The much-awaited comprehensive cross-border insolvency framework is soon to become a reality with the Centre planning to introduce an IBC amendment Bill in the upcoming Winter Session of Parliament. The Bill has been listed as part of the government’s legislative agenda.
This will be the second time that an amendment to the IBC has been sought this year, the previous being an Ordinance in April for introducing pre-packaged insolvency regime for MSMEs. The law replacing this Ordinance was enacted in August.
IBC based on UN model law
The new framework is likely to be largely patterned on the UNCITRAL model law on cross-border insolvency, which has been the widely-accepted UN model legal framework adopted by the US, UK, Japan and Singapore, sources said. Indications are that the proposed Bill will only provide for comprehensive framework for cross-border insolvency and leave the other unfinished reform on enterprise group insolvency to another day, said sources. The government’s efforts to put in place a comprehensive framework on cross-border insolvency has been in the works for few years now. The Insolvency Law Committee (ILC) had, in October 2018, submitted a report on cross-border insolvency to the Ministry of Corporate Affairs. The ILC report recommended the adoption of model UN law, that is, the UNCITRAL model with certain modifications. The ILC had submitted a draft law — referred to as Part Z as a separate part of IBC – which is intended to govern all applications seeking recognition of foreign insolvency proceedings as well as applications seeking cooperation in such proceedings from the NCLT.
The MCA had, in January 2020, constituted a committee to recommend rules and regulations for implementing the proposed Part Z.
This panel recommended, among other things, the capacity-building requirements at the NCLT and IBBI to deal with cross-border matters; that the IBC provisions be made applicable for foreign companies that have an establishment in India; foreign representatives must be given access to the domestic insolvency system and infrastructure in India for the purpose of cross border insolvency proceedings; a principle based, light-touch code of conduct should be applied for foreign representatives acting in proceedings under IBC. It also made a case for the regulator IBBI to be empowered to undertake investigation and disciplinary action against misconduct by foreign representatives.
Currently, there are only two provisions of IBC (section 234 and 235) that deal with bilateral agreements and issuance of letters of request to foreign courts by adjudicating authorities for enforcing the provisions of IBC as regards assets of a corporate located abroad. The ILC had noted that these two provisions are not comprehensive and were susceptible to delay and uncertainty.
“The negotiation of bilateral treaties with foreign governments, however, would still be an uphill task and it may take some more time to emerge. An unwavering and sturdy framework alike the UNCITRAL model law on cross-border insolvency could ease up the whole insolvency process and aid in further easing up doing business in India,” said Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP.
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