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What is Law of UNCITRAL Cross Boarder Insolvency?

Law of UNCITRAL Cross Boarder Insolvency

Law of UNCITRAL Cross Boarder Insolvency

Cross Border Insolvency

  • Meaning

Insolvency of borrowers who have assets or creditors in different jurisdictions, or are subject to insolvency proceedings in multiple jurisdictions.

  • Existing Provisions / Development

Currently, only section 234 and 235 of the Code deal with cross border having limited scope. Separate Framework dealing with Cross Border Insolvency is yet to come.

  • Impact
  • Cross-border provision will empower foreign creditors to claim assets on insolvent Indian companies and vice versa.
  • Ease in Resolution
  • M&A outlook in India to improve
  • Boosts Investor’s confidence

Legislative Guide on Insolvency Law of UNCITRAL Cross Border Insolvency

Law of UNCITRAL

  • The UNCITRAL Model Law on Cross-Border Insolvency was a model law issued by the secretariat of UNCITRAL on 30 May 1997 to assist states in relation to the regulation of corporate insolvency and financial distress involving companies that have assets or creditors in more than one state.
  • Globally, the UNCITRAL Model Law has emerged as the most widely accepted legal framework to deal with cross-border insolvency issues and legislation based on the Model Law has been adopted in 44 countries in a total of 46 jurisdictions.
  • Thus, the States enacting the Model Law would be introducing useful additions and improvements in national insolvency regimes designed to resolve problems arising in cross-border insolvency cases.

The UNICITRAL Model Law is Divided into 2 Parts

  • Part-1 is “UNCITRAL Model Law on Cross-Border Insolvency” which contains 5 chapters covering general provisions, Access of foreign representatives and creditors, Recognition of a foreign proceeding and relief, Cooperation with foreign courts and foreign representatives, and Concurrent proceedings.
  • Part 2 is GUIDE TO ENACTMENT OF THE UNCITRAL MODEL LAWON CROSS-BORDER INSOLVENCY which contains 6 chapters covering the purpose and origin of the model law, main features, article-by-article remarks, assistance from the UNCITRAL secretariat, etc.

World Bank Principles for Effective Insolvency, Individual Insolvency

THE WORLD BANK PRINCIPLES FOR EFFECTIVE INSOLVENCY AND CREDITOR / DEBTOR RIGHTS SYSTEMS

  • Effective Creditor / Debtor Rights and insolvency systems are important elements of Financial System Stability.
  • “World Bank Group” accordingly has been working with partner organizations to Develop Principles for Insolvency and Creditor / Debtor Rights Systems.
  • Principles for Effective Insolvency and Creditor / Debtor Rights Systems (the Principles) are a Distillation of International Best practices on the Design aspects of these systems, emphasizing contextual, integrated solutions and the Policy Choices involved in developing those Solutions.
  • The Principles were Originally Developed in 2001 in response to a request from the International Community in the wake of the Financial Crises in emerging markets in the late 90s.
  • At the time, there were No Internationally Recognized Benchmarks or Standards to evaluate the effectiveness of domestic Creditor / Debtor Rights and insolvency systems.
  • World Bank’s initiative began in 1999 with the Constitution of an Adhoc Committee of partner Organizations and the assistance of leading international experts who participated in the World Bank’s Task Force and Working Groups.
  • The Principles themselves were Vetted in a Series of Five Regional Conferences, involving officials and experts from some 75 Countries, and Drafts were placed on the World Bank’s Website for Public Comment.
  • Bank’s Board of Directors approved the Principles in 2001 for use in connection with the joint IMF-World Bank program to develop Reports on the Observance of Standards and Codes (ROSC), subject to reviewing the experience and updating the Principles as needed.
  • National Systems depend on a range of structural, institutional, social, and human foundations to make a modern market economy work.
  • There are as many combinations of these variables as there are countries, though regional similarities have created common customs and legal traditions.
  • The Principles have been designed to be sufficiently flexible to apply as a benchmark to all country systems and to embody several fundamentally important propositions.

Report of the Bankruptcy Law Reforms Committee

BLRC Recommendations

  • A paradigm shift from ‘Debtor in Control’ to ‘Creditor in Control’ in case of persistent failure to meet liabilities.
  • Debtors under financial stress must be protected during the resolution
  • Asset Striping by promoters must be controlled before or after default.
  • The illegitimate transfer of wealth out of companies by controlling shareholders is malfeasance.

Report of the Joint Committee of the Parliament

  1. The Joint Committee on the Insolvency and Bankruptcy Code, 2015 (Chairperson: Mr. Bhupender Yadav) submitted its report on April 28, 2016. The Code was introduced in Lok Sabha and subsequently referred to the Joint Committee on December 23, 2015.
  2. The Code seeks to create a unified framework for resolving insolvency and bankruptcy in India. It provides time bound insolvency resolution processes for companies and Insolvency is a situation where a person is unable to repay his outstanding debt.
    • Creditors Committee.
    • Insolvency Professional Agencies.
    • Professional streams of IPs.
    • Performance Bond.
    • Information Utilities.
    • Information storage with IUs.
    • Purpose of establishing the Bankruptcy Fund.
    • Cross-border Insolvency.
    • Employee Benefits during Liquidation.
    • Cross-border Insolvency.

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