Cross-border insolvency framework will help attract more FDI: Experts

The global investor community is likely to take a positive view of the Centre’s plan to usher in a cross border insolvency framework, say insolvency law experts.

Once approved, the proposed cross border insolvency framework will lead to more cross-border deals and help in making India an attractive FDI target by reducing the risks associated with insolvency, they said.

The Corporate Affairs Ministry is looking to introduce a globally accepted and well recognised cross-border insolvency framework, fine tuned to suit the needs of aspirational Indian economy. The draft of the proposed cross border insolvency framework has been exposed for stakeholder comments by June 30.

Inflow of foreign direct investment (FDI) into India in 2017-18 increased to $ 61.96 billion compared to $60.08 billion in the previous fiscal, Commerce Minister Suresh Prabhu said here recently.

The Government has taken initiative for Cross-Border Insolvency within the Insolvency & Bankruptcy Code, 2016 (IBC) to provide a comprehensive legal framework.

Global experience demonstrates that cross-border investment decisions and their outcomes, are considerably affected by the insolvency laws in force in a country. Towards this end, although the IBC has resulted in significant improvement in India’s insolvency regime, there is a need to include cross-border insolvency in the Code to provide a comprehensive insolvency framework.

Inclusion of cross-border insolvency framework is expected to further enhance ease of doing business, provide a mechanism of cooperation between India and other countries in the area of insolvency resolution, and protect creditors in the global scenario. Furthermore, it will make India an attractive investment destination for foreign creditors given the increased predictability and certainty of the insolvency framework.

Experts’ take

Harsh Pais, Partner, Trilegal, a law firm, said this (cross border insolvency framework) is a positive step and meets one of the main lacunae in the bankruptcy code — modern business is transnational and the law should proceed on that basis.

“The right choice has been made in adopting the global standard, viz, UNCITRAL model law”, he said.

Dinkar Venkatasubramanian, Partner (Restructuring & Turnaround Services), EY, said that cross-border insolvency was always intended to be an integral part of the law. He said that foreign creditors and Indian creditors will be at par if the framework on cross-border insolvency gets introduced in India.

“It would provide greater efficiency and certainty on cross-border insolvency issues. The levelling of the playing field is a significant move which would be viewed positively by the global investor community and by multinational corporations”, he said.

Venkatasubramanian said that the model law will make it very easy for Indian MNCs and global MNCs to resolve insolvencies seamlessly across borders.

Asked about the implications of cross-border insolvency law on M& A deals, Abhijeet Biswas, MD & Co-Founder, 7i Advisors LLP, an investment banking firm involved in cross-border M&As, said overall this regulation, if approved, would certainly help in making India an attractive FDI target by reducing the risks associated with insolvency and hence lead to many cross border deals.

“It is also a big positive for lenders including equity investors as it sets the right tone to their investment committee that due processes would be followed that are globally acceptable,” he said.

Biswas said that cross-border deals, both inbound and outbound, would greatly benefit from the reduced risk perception of India as a destination where strong Insolvency law exists. This would encourage lot many lenders to consider backing M&A transactions involving India, he said.

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