Cross Border Insolvency in Indian Perspective: A Comparative Study

This article aims to understand the meaning of cross border insolvency, its theory, legal framework and concept across nations. The understanding of cross border insolvency in international trade is highly important for its stakeholders and its increasing necessity and importance in international trade can be realized by the evolution of UNCITRAL model laws. An attempt has been made to examine the effect of the adoption of the United Nations Committee on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency in various jurisdictions, including Canada, Europe, the United Kingdom, India and the United States of America etc.

The present article attempts to examine how each of those states has adopted, interpreted and applied the provisions of the Model Law. The article highlights the effects of inconsistencies by examining jurisprudence in each of these countries, specifically how the Model Law affects existing principles of recognition of insolvency proceedings.

Further, it examines how the UNCITRAL Guide to the enactment of the Model Law has affected the interpretation of each of its articles and, in turn, the court’s ability to interpret and give effect to the purposes of the Model Law is helping cross border insolvency resolutions. Paper also considers the ability of courts to refer to amendments made to the Guide after enactment of the Model Law in a state, thereby questioning whether the current inconsistencies in interpretation can be overcome by UNCITRAL model laws in combination with municipal laws and regulations e.g. insolvency and bankruptcy Code 2016 and Insolvency Bankruptcy Board of India.

To understand the concept, theory, the legal framework of cross border insolvency various online and offline literature, books, journals, publications available as a secondary source of information have been used to make a lucid presentation of the subject of cross border insolvency. Few case laws of cross border insolvency have also been included in this paper to make the understanding and interpretation of cross border insolvency easy in various jurisdictions. Doctrinal research & exploratory research method has been applied to write this paper and accordingly, a comparative study has been attempted to give a bird’s eye view of the subject to the reader.

I. Introduction

According to the Cambridge English Dictionary meaning: Insolvency (especially of a company) is the condition of not having enough money to pay debts, buy goods, etc., or an occasion when this happens.[1]

Generally speaking, insolvency refers to situations where a debtor cannot pay the debts he or she owes. For instance, a troubled company may become insolvent when it is unable to repay its creditors money owed on time, often leading to bankruptcy (“Bankruptcy” is a legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor, or by the creditors[2] filing.[3]

A. What is Insolvency?

Insolvency refers to the situation in which a firm or individual is unable to meet financial obligations to creditors as debts become due. Before beginning legal insolvency proceedings, the firm or individual may get involved in making an informal arrangement with their creditors, such as crafting alternative payment options. An insolvent firm may voluntarily decide to file for bankruptcy protection, which is a court order that oversees the liquidation of the company’s assets. Insolvency is a state of financial distress, whereas bankruptcy is a legal proceeding. [4]

The Indian Insolvency & Bankruptcy Code, 2016 does not define ‘insolvency’

‘Default’ by the corporate debtor has been marked as a trigger for initiating the insolvency proceeding under section 6 of I & B Code, 2016. The Bankruptcy Law Reform Committee Report (BLRC Report) explains; Financial failure as a persistent mismatch between payments by the enterprise and receivables into the enterprise, even though the business model is generating revenues.

Business failure – which is a breakdown in the business model of the enterprise, becomes unable to generate sufficient revenues to meet payments. Hence, the Code assumes the corporate debtor to be insolvent if there is a ‘failure to pay’ irrespective of whether the corporate debtor is ‘unable to pay’ or not.

B. Who can initiate the process of insolvency

The process for initiating corporate insolvency resolution may be initiated by any one of them:

1. A financial creditor
2. An operational creditor or
3. The corporate debtor itself.

C. Types of Insolvency

1. Cash-flow insolvency: In this case, the debtor may have considerable assets but there is a lack of cash in hand. Cash flow insolvency refers to a lack of liquid assets to fulfil debt obligations. Such a situation can sometimes be solved by negotiation. For instance, a Creditor may wait for repayment, may give the debtor a reasonable amount of time to sell less liquid assets and convert them into cash. The debtor after negotiation may agree to pay the lender a penalty in addition to the principal and interest owed. [5]
2. Balance-sheet insolvency:

When the firm or individual does not have enough assets to meet financial obligations to creditors, that is called balance-sheet insolvency. It causes a higher probability of bankruptcy proceedings being filed against the corporate debtor.

D. What are the factors that lead to Insolvency:[6]

• Absence of maintenance of accounts and lack of proper skills by the manpower.
• Poor customer service and the business relationship may cause unwarranted lawsuits from customers or business associates causing it to become unviable.
• Inability of a corporation to adapt to new market trends, customer preferences and changing customer needs causes the company to lose market share and profits.
• Increase of overheads and production costs persistently failure to look into it leads to loss of income thereby causes the company’s inability to fulfil its obligations to creditors.

Insolvency proceeding is a resolution process for rehabilitation and liquidation of a corporation

Profit motive of a business attracts everyone but the success of a business is always uncertain due to uncertain market dynamics. Therefore, businesses need efficient and speedy procedures for an exit as much as for start-up. Insolvency procedures the world over help entrepreneurs close down unviable businesses and start-up new businesses. This ensures the rechanneling of manpower and economic resources of a country continuously and efficiently.[7]

The Insolvency laws world over have been designed to strike a balance between rehabilitation and liquidation. The insolvency resolution process provides an opportunity for genuine effort to explore restructuring/ rehabilitation of potentially viable businesses if there is a consensus of its stakeholders particularly the creditors. Where revival is not being feasible, the alternative recourse of winding up is taken.

Corporate Insolvency Resolution Process(CIRP) under Indian Insolvency and Bankruptcy Code 2016

The National Company Law Tribunal (NCLT) when initiates an insolvency resolution process (IRP) under the Insolvency and Bankruptcy Code, 2016, when a company defaults on making threshold payment to creditors, it is called corporate insolvency resolution process (CIRP).

CIRP may be initiated by a financial creditor under section 7, by an operational creditor under section 9 and by a corporate applicant of the corporate debtor under section 10 of the IBC Code,2016.

D. Corporate Insolvency Process timelines at a glance:[8]

1. Publication of the notice in a newspaper by Resolution Professional
2. Verification of the claims from the books of the Corporate debtor
3. Preparation of IM and distribution amongst all financial Creditors.
4. Committee of Creditors meeting to ensure IM has been correctly prepared
5. Calling for Resolution Plan
6. Acceptance or Rejection of Resolution Plan
7. Submission to NCLT for final approval or
8. Extension of 90 days if the Resolution Plan is not accepted within 180 days.
9. Liquidation if no resolution has been accepted at the end of 270 days.

Timeline: Corporate Insolvency Resolution Process:[9]

1. Commencement of Corporate Insolvency Resolution Process and appointment of Insolvency Resolution Professional. Let it is equal to time ‘T’.
2. Publication of public notice (T+3)
3. Submission of Claims (T+14)
4. Verification of Claims (T+21)
5. Application for appointment of Authorized Representative (AR), if necessary and filing of report certifying constitution of Committee of Creditors (CoC) – (T+23)
6. First meeting of CoC-(T+30)
7. Appointment of Resolution Professional (T+33)
8. Appointment of two registered valuers. (T+47).
9. Submission of Information memorandum to CoC. (T+54).
10. Publication of form G and invitation of EOI. (T+75). *Submission of application for withdrawal of the application, approval of the application by the CoC and filing application of withdrawal to Appellate authority shall be permissible only before the submission of EOI. i.e before the 75^th day from the CIRP date (T).
11. Last date of submission of EOI (T+90).
12. Provisional list of Resolution Applicants(T+100)
13. Issue of request for Resolution Plan, including Evaluation Matrix and Information Memorandum to Resolution Applicants. (T+105)
14. Determination of fraudulent and other transactions and Final List of Resolution Applicants. (T+115).
15. Submission of Resolution Plan. (T+135).
16. Submission of CoC approved Resolution Plan to NCLT (T+165).
17. Approval of Resolution Plan by NCLT. End of CIRP timeline if not extended. (T+180)
18. Extension of CIRP process by 90 days. End of CIRP timelines. (T+270)

II. What is Cross Border Insolvency

When an insolvent debtor has assets in more than one country jurisdiction or where some of the creditors of the debtor are in the jurisdiction other than where the insolvency proceedings have been filed. [10]

According to Professor Ian Fletcher: ‘Cross-Border Insolvency’ should be considered as a situation:

‘in which insolvency circumstance in some way or the other transcend the confines of a single legal system, and where a single set of domestic insolvency law provisions cannot be exclusively applied without giving due regard to the issues raised by the foreign elements of the case’.[11]

Multinational Corporations operating in more than one jurisdiction and going insolvent anywhere in one country make cross-border insolvencies common, and it is not an exceptional scenario.[12]Due to increasing international trade and globalization of business activities, it is common for businesses to encounter a wide array of legal systems. Therefore, when multinationals become insolvent, it comes as no surprise that such insolvencies have cross-border consequences and ramifications.

A. Cross border Insolvency and its adverse implications on the domestic legal framework

In one of the insolvency proceedings at the National Company Law Tribunal (India), in the case of Jet Airways (India) Pvt. Limited, the court expressly stated that while insolvency proceedings against the corporate debtor have already begun in “NOORD” – A Holland Court, “there is no provision or method provided in the Indian Insolvency and Bankruptcy Code 2016, at this moment, to recognize the judgment of Foreign Nation Court concerning insolvency. Thus, even if the judgment of the Foreign Court found to be true, still, without any relevant provision in the Code, this court is unable to bring that fact on record.[13]

Jet Airways flight was grounded in Amsterdam over nonpayment of dues to a European Cargo firm. Insolvency proceedings were initiated against the Jet Group simultaneously in the Netherlands and in India as well. Court of Netherlands appointed administrator in charge of the proceedings and the administrator approached NCLT to recognize the Insolvency proceedings of the Court of Netherlands but NCLT rejected the plea of the administrator.

The appointed administrator approached the National Company Law Appellate Tribunal to recognize Jet Airways’ insolvency proceedings in the Netherlands. NCLAT observed that “we have not interfered with the order of admission of the application under Section 7 of the I&B Code” filed by the ‘State Bank of India’ against ‘Jet Airways (India) Limited’, therefore, joint ‘Corporate Insolvency Resolution Process’ will continue in accordance with ‘Insolvency and Bankruptcy Code, 2016.[14]

The Jet Airways case is the only one, where a corporate debtor had creditors and assets dispersed across various jurisdictions. Similarly, in the Videocon Industries insolvency matter, news reports had indicated that Videocon requested the NCLT to include its overseas assets in the ongoing corporate insolvency resolution process. The NCLT permitted the inclusion of Videocon’s foreign businesses in the corporate insolvency resolution process in India.

Though Court proceeded on a case by case basis individually but ambiguity still remains as there is no clear cut cross-border insolvency framework in India yet. In September 2008, The collapse of Lehman Brothers Holdings, an Investment bank firm that conducted business in over forty countries outside the United States, is another example of the Complex size and financial significance of cross-border insolvency.[15]

Therefore, in such a complex situation, if insolvency proceedings have commenced in one country for a particular debtor who has assets spread in another country, what are the measures to ensure that such assets will not be the subject matter of a parallel proceeding in that foreign jurisdiction? What if there exist concurrent insolvency proceedings in several jurisdictions in relation to the debtor and its assets?[16] Such questions need to find answers to provide relief to the insolvency stakeholders.

B. What is the solution to Cross Border Insolvency?

Harmonization of insolvency laws of multiple jurisdictions with multiple legal frameworks can be achieved by incorporating the international insolvency framework of UNCITRAL Model Law on Cross Border Insolvency, 1997, (Model Law), in the domestic legislation, and doing necessary amendments in the legislation if any required.[17]

C. Insolvency/Bankruptcy Legislation in Different Countries

Canada: Canada’s Bankruptcy and Insolvency Act (“BIA”)[18] and Companies’ Creditors Arrangement Act (“CCAA”) came into force on September 18, 2009. adopted UNCITRAL Model Laws in 2005.[19]

India: Regulated by the Insolvency and Bankruptcy Code, 2016. Soon after the insolvency code became effective, The UNCITRAL Model Law though recommended by Insolvency Committee but it has not been incorporated into law.[20]The author could not find a record of the adoption of the UNCITRAL Model Law by India affirming thereby India has not adopted it so far.

Turkey: Regulated by Enforcement and Bankruptcy Law (Code No: 2004), No record of adoption of UNCITRAL Model Law.

South Africa: Businesses that underwent insolvency become personally liable for the debts. Trading, even when insolvent, is a common business practice, adopted UNCITRAL Model Laws in 2000.[21]

Australia: Corporate insolvencies are governed by Corporations Act 2001, adopted UNCITRAL Model Laws in 2008.[22]

Switzerland: Insolvency is preceded by seizure and auctioning off of the assets of individuals and bankruptcy proceedings are carried out in the case of registered companies

United Kingdom: Regulated by the UK Insolvency Act 1986, Section 123, adopted UNCITRAL Model Laws in 2006

United States: The Uniform Commercial Code regulates insolvency in the United States. Insolvency is also defined by the Bankruptcy Code, which adopted UNCITRAL Model Laws in 2005.

III. Cross Border Insolvency and IBC 2016

Insolvency and Bankruptcy Code 2016, is the biggest reform in India and deals with consolidating various insolvency laws of India. It provides for the implementation of Cross-border and Personal insolvency laws. I&B Code 2016 currently provides for provisions of cross-border insolvency under Sections 234 and 235. [23]

Section 234. (1) The Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of this Code.

(2) The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified.

Section 235. (1) Notwithstanding anything contained in this Code or any law for the time being in force if, in the course of the insolvency resolution process, or liquidation or bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquidator or bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India with which reciprocal arrangements have been made under section 234, he may make an application to the Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding.

(2) The Adjudicating Authority on receipt of an application under subsection (1) and, on being satisfied that evidence or action relating to assets under sub-section (1) is required in connection with insolvency resolution process or liquidation or bankruptcy proceeding, may issue a letter of request to a court or an authority of such country competent to deal with such request.

IV. Issues in Cross-Border Insolvency

The Insolvency Law Committee Report (ILC, 2018)[24] has stressed the need for a broader cross border insolvency framework and has proposed a Draft Part Z, which is based on the UNCITRAL Model Law on Cross-border Insolvency and its provisions for adaptation in India. UNCITRAL Model Law has so far been adopted by 44 countries to help them resolve their issues of financial distress and insolvency the world over.

The prime issue regarding Cross-border insolvency is the determination of the Centre of Main Interest (COMI). Draft Part Z provides a rebuttable presumption wherein the place of the registered office of a corporate person may be considered as COMI. Various other jurisdictions provide an indicative list of factors for determining COMI. ILC has suggested that India should also adopt a similar approach. ILC has proposed that India may enter into bilateral agreements with major trading players like the UK and the US to facilitate reciprocity with clear cut provisions.

The Insolvency Committee deliberations on Cross Border Insolvency

It has noted that the existing two provisions in the Code (S. 234 & S. 235) are insufficient to resolve cross border insolvency matters. Accordingly, it has attempted a comprehensive framework based on UNCITRAL model law on Cross Border Insolvency.[25] ILC has proposed that it could be made a part of the I&B Code by inserting a separate chapter for this purpose.

Insolvency Law Committee’s comment upon analysis and review of the clauses pertaining to Cross Border Insolvency is important. The Committee has also recommended the adoption of UNCITRAL Model Law with a few carve-outs to ensure that there is no inconsistency between the domestic insolvency framework and the proposed Cross Border Insolvency Framework.[26]

V. Impact of ILC Draft provisions on Legal Proceedings in India

The adoption of the ILC draft will help NCLT to determine clearly ‘foreign main’ and ‘foreign non-main’ insolvency proceedings against the corporate debtor, their initiation and continuation and imposition of moratorium accordingly if mandatory, during litigation and arbitral proceedings in India or in foreign countries.[27]

Procedural Predicaments in Cross Border Insolvency

To give a push to the ILC draft, it has proposed that certain amendments and subordinate legislation in conformity with UNCITRAL Model Laws would be necessary e.g to provide for concurrent hearings with other jurisdictions and to resolve other issues of cross-border insolvency. As per the draft further, the detailing to subordinate legislation is to be done by Central Government and IBBI. The present Code prescribes strict timelines for the resolution of cases in India and the same have been determined as inviolable. The strict timelines in cross border insolvency process too, need to be clarified and adhered too to make international trade and investment favourable to India.

Requirement of Reciprocity in Cross Border Insolvency

India has ratified[28] the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention[29]-Total signatory as on date are 167) for the recognition and enforcement of arbitral awards with a reciprocity reservation along with an Official Gazette notification.

On the same lines, ILC has proposed that similar notification for reciprocity provision and ratification be done to resolve Cross Border Insolvency issues expeditiously and without any hitch. As of date, 49 States[30] have adopted UNCITRAL Model laws on cross-border insolvency the world over and India has not signed this convention so far as per the findings of the author of this paper.

Key features of UNCITRAL Model Law on Cross-border Insolvency

It proposes four elements to facilitate the cross-border insolvency resolution process[31] – Access to courts by foreign creditors & representatives, Recognition-simplified procedures for recognition of qualifying foreign proceedings, Relief (assistance)- providing relief by courts expeditiously and cooperation – Coordination and communication between the various foreign courts and representatives to foster decisions.

The Model Law is divided into five chapters; General provisions; Access of foreign representatives and creditors to courts in a state; Recognition of foreign proceedings and relief; Cooperation with foreign courts and foreign representatives; and Procedure to deal with concurrent proceedings.[32]

According to Model Law, there are two kinds of proceedings i.e. ‘foreign main proceeding’ and ‘foreign non-main proceeding’.[33] A foreign main proceeding takes place in the State where the debtor has the ‘center of its main interests’ (COMI)[34].

A foreign non-main proceeding is a foreign proceeding other than the foreign main proceeding, where the debtor has another ‘establishment’. The Model Law provides how ‘Centre of Main Interests’ can be identified. To recognize a foreign non-main proceeding, the Model Law also defines ‘establishment’ as a place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services. According to Model law, a State may refuse to take an action governed by the Model Law, if such action would be ‘manifestly contrary to the public policy’ of that State. States can adopt the Model Law into their domestic legal systems after making variations as suitable to their jurisdictions.

VI. Objectives of UNCITRAL model law for cross border insolvency

1. Cross border cooperation of states between the courts and other competent authorities involved in cases of insolvency across nations
2. To provide a predictable legal outcome to cross border trade and investment
3. To provide an efficient and fair mechanism for cross-border insolvencies to protect the interests of creditors and debtor and all other interested stakeholders
4. To Protect and maximize the value of the debtor’s assets
5. To Facilitate the rescue of financially distressed businesses
6. To protect investment and preserve employment.

The important primary features of the model law include:

1. Easy access to local courts for representatives of foreign insolvency proceedings and creditors and authorizations for representatives of local proceedings
2. Recognition of orders issued by foreign courts on insolvency matters
3. Simplified procedure and relief to assist foreign proceedings and
4. Cooperation among courts of different states where the debtor’s assets are located and to simplify the coordination of concurrent proceedings.

Recommendations of ILC vis-a-vis Comparative Analysis:

1. Centre of Main Interest (COMI)

The ILC Draft too proposes a rebuttable presumption that the place of the registered office of a corporate person be considered its COMI. Committee highlighted that courts have a duty to determine independently if COMI is to be decided against the presumption. Global best practices suggest that presumptions are common across jurisdictions. Many jurisdictions have also adopted indicative factors to provide further clarity on the issue of determining COMI.[35]

COMI in European Union (EU):[36] Cross Border insolvency in the EU is regulated by the European Insolvency Regulation (EIR 2000). Court of Justice of the EU (CJEU) has played an efficient role by clarifying ‘center of main interests’ (COMI), ‘establishment’ and ‘related action. (EIR Recast), which has been brought in effect since 26 June 2017, presume that the debtor’s registered office coincides with its COMI. However, European courts have set a rather high bar for the rebuttal of the presumption and require the applicant to provide sufficient evidence that COMI is somewhere else Under the EIR Recast.

COMI is identified at the moment when an insolvency application has been filed. EU contains a presumption similar to that mentioned in India. It holds the presumptions that the registered office is the center of main interest and such presumption should be rebuttable.

COMI in the U.S:[37] US Bankruptcy Code also contain a presumption as in the ILC and Chapter 15 in it presume that the debtor’s registered office coincides with its COMI. U.S courts treat the presumption as merely indicative for ‘speed and convenience in instances in which the COMI is obvious and undisputed’ but, such flexibility may cause damage for certainty and predictability of court determinations.

Simultaneous application of conflicting COMI tests opens the door to forum shopping, conflicts of jurisdiction and even situations in which the COMI of the same company is found in different states at the same time. US courts have repeatedly concluded that COMI should be determined at the time or around the time the Chapter 15 petition is filed, without inquiry into a debtor’s entire operational history.

Analysis:[38] Confederation of Indian Industry (CII) has recommended that an indicative list of factors be provided for determining COMI, whether as part of the Code or through subordinate legislation. CII has also recommended that a timeline be mandated within which the adjudicating authority must determine the COMI. According to them Indicative list of factors for determining COMI will assist in expeditious mechanism for adjudicating authority.

2. Public Policy Exception:[39] The ILC Draft states that the adjudicating authority may refuse action under the cross border provisions of the law if the implementation of such action would be “manifestly contrary to public policy”. Clear guidance needs to be provided as to the meaning of the phrase ‘manifestly contrary to public policy to give no scope to any ambiguity. However, in Section 48 of the Arbitration and Conciliation Act, 1996, while providing clarity on the issue, it states that the following would amount to being in conflict with the public policy of India: If

(a) making of the award is induced by fraud or corruption or was in violation of section 75 and section 81 of the Act, or (b) It is in the contravention of the fundamental policy of Indian law or (c) it is in conflict with the most basic notions of morality or justice.

Public Policy in EU:[40] The EIR Recast provides for the immediate recognition of judgments concerning the insolvency proceedings which fall within its scope. The only and exceptional ground to refuse recognition is where the effects of such recognition or enforcement would be manifestly contrary to the recognizing state’s public policy (Article 33).

In the European insolvency framework, courts cannot second-guess the correctness of decisions and conclusion as to the debtor’s COMI or establishment (jurisdictional facts) rendered by courts of other Member States. Importantly, opposition to the jurisdiction of the court, which has opened insolvency proceedings, is only admissible in the jurisdiction of that court.

The European Court of Justice has confirmed in Krombach v. Bamberski that for the public policy exception to be applied, a judgment must be at variance to an unacceptable degree with the legal order of the enforcing country in as much as it infringes a fundamental principle and a manifest breach of a rule of law regarded as essential in the legal order of the enforcing country.

Public Policy in the U.S:[41] Recognition of foreign insolvency proceedings in the United States requires an application by a foreign representative pursuant to Chapter 15.U.S courts review the jurisdiction of the originating court to decide whether to recognize the foreign proceeding as a foreign main or a foreign non-main proceeding. Only a foreign main proceeding or a foreign non-main proceeding meeting the standards of the U.S Bankruptcy Code is entitled to recognition.

If the foreign proceeding (according to a US judge) does not satisfy the criteria (definitional requirements) of either main or non-main proceedings, the recognition should be denied.

Analysis: In order to prevent litigation and corresponding delays in recognition of foreign insolvency proceedings, guidance on interpretation and application of the public policy exception must be provided clearly in IBC too. The word ‘manifestly’, incorporated in the exception, should ordinarily be resorted to only if another, more specific provision of the law does not govern the dispute.

3. Cross Border Corporate Group Insolvencies:[42] An enterprise group has been defined in Part III of the UNCITRAL Legislative guide on Insolvency as two or more group members as legal entities and linked together by some form of direct or indirect control including ownership. Interdependence including the financial interdependence of group members across jurisdictions attracts provisions of the cross border insolvency framework.

The conduct of cross-border insolvency proceedings concerning enterprise groups will often require determination of the law governing the assets and the parties responsible for determining how they can be used or disposed of and to what extent the responsibility for those assets can be shared among or allocated to different parties in different States. How information concerning the affairs of different debtors in different jurisdictions can be obtained and shared to ensure coordination and cooperation and the sequence in which proceedings should evolve.

With respect to the location of proceedings and coordination of such proceedings, UNCITRAL Legislative Guide on Insolvency Law suggests the identification of a ‘coordination centre’ for the group. The UNCITRAL has also set up a Working Group on cross border insolvency of enterprise groups. The Insolvency and Bankruptcy Board of India has also constituted a Working Group on Group Insolvency to submit a complete regulatory framework to facilitate insolvency resolution and liquidation of corporate debtors in a group.

Group Insolvencies in EU:[43] Inspite of the best efforts by the author of this paper, it could not be found that EIR has any standard legal framework explicitly on group enterprise insolvencies, however, EIR grants its member states far more autonomy to apply local law. E.U. insolvencies do not explicitly address corporate groups as every member of the group itself is a legal entity and has a COMI. While a single, efficient group insolvency proceeding is possible under the EIR, it is not legally prescribed.

Group Insolvencies in the U.S:[44] Inspite of the best efforts by the author of this paper, it could not be found that the U.S has any standard legal framework explicitly on group enterprise insolvencies. However, in the U.S. corporate groups can have, a single consolidated group insolvency proceeding. Chapter 15, Part II, III & IV of the U.S Bankruptcy Code defines corporate groups, their benefits, litigation costs, efficiency and cooperation and challenges in cross border insolvency proceedings. Determining “COMI” frequently becomes the greatest challenge due to conflicting and flexible legal frameworks.

Analysis: The Corporate group insolvencies is still a complex issue though being resolved in the U.S and U.K. Working Group on Group Insolvency may consider the above-mentioned issues in evolving a better framework for group insolvency, simultaneously considering the draft legislation of the UNCITRAL Working Group as the basis for dealing with cross border insolvencies of group companies.

4. Principle of Reciprocity in Cross Border Insolvency: The Model Law provides for reciprocity provisions between jurisdictions. The ILC Draft has adopted the reciprocity principle in clause 1. The ILC Draft shall apply to countries who have adopted the UNCITRAL Model laws and with whom the Central Government has entered into reciprocity agreements and has notified such information in the official gazette as per the proposed schedule.

Principle of Reciprocity in the U.K and U.S: Jurisdictions such as U.K and U.S have specifically opposed reciprocity provisions and deal with the recognition of proceedings on a case-to-case basis.

Analysis: Adoption of the reciprocity principle with clear provisions & scope on reciprocity in the implementation of the cross border insolvency framework will facilitate expeditious adjudication. It will help in easy coordination of proceedings with jurisdictions that have adopted the UNCITRAL model law. Efforts are undertaken under Section 234 of the Code to enter into bilateral agreements with major trading players such as U.S and U.K to facilitate reciprocity as per the proposed schedule of the ILC draft.

5. Conflict due to Multiple Legislations Pertaining to Insolvency: For example, section 2(94A) of the Companies Act, 2013 refers to provisions of the winding-up proceedings of insolvent firms, specifically unregistered companies which may conflict with IBC-2016.

Position in U.K and U.S: In the UK, there are no such multiple provisions for different types of enterprises. All enterprises are governed by one law.

Analysis: To circumvent the uncertainties due to multiple legislative bodies in charge of the insolvency procedures, the Government may undertake necessary reforms to limit the involvement of additional jurisdictional bodies and ensure that the IBC-2016 as amended up-to-date serves as the comprehensive legislation for all matters pertaining to insolvency including cross border insolvency.

VII. EC Regulation (EIR Recast) on Insolvency Proceedings

The European Commission’s Cross Border Insolvency framework is regulated by EIR,2000 Insolvency Regulation which came into force on May 31, 2002. EC Regulation which consists of 47 articles and 3 annexures, is applicable to all member states of the European Union, except Denmark. The EC Insolvency Regulation does not attempt to harmonize with the domestic insolvency regime of EU members. Rather, it facilitates them in determining the jurisdiction and applicable law for cross-border insolvency proceedings.

The Regulation provides for automatic recognition of insolvency proceedings across the member states of the EU. The EC Regulation recognizes three kinds of insolvency proceedings: (i) Main proceedings, where the debtor has its COMI within the EU; (ii) Secondary proceedings, where the debtor has an establishment (iii) Territorial proceedings. [45]

EC Recast Regulation on insolvency proceedings was approved by the European Parliament on May 20, 2015, to replace the earlier EC Regulation. Barring a few provisions, the Recast Regulation applies to insolvency proceedings initiated after June 26, 2017. The Recast Regulation also does not attempt to directly harmonize the substantive domestic insolvency laws of the Member States of the EU. EU Member States (except Denmark) are required to pass domestic laws to incorporate the provisions of the Recast Regulation on insolvency.

Bankruptcy Code of United States of America: U.S Bankruptcy Code provides for cross-border insolvency-related provisions. This chapter15 was added by the Bankruptcy Abuse Prevention and Consumer Protection Act, 2005. It replaced Section 304 of the Bankruptcy Code to make way for the USA’s adoption of UNCITRAL Model Law. U.S. interpretation must be coordinated uniformly with all other countries who have adopted UNCITRAL Model laws for cross-border insolvency cases.

It is achieved through –

1. Promotion of cooperation between the U.S Courts, foreign Courts and parties of interest involved in cross-border insolvency cases.
2. Establishing greater legal certainty through uniformity.
3. Inculcating fairness and efficiency in cross border insolvencies to protect the interests of all stakeholders.
4. Affording protection and maximization of the value of the debtor’s overall assets and
5. Facilitating rescue of financially distressed businesses.

VIII. Conclusion

Cross Border Insolvency and its legislation the world over is a highly complex issue. In international trade, cross border insolvency may arise as consequence of financial trouble in the business and it is integral part of it. Due to Lack of international common legal and enforcement frame work, it is very difficult for the stakeholders to knock the right jurisdiction in a country to get the relief. Issue becomes very difficult when a business has operations and assets in more than one country. Who will initiate and where it will be initiated and how after winding up, the assets will be distributed and how impartial, efficient and effective resolution process will be administered keeping in mind when there is no uniform and consistent international law to enforce the process.

Currently, except for UNCITRAL model law, there is no effective legal framework for resolving cross-border insolvency proceedings in India and the World Over. The Draft Provisions suggested by the Insolvency Law Committee in conformity with UNCITRAL Model Laws, would necessarily require to be formulated as a Bill according to ILC and as a common understanding, which must be passed, in order to be inserted in the Code to bring consistency, uniformity and harmonization in the insolvency laws world over for smooth flow of international trade.

Presently, in Indian context there is no clarity as to when such amendments will be effected. If the Draft Provisions are adopted, despite the existence of some procedural and legal challenges, the framework suggested by it could go a long way in ensuring expeditious coordination and communication between jurisdictions to successfully and efficiently provide relief, address the resolution of cross border insolvency cases to benefit various stake holders.

Case Laws

1. Kemsley v. Barclays Bank Plc & Ors, [2013] EWHC 1274 (Ch)

Mr Kemsley was an English businessman to whom Barclays made an unsecured loan for £ 5 million.

• In June 2009, he and his family moved to the US.
• A bankruptcy petition was issued against him by HMRC in the UK in November 2011. He then issued a debtor’s petition for his own bankruptcy in January 2012. He claimed he was in the UK on the date the petition was presented, he was domiciled in the UK and had a place of residence in the UK within the previous 3 years, as required by Section-265, Insolvency Act 1986.U.K.
• On 1 March 2012, Barclays issued proceedings in New York, in USA.
• Kemsley was made bankrupt in the U.K on 26 March 2012 on his own petition.
• Bankruptcy Trustees were appointed in U.K, they applied for recognition of the U.K bankruptcy in U.S under Chapter 15 of the U.S bankruptcy Code (in August 2012).

Issues in Cross-Border Insolvency

• The US bankruptcy court ruled that Kemsley’s COMI was in the U.S as of such date because “the Debtor’s close relationship with his children serves as a useful proxy for the Debtor’s subjective intent regarding his habitual place of residence.”
• At the time of the filing of the U.K proceeding, he was living in the US with his family, therefore his COMI was then in the U.S.

2. Rubin v. Eurofinance S.A. [2012] UKSC 46

It is about the question if a foreign proceeding will be recognized and initiated in a domestic court given the fact that the debtor does not belong to the foreign jurisdiction. It also raises a fundamental issue in cross border insolvency if, enforcement of an order of a foreign court can be effected through the international assistance provision of the UNCITRAL Model Law.

Facts of the Case

Euro finance was an English Law trust.it simultaneously ran a sales promotion firm in the United States which ran into legal battle with the U.S Courts on the basis of consumer protection legislation. U.S Bankruptcy Court made orders for the recovery of fraudulent transfer of funds against the defendants, who were residents of England. The defendants did not take part in any of the U.S insolvency proceedings, and subsequently defaulted. Summary judgements were entered against them.

The U.S courts then submitted an application to the U.K court for recognition and admission of insolvency proceedings.

In a remarkable judgement, U.K Supreme Court held that “there was no reason to class avoidance judgments relating to insolvency proceedings any differently to any other type of foreign judgment and based the recognition to U.S Bankruptcy Court on the following basis that foreign officeholders will have to show that the judgment debtor:

• Was present in the foreign jurisdiction at the time proceedings were instituted;
• Was the claimant or the counter-claimant in the foreign proceedings
• Had submitted to the foreign proceeding by agreement.

The decision of the U.K Supreme Court provides welcome relief to the foreign jurisdiction and reinforces the importance of territorial limits in respect of insolvency proceedings and clarifies the common law position on the enforceability of foreign judgments in case of cross border insolvencies too.

3. In Re Maxwell Communication Corp. Plc, 186 B.R. 807 (S.D.N.Y. 1995)

The U.S & U.K Courts showed a remarkable degree of cooperation and reconciliation of the laws of both forums.

Facts of the Case

Maxwell Corporation Group due to scandals forced the international corporation into bankruptcy. MCC was an unusual business, with its true “seat” of administration and management of its financial affairs especially loans and the grant of security at London. Amazingly with its principal assets in the United States in the form of various large operating companies.

The Company declared voluntary insolvency at the time when it was headquartered and managed in U.K. It had incurred most of its debts in the U.K jurisdiction. 80% of Maxwell’s assets were located in the United States, primarily in its two major subsidiaries. Upon bankruptcy, Maxwell filed a petition for reorganization under Chapter 11 of the U.S Bankruptcy Code and simultaneously petitioned the High Court of Justice in London for an administration order.

Concurrent proceedings in different countries, generally in multi-party cases like bankruptcies, can lead to unusual inconsistencies and conflicts.[49] In this case, both courts of the USA and the U.K independently raised with their respective counsel the concept that a protocol between the two administrations would be helpful to resolve an impasse and to facilitate better and expeditious exchanges of information. These parallel proceedings in the U.K and USA courts resulted in an extremely high level of international cooperation[50] and provided a significant degree of harmonization of the laws of the two countries.

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[1] Insolvency Meaning, Available here, visited on 8^th March 2021 at 16:30 hrs.

[2] CA Eshita Domadia, What is the difference between Insolvency and Bankruptcy? Available here; Visited on 8^th March 2021 at 13:00 hrs.

[3] Insolvency, Legal Information Institute, Available Here; visited on 14^th March 2021 at 15:30 hrs.

[4] What is insolvency?, Available here, visited on 8^th March 2021 at 16:00 hrs.

[5] ibid

[6] Available Here; visited on 9^th March 2021 at 12:00 hrs.

[7] Available at http://www.mca.gov.in/ visited on 9^th March,2021 at 17:00hrs.

[8] Courtesy: Professor Risham Garg, National Law university of Delhi, LL.M (P) Course Material. (2019)

[9] https://www.mca.gov.in/Ministry/pdf/TheInsolvencyandBankruptcyofIndia.pdf; Insolvency and Bankruptcy Code,2016 (No.31 of 2016)

[10] What is insolvency?, Available here, visited on 9^th March,2021 at 16:50hrs.

[11] ibid

[12] ibid

[13] Nishith Desai Associates, Introduction to Cross-Border Insolvency, Available Here; visited on 10^th March 2021 at 19:00hrs

[14] Available at https://nclat.nic.in/Useradmin/upload/14485121915d8df2bae7814.pdf visited on 10^th March 2021 at 19:30hrs

[15] ibid

[16] ibid

[17] ibid

[18] ibid

[19] ibid

[20] Christian Lütkehaus, Covid-19: Indian precedent case for cross-border insolvencies is now gaining importance, Available Here, visited on 10^th March 2021 at 20:00 hrs.

[21] https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency/status

[22] ibid

[23] Available at; Cross-Border & Personal Insolvency in India: Roadmap for Implementation: CII, March (2019)

[24]Available at https://ibbi.gov.in/uploads/resources/Report_on_Cross%20Border_Insolvency.pdf; visited on 12^th March,2021 at 17:00hrs.

[25] ibid

[26] https://pib.gov.in/Pressreleaseshare.aspx?PRID=1550197 ; visited on 12^th March,2021 at 17:00hrs.

[27] ibid

[28] ibid

[29] Available at https://uncitral.un.org/en/texts/arbitration/conventions/foreign_arbitral_awards/status2; visited on 13^th March,2021 at16:00hrs.

[30] ibid

[31] Nishith Desai Associates, Introduction to Cross-Border Insolvency, Available Here; visited on 13^th March 2021 at 17:00hrs.

[32] https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency visited on 13^th March,2021 at 17:00hrs.

[33] Cross-Border & Personal Insolvency in India: Roadmap for Implementation, CII (2019); available at : https://www.cii.in/

[34] The jurisdiction with which a person or company is most closely associated for the purposes of cross-border insolvency proceedings. https://uk.practicallaw.thomsonreuters.com/

[35] Cross Border and Personal Insolvency in India; Road map for implementation, A publication by CII, (2019); Available here

[36] Bob Wessels and Ilya Kokorin, COMI under European and American Insolvency Law, Available Here

[37] ibid

[38] ibid

[39] ibid

[40] ibid

[41] ibid

[42] Nora Wouters and Alla Raykin, Corporate Group Cross-Border Insolvencies Between the United States & European Union: Legal & Economic Developments, Available Here

[43] ibid

[44] Nora Wouters and Alla Raykin, Corporate Group Cross-Border Insolvencies Between the United States & European Union: Legal & Economic Developments, Available Here; visited on 14^th March 2021 at 17:00hrs.

[45] Nishith Desai Associates, Introduction to Cross-Border Insolvency, Available Here; visited on 15^th March 2021 at 17:45hrs.

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