UNCITRAL Model for Cross Border Insolvency developed

Context

The Ministry of Corporate Affairs (MCA) has published a draft framework for cross-border insolvency proceedings based on the UNCITRAL (United Nations Commission on International Trade Law) model under the Insolvency and Bankruptcy Code.

About Cross border insolvency proceedings

• Cross-border insolvency proceedings are relevant for the resolution of distressed companies with assets and liabilities across multiple jurisdictions.
• A framework for cross-border insolvency proceedings allows for the location of such a company’s foreign assets, the identification of creditors and their claims.
• This helps establish payment towards claims as well as a process for coordination between courts in different countries.

About Insolvency and Bankruptcy Code (IBC)

• The IBC, 2016 is the bankruptcy law of India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
• It is a one-stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.
• The code aims to protect the interests of small investors and make the process of doing business less cumbersome.

Current status in IBC

• While foreign creditors can make claims against a domestic company, the IBC currently does not allow for automatic recognition of any insolvency proceedings in other countries.
• Current provisions under the IBC do not allow Indian courts to address the issue of foreign assets of a company being subjected to parallel insolvency proceedings in other jurisdictions.