The country’s Insolvency and Bankruptcy Code (IBC) particularly on corporate insolvency issues is expected to see some changes as the government is likely to come up with a comprehensive framework for cross-border insolvency and make several changes to the corporate insolvency resolution process (CIRP) to avoid delays in resolution process.
The Corporate Affairs Ministry (MCA) will soon finalise the proposals for a comprehensive framework on cross-border insolvency, which when enacted as part of IBC could aid in further easing up of doing business in India.
“We are discussing the comments received on the consultation paper…We are approaching the suggestions with an open mind,” a senior official in the Ministry told BusinessLine . The MCA had in November 2021 invited public comments on the proposed legal framework for cross border insolvency.
Targeting Budget session
After MCA firms up the framework, it will have to go to the legislative department for the vetting of the Bill and then to the Union Cabinet for the approval. Although no timeline can be predicted for enactment of the cross-border insolvency framework, indications are that the government may push for enactment of the IBC amendment Bill in upcoming Budget session.
The new comprehensive 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. This UN Model law is now proposed to be tweaked to suit the Indian context and requirements.
The economic imperative of having a comprehensive cross border insolvency framework is compelling, especially given the inter-connectedness and dependence of economies in a post globalised world, sources said. There has now been high levels of cross border investments, foreign borrowings and movement of people and financial risks are now transmitted through global markets. The situation gets even complicated when companies facing failure have assets in several countries with differing and conflicting insolvency frameworks.
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 MCA. The ILC report recommended the adoption of model UN law — 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. In January 2020, a committee was constituted to recommend rules and regulations for implementing the proposed Part Z.
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. Hence the need for a comprehensive legal framework on cross border insolvency, sources explained.
(Inputs from KR Srivats)