Cross-Border Insolvency

Cross-Border Insolvency
Introduction
Cross-border insolvency modulates the treatment of financially distressed
borrowers where such borrowers have creditors or assets in more than one
nation. International insolvency chiefly accentuates on three modules: choice
of law, jurisdiction and enforcement of dictum rules. Indeed, cross-border
insolvency fetches with it a host of legal and ethical convolutions and
ramifications. Nonetheless, in the matters pertaining to the international
insolvency cases, the prime focus inclines on the recognition of foreign
functionaries and their powers. The UNCITRAL Model Law on Cross-Border
Insolvency and the EC Regulation on Insolvency Proceedings 2000 are the
two fundamental contemporaneous regimes for the cross-border insolvencies
that have been executed on something outspread than a territorial basis.
The Insolvency Law Committee had recommended that India should embrace
UNCITRAL Model Law of Cross Border Insolvency, 1997 for its
international insolvency framework. The ILC discerned that the current
provisions in the Insolvency and Bankruptcy Code, 2016 do not furnish a
comprehensive anatomy for international insolvency affairs. Hence, the ILC
dogged to endeavour to proffer a comprehensive array for this purpose based
on the UNCITRAL Model Law on Cross-Border Insolvency, 1997 that could
be made a snippet of the IBC, 2016 by interposing a discrete segment for this
purpose.
The adoption of the model law has proven to be the best international practice
in dealing with cross border insolvency issues in the member states. The
model law ensures that the supremacy is given to the national proceedings,
greater credence generation amongst the foreign investors, protection of the
public interest, vigorous mechanism for international liaison and apposite
pliability for seamless unification with national insolvency law.
Benefits of espousing the UNCITRAL Model Law as recommended by

the Committee:
 Precedence to domestic insolvency proceedings: The UNCITRAL

Model Law gives priority to the national proceedings in relation to
foreign proceedings. The model legislation enables negation of
acclamation of foreign provisions or proceedings of any other
assistance if such activity contradicts the national public policy. Hence,
it safeguards the domestic interest.
 Pliability: The UNCITRAL Model Law has been delineated to be

pliant and to regard the dissimilarities amongst domestic insolvency
legislations. Hence, inevitable carve outs may be made in connection
to the Model Law to perpetuate equilibrium with national insolvency
legislation whilst embracing a ubiquitous accepted anatomy.
 Mechanism for liaison: The model legislation assimilates a vigorous

medium for coordination and cooperation between insolvency
professionals and courts, in domestic and foreign jurisdictions.
Thereby, it precipitates swift and constructive conduct of synchronous
proceedings.
 Inflating foreign investment: Although the foreign creditors have a

remedy under the contemporary code, but the espousal of the model
legislation will provide added routes for the recognition of foreign
insolvency proceedings and foster cooperation &communication
between national and foreign courts and insolvency executives.
Popularity of the UNCITRAL Model Law has scaled up in the current
years and its espousal shall also entitle India to ally with the universal
superlative applications in insolvency liquidation and resolution.
Furthermore, there will be are markable affirmative signalling to
international creditors, investors, multinational corporations,
governments and international syndicates such as the World Bank with
regards to the robustness of India’s economic sector reforms.
UNCITRAL Model Law is based on the following principles of cross-

border insolvency:
 Access: The model legislation enables the foreign creditors and

foreign insolvency executives to have a direct access to the national
courts. It also confers on them the capacity to engage in and start off
the national insolvency proceedings against a borrower. Albeit, with
respect to foreign creditors direct admittance is envisioned under the
Code currently. With regards to the access to Indian courts by the
foreign insolvency officials, the ILC has commended that the Central
Government be entitled to contrive a framework that is viable in the
present Indian legal system.
 Recognition: The UNCITRAL Model Law permits recognition of

foreign lawsuits and provision of remedies by national courts based on
such approbation. Relief can be granted if the foreign lawsuit is either
a main or non-main proceeding. If the national courts ascertain that
the borrower has its centre of main interests in the foreign country,
then such a foreign insolvency lawsuit is regarded as the main
proceeding. Whereas, if the national courts deduce that the borrower
has an establishment (by exerting a test established on carrying on of
non-transitory financial pursuit), then such a foreign insolvency lawsuit
is contemplated as the non-main proceeding. Recognition as a main
proceeding will upshot in automatic relief, such as an embargo on the
transfer of assets of the borrower and authorize the foreign
representative substantial powers in administering the estate of the
borrower. Whereas in case of non-main proceedings, such relief
depends on the volition of the national court.
 Cooperation: The model legislation lays down the rudimentary

anatomy for liaison between national and foreign insolvency executives
and national and foreign courts. Provided that the framework of
Adjudicating Authorities under the Code is still developing, the liaison
between foreign courts and Adjudicating Authorities is propounded to
be subject to recommendations to be apprised by the Central
Government, and not intrinsically. Nevertheless, direct liaison between
foreign insolvency executives and Adjudicating Authorities, national
and foreign insolvency executives inter se and between national
insolvency executives and foreign courts has been perpetuated as is
provided under the UNCITRAL model legislation. Markedly, liaison
may also be provided to foreign lawsuits that have not been recognised
as either main or non-main.
 Coordination: The UNCITRAL Model Law provides an anatomy for

the outset of national insolvency lawsuits, when a foreign insolvency
lawsuit has already begun or contrariwise. By invigorating liaison
between the courts, it also provides coordination to two or more
synchronous insolvency lawsuits in divergent nations.
Conclusion:
The desideratum for adopting the UNCITRAL Model Law of Cross Border
Insolvency, 1997 framework under the Insolvency and Bankruptcy Code
ensues from the fact that many Indian corporations have a global standing and
many foreign business entities have their footmarks in multiple states in India.
Even though the posited model legislation will permit the foreign nations to
deal with Indian corporations having foreign assets and vice versa. Yet, it still
does not proffer an anatomy for dealing with enterprise groups- it is still work
in progression with UNCITRAL and other international organizations. The
incorporation of the Cross-Border Insolvency section in the IBC, 2016 will
herald a cardinal step ahead and will bring our insolvency law on par with that
of the foreign jurisdictions.

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Cross-Border Insolvency

Benefits of espousing the UNCITRAL Model Law as recommended by

 Precedence to domestic insolvency proceedings: The UNCITRAL

 Pliability: The UNCITRAL Model Law has been delineated to be

 Mechanism for liaison: The model legislation assimilates a vigorous

 Inflating foreign investment: Although the foreign creditors have a

UNCITRAL Model Law is based on the following principles of cross-

 Access: The model legislation enables the foreign creditors and

 Recognition: The UNCITRAL Model Law permits recognition of

 Cooperation: The model legislation lays down the rudimentary

 Coordination: The UNCITRAL Model Law provides an anatomy for

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