of the enacting State and if the application meets the above said requirements, recognition will be granted as a matter of course. A decision to recognize a foreign proceeding would normally be subject to review or rescission, as decision of any other court.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(b) (Old syllabus).

The UNCITRAL Model Law contains following provisions to protect the interest of the creditors (in particular local creditor), the debtor and other affected persons –

a)Availability of temporary relief upon application for recognition of a foreign proceeding or upon recognition is subject to the discretion of the court, it is expressly stated that in granting such relief the court must be satisfied that the interests of the creditors and other interested persons including the debtors are adequately protected (Article 22).

b)The court may subject the relief it grants to conditions it considers appropriate.

c)The court may modify or terminate the relief granted, if so required by a person affected thereby (Article 22).

In addition to those specific provisions, the UNCITRAL Model Law in a general way provides that the court may refuse to take an action governed by the Model Law if the action would be manifestly contrary to the public policy of the enacting State (Article 6).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(iii) (Old syllabus).

A model law is generally used differently than a legislative guide. Specifically, a model law is a legislative text recommended to States to enact as part of National Law, with or without modification. As such, model laws generally propose a comprehensive set of legislative solutions to address a particular topic and the language employed supports direct incorporation of the provisions of the model law into a national law.

On the other hand, legislative guide focuses upon providing guidance to legislators and other users and for that reason guides generally include a substantial commentary discussing and analysing relevant issues. It is not intended that the recommendations of a legislative guide be enacted as part of law as such. Rather, they outline the core issues that it would be desirable to address in that law, with some recommendations providing specific guidance on how certain legislative provisions might be drafted.

The purpose of the Legislative Guide on Insolvency Law is to assist the establishment of an efficient and effective legal framework to address the financial difficulty of debtors. The Legislative Guide provides a comprehensive statement of the key objectives and principles that should be reflected in a State’s insolvency laws.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(a) (Syllabus 2017).

The purpose of the Model Law is to provide effective mechanisms for dealing with cases of cross-border insolvency so as to promote the objectives of:

(a)Cooperation between the courts and other competent authorities of different countries dealing with cases of cross-border insolvency;

(b)Greater legal certainty for trade and investment;

(c)Fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor;

(d)Protection and maximization of the value of the debtor’s assets; and

(e)Facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6(b) (Old syllabus).

Effect of recognition of a foreign main proceeding (Article 20)

Once foreign proceeding is recognized which is a foreign main proceeding under the UNCITRAL Model Law, the following are the effects:

(a)Commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities is stayed;

(b)Execution against the debtor's assets is stayed; and

(c)The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.

The effects provided by Article 20 are not discretionary in nature. These flow automatically from recognition of the foreign main proceeding. The automatic effects under Article 21 apply only to main proceedings.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6A(iii) (Old syllabus).