ILC submits 2nd Report on Cross Border Insolvency; recommends adoption of UNCITRAL Model Law

Oct 22, 2018 17:49 IST
ILC submits 2nd Report on Cross Border Insolvency; recommends adoption of UNCITRAL Model Law

The Insolvency Law Committee (ILC) on October 22, 2018 submitted its 2nd Report on Cross Border Insolvency to Arun Jaitley, Minister of Finance and Corporate Affairs.

The ILC was constituted by the Ministry of Corporate Affairs to recommend amendments to Insolvency and Bankruptcy Code of India, 2016,  

The ILC 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 Committee also recommended a few steps to ensure that there is no inconsistency between the domestic insolvency framework and the proposed Cross Border Insolvency Framework.

UNCITRAL Model Law of Cross Border Insolvency, 1997

The UNCITRAL Model Law has till now been adopted in 44 countries and forms part of international best practices in dealing with cross border insolvency issues. The model law gives precedence to domestic proceedings and protection of public interest.

The advantages of the model law include greater confidence generation among foreign investors, adequate flexibility for seamless integration with the domestic Insolvency Law and a robust mechanism for international cooperation.

Four major principles of UNCITRAL Model Law

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 practioners
  • 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).

Significance

Considering that many Indian companies have a global footprint and many foreign companies have presence in multiple countries including India, having Cross Border Insolvency Framework under the Insolvency and Bankruptcy Code becomes necessary.  

Although the proposed Framework for Cross Border Insolvency will help dealing 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 UNCITRAL Model Law of Cross Border Insolvency in the Insolvency and Bankruptcy Code of India, 2016 will bring Indian Insolvency Law on a par with that of matured jurisdictions.

 

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