Cross-Border insolvency, sometimes called international insolvency, refers to a situation where an insolvent has assets or creditors in more than one country. It raises the need for a law and a body to deal with insolvencies of such kind, at a global level. It is more concerned with the insolvency of companies that operate in more than one country rather than the bankruptcy of individuals.
Apart from UNCITRAL’s Model Law, international insolvencies can be resolved by the EC Regulation on Insolvency Proceedings 2000. Both regimes locate the centre of main interest (or “COMI”) of the debtor.
About UNCITRAL
The United Nations Commission on International Trade Law proposed the UNCITRAL Model Law on Cross-Border Insolvency. This proposal was adopted on May 30, 1997, at the 13th session of UNCITRAL held in Vienna. The model can be adopted by countries with modifications. This model law has since emerged as the most widely accepted framework to deal with cross-border insolvency issues. The Model Law has, to date, been adopted by 49 countries. India has not substantially implemented the Model Law into our domestic legislation.
The Commission is composed of sixty member states elected by the General Assembly. Its membership is structured to be representative of the world’s various geographic regions and its principal economic and legal systems.
This law addresses the core issues of cross-border insolvency cases with the help of four main principles, which include access, recognition, cooperation, and coordination.
Apart from the above-mentioned, UNCITRAL seeks to facilitate international trade through the harmonization of national law on procurement based on the main principles of transparency and competition.
How does it resolve cross-border insolvency issues?
The basis of the Model Law is sometimes referred to as ‘Modified Universalism’. The methodology can be summarized into three large verticals: Rather than prescribing a single set of rules for all states to adopt, the Model Law focuses on trying to:
- Identify the most relevant jurisdiction in relation to cross-border insolvency (called the “foreign main proceedings”);
- Ensure that insolvency officials from that jurisdiction are recognized in other states; and
- Ensure that other states provide the necessary cooperation to facilitate the insolvency process in the principal jurisdiction.
All other proceedings are referred to as the “non-main proceedings”. The main proceedings are commenced where the debtor has its centre of main interest, or ‘Center Of Main Interest’ (COMI). Non-main proceedings may be commenced in any place where the debtor has a commercial establishment.
India’s Current Stand
After the Economic Survey 2022, the Indian government proposes amendments to the Insolvency and Bankruptcy Code (IBC) to introduce a cross-border resolution framework that would be tailored around a model law of the United Nations, it is set to retain powers to intervene under exceptional circumstances.
The government will have the power to intervene if it’s convinced that its insolvency framework based on the United Nations Commission on International Trade Law (UNCITRAL) isn’t adequately protecting the public interest in a particular case. It can then make a decision as it deems fit,” said one of the sources. However, it will be done only under exceptional circumstances, and in all other cases, the framework modelled after the UNCITRAL will be adopted.
Conclusion
The cross-border insolvency framework was expected to be a part of the Insolvency and Bankruptcy (Second Amendment) Bill, 2021, that the government wanted to introduce in the winter session of Parliament, but couldn’t.
India aims to amend the law, and we don’t have to go through the rigour of amending the cross-border insolvency framework of the IBC through Parliamentary clearances. However, to introduce the cross-border framework in the IBC, the government needs to amend the law.
Also Checkout: What Compelled Russia’s Invasion of Ukraine? Conflict Explained
