Understanding the need for a Cross Border Insolvency Regime within Insolvency and Bankruptcy Code
By Mr. Miheer Jain,
Third-Year B.B.A L.L.B(Hons.) School of Law, NMIMS Mumbai
The paper is to focus on insolvency issues in the international context. In absence of a cross-border insolvency code, effective treatment of the debtors where the debtor has their assets in more than one country becomes difficult. Cross border insolvency code is associated with the company’s insolvency process where the companies are operating in more than one country with a diversified asset portfolio in different parts of the globe. Cross border insolvency similarly manages the issue as it was managed by but traditional conflict systems. The current study is to explore the effectiveness of the legal codes in managing the issues associated with the distressed debtors and analyze in the light of a legal context. The cases will be explored where the insolvency process could have successfully managed the international issues by the qualified institutions recognized for managing insolvency cases. These are described in section 234 section 235. The insolvency law committee consists of the ministry of corporate affairs engaged in a continuous recommendation for an amendment to the law and offers a comprehensive framework for International insolvency case management. It has been found that there is a significant delay in the proper framework creation as it was perceived by the court. The study is to analyze the effectiveness of insolvency codes within an international context.
Concept of Insolvency Code in India
The implementation of the International insolvency code is to explore the issue of conflicts in the cross border. The companies showing debt to avoid making payment of the debt is to be examined as per the external wealth and accumulation of resources outside the country of operation. Insolvency is considered to be one of the significant concepts associated with the International insolvency issue. The growing network of subsidiaries is generating the demand for improving the legal framework for effective management of International shops. The major issue emerges when the company undergoes financial distress as it creates complexity in generating the resolution of the problems. Most countries have been ruled by the domestic insolvency resolution process and regulations which remain effective in managing the International issue. The organizations hardly allow the country to examine its assets situated outside the country as it was found in the Cambridge gas corporation V the official committee of unsecured creditors 2006. The committee stated the universalism insolvency proceeding which is considered to be the golden treat of common law. The effectiveness of the insolvency proceeding is largely supported by the International frameworks. The insolvency codes developed within the section 234 and 235 have been sufficient to manage the insolvency issues occurred internationally.
It is important to incorporate the insolvency Framework developed by the United States where the bankruptcy agency code refers to the United Nations Commission on international trade law. It is also called International UN law as it is found in the documents section 1501. The model explores the concept of modified universalism which offers the concept regarding corporate insolvency in a better manner. The court focuses on the distribution of assets as per the relevant principle and provisions. It is necessary to examine the issue existing in the Indian insolvency process as it was narrated and prescribed in Indian law.
The Insolvency Code in the light of the major causes
The insolvency and bankruptcy code is considered to be one of the significant legislation to make an effective insolvency resolution process in a quick, robust and efficient way. It consolidates the loss associated with the insolvency resolution process associated with the company. It has been found that it has repealed many existing laws which have grown to be outdated and these are the Presidency Towns Insolvency Act 1909 and Twinkle Insolvency Act 1920. At the time of the amendment of the partnership act 1932, there was a significant change in the insolvency code and practices. The code has a significant provision to override other existing laws. It was in the Innovative Industry Limited Case where the Supreme Court is found to have offered the judgment as per the “exhaustive code on the subject of insolvency” associated with the corporate entities. It was found in the case of Innovative Industries Limited vs ICICI bank limited 2017. There were five significant parts in the bankruptcy code. It helps in dealing with the insolvency resolution and liquidation insolvency resolution bankruptcy for partnership from an individual firm regulation of insolvency professional informal utilities. The scheme associated with the International insolvency resolution process consists of a provision under part 5 of the insolvency code.
The formation of the Insolvency Code based on the International Standard
The basic framework of International insolvency was offered by the UN Model law of the united nation as it was approved in 1997 to support the nations in framing the insolvency law for addressing the issues of International proceedings. The Model Law offers an efficient cost-effective and fair manner to manage transnational insolvency cases. Insolvency proceeding is improved over the period and it requires a uniform framework to bring about the resolution of the problem fairly and effectively. It has offered a uniform framework that has been followed by 44 countries in 2019 including United States, Canada, South Africa, Japan New Zealand, and Singapore. The Model Law of the united nation offers a significant framework that has been adopted by different jurisdictions. It involves significant association with the cross-border bodies such as the Asian Development Bank, World Bank, and the International Bar Association. The Institution continuously supports the countries in operating the insolvency framework offered by model law. Article 9 associated with international Model law reveals that an international representative has the right to apply to the local court. As per article 11, it is found that the foreign representative has the right of commencement of proceeding to resolve the issue of insolvency and all the domestic laws if the condition is fulfilled as per the local law associated with the insolvency cases. The model also allowed forming representative to be involved in the insolvency cases from the perspective of the debtor. The UNCITRAL legislative is associated with the remarkable document which helps to encourage better practices in managing domestic and international insolvency laws. The model law is found to have effective International efficiency and effectiveness. Article 19 of the model law reveals the protection of the interest of the creditor and the protection of the asset of the debtor in the context of insolvency proceedings. It is in this context that the data is provided with provisional relief upon the application of representatives from a foreign land. The Framework offers significant protection to the debtor at the time the preceding that is associated with the insolvency cases.
The framework of insolvency law offered by the model law is to recognize the qualifying foreign proceeding. This unique framework not only cuts proceeding costs but also time and resources. The qualifying foreign proceeding is found to have recognized the data when the case involves the debtor’s main area of jurisdiction and the main center of interest. The model law involves the identification of the international proceeding as per article 15 with the inclusion of a certain document that involves the approved copy of decision commencement regarding the foreign cases and the certificate associated with the foreign code which formed the existence of a foreign proceeding. Article 17 reveals the recognition of the main proceeding as per the Framework offered by the model law. It is similarly explained in the insolvency code of India to deal with the international proceeding. The model law has provided a unique framework that enables to resolve the issue. Therefore, it can be said that the legal framework offered by the model law is highly effective and efficient. The model needs to be adopted to resolve the international complicated insolvency cases.
Relief to debtor
The law involving the relief to the debtor against the creditor and stay order is also provided in the case of foreign main proceedings and insolvency process. The debtor is offered automated relief and it also prevents the stay of judgment against the debtor asset and suspension of the rights of the debtor to transfer the asset. The court is empowered with the offering of relief to the debtor as it is enumerated in section 235 of an Indian insolvency proceeding. To have a viable approach to managing the International insolvency issues essential to the court paradigm, the model law offers clear and effective procedures and processes.
Two important sections in insolvency International provisions are found in the Indian insolvency law. It involves section 235 and section 234 which provide guidance and instruction to deal with international insolvency cases. The government of India has the right to agree with the other nation to apply the IBC law to manage the asset of the corporate debtor and look at it in a place outside the country. Section 235 incorporates the request of the country India to another country for locating the asset of the foreign subsidiary in the foreign land. At the time of pendency of the insolvency resolution process, bankruptcy proceeding liquidation, liquidator resolution, and professional Bank trustee perceive that the corporate asset of the debtor is found to be outside the country India and necessary arrangement will be made to procure the asset by applying to the adjudicating authority. Adjudicating authority can forward a request letter to the competent authority for dealing with the request on the satisfaction that offers everything regarding the foreign asset of the debtor.
Opportunities and challenges
There are several opportunities and challenges associated with the insolvency law for the International management of the cases. The integration of international frameworks improved the insolvency code in India as it helped to analyze the business ranking and adaptation of the code became easier. It offers great support to the development and presentation of the business in the context of insolvency cross border. It was ILC that recommended that if the foreign creditor has the right to have access to cross border system assets, the reciprocity in the insolvency case from the foreign point of view was incorporated into the law based on the evolution of insolvency resign in India. ILC was found to have taken up the proper approach regarding the involvement of cross border insolvency system proposed by the international insolvency process and framework. The integration of the insolvency process and procedures from the international model help India to resolve the issue and claim for the debtor asset located outside the country.
The major challenge associated with the insolvency proceedings in section 234 where the Indian government allows the firm to move into a bilateral agreement with the various countries. It is not considered to be feasible practically to negotiate at the moment of such a stream crisis. The section incorporates the possibility of allowing the countries for incorporating other provisions in the bilateral instrument which enable the fragmentation of the International insolvency regime. Issues become complicated when the company has assets situated in different countries and the asset country is found to be other than the second country where the conversation was taking place. Indian law finds it difficult to manage the issue when the issue involves the situation of the asset in the different countries where the company has the main operation. It is difficult to claim for dialysis at the time of insolvency proceedings at the immediate level. The Indian court can impose a moratorium on all proceedings and suites and creditors have the right to pursue the debtor in another court at their own will. It is considered to be a strong measure to effectively manage the issues within the context of the organization. The bilateral agreement has changed the very outlook of the law as it has been recently.
Section 235 and the adaptation of clauses from the Model Law
Insolvency proceedings in the Indian system of insolvency code enable the spirit of cooperation between foreign court and the local court as per section 235 collected from the model law. It has been found that there was no specific provision that keeps the manner of cooperation between the foreign court and the local authorities. The law does not include the mechanism to deal with the concurrent preceding coordination. Unnecessary delay will be caused by the letter of the request associated with the independence using the proper channel of the foreign jurisdiction.
The foreign representative has the right to apply to the competent authority or the adjudicating authority clause 7. Article 9 of the modern constitution reveals the rights of direct Access of representatives. A lawyer to represent the case can hardly be brought from the foreign land. It is ILC which notes the fact that the foreign representative will be represented by the Indian representative and it is dependent on the central government discretion for providing subservient legislation regarding the issue of direct access to the legislation. The ILC directs the insolvency code to incorporate the clause of modern law to prevent the prohibition of the domestic code to penalize the foreign to represent it from any misconduct. Foreign representatives are not allowed in India to negotiate and apply for the action in the court as per clause 7 subsection 2. The second pillar is associated with the recognition of the cases taking place in a foreign land. 15 of the law elements have been taken from article 17 associated with the UN model law and it is where the foreign proceeding is considered to be the foreign main proceeding and has further non-main procedure clauses. In case the foreign proceeding is found to have effective the public issue in Indian society, it is the right of the Indian court to avoid giving recognition to the foreign proceeding, and adjudicating authority has the right to interpret the scope of exception at its discretion as per the clause 4 which has been taken from the article 6 of the model law. This part of the insolvency code has a great impact on the foreign creditor purpose of the draft party in the IBC.
The third pillar associated with the insolvency code is based on the relief described in the clause 17 and 18 of the draft part. The draft indicates the inclusion of interim relief as per the sick industrial Company Act 1985. The issue was brought to the fore in clause 17 where mandatory relief is provided to the data as it was described in the modern law article 20. The article incorporates the automatic moratorium of all the proceedings and recognition.
Indian ILC submitted the draft provision involving the model law along with the incorporation of the domestic law. Case Resolution was offered by the adjudicating authority. The court is engaged in skimming the provision of the structure associated with the model law and applied a similar structure in managing the International insolvency issues. In the case of jet airways private limited, the national company law appellate tribunal did not consider the order of adjudicating authority allowing the Dutch administrator to be part of the preceding and attend the committee meeting of the creditors. The foreign administrator and Indian resolution professionals agreed to the protocol of International insolvency. India as the party in the case was considered to be the center of main interest. The foreign proceeding in the considered case was assumed to be no main insolvency proceedings. NCLAT did not pay attention to the concept of modified universalism as it was depicted in the model law. The Supreme Court in the case of Shilpi cable and Macquarie Bank found the domestic creditor for initiating and participating in the corporate insolvency process of resolution under the code. The court is found to have remarked the violation of the right to equality integrating the discriminatory act as per the constitution of India which considers equal to everyone including the aliens.
It can be said that International insolvency is found to be highly effective when the model law is incorporated in the draft of the International insolvency law. The judgment provided as per the draught of the insolvency International code provision was found to be highly effective and influential. The legal framework offered by the model law opens the gateway for further research and clarification of the insolvency code which will offer a great resolution of the problem existing in the International insolvency issues. The rise of the insolvency issue in the international organization is increasing as a result of globalization and the need for consistent research within the area of a study is required. The insolvency code requires urgent attention from the lawmakers and the framing is to be done properly and effectively to offer a unique resolution of every problem found in the context of the international organizations.