Cross Border Insolvency And Bankruptcy

Cross-border insolvency or international insolvency, regulates the treatment of financially distressed debtors where such debtors have assets or creditors in more than one country across the globe. When the Bankruptcy Code was first unveiled in India, it was completely silent as an abrupt on the issue of cross border Insolvency. However, based on recommendations from the Report of the Joint Committee on the Insolvency and Bankruptcy Code, 2015 (Joint Committee) a mechanism for dealing with cross-border insolvency was later incorporated into the Bankruptcy Code, India has emerged as a global business hub, and Indian businesses have more and more international transactions every day, creating a requirement for a strong mechanism to resolve international creditor-debtor relationship.

Cross Border Insolvency

Cross border insolvency issues arise when a company in financial distress has assets, business operations or creditors in more than one country

. This can be classified into major areas like:

Foreign creditors have rights/claims over a debtor's assets in another jurisdiction where insolvency proceedings are underway;
The debtor has branches/assets in several jurisdictions, including a jurisdiction other than where the insolvency proceedings are underway; and,
Debtor entity is subject to insolvency proceedings simultaneously in one or more jurisdictions.

Cross border insolvency cases typically involve a combination of situations like:

An insolvent company have several foreign creditors who ensure their rights are protected even though they may not be based in the country where the insolvency resolution is taking place.
An insolvent company may have assets located in another jurisdiction of any other country, which its creditors may want to access as part of the insolvency proceedings.
An insolvent company could have insolvency proceedings for the same debtor commenced and ongoing in more than one country.
A corporate group could face financial difficulties and proceedings against different legal entities within the group which commence different jurisdictions.

Cross Border Insolvency under Bankruptcy Code

To address the above areas of cross border insolvency, e

nabling provisions have been made in Bankruptcy Code, 2016. Under the new law, foreign and domestic creditors are not discriminated. By including "persons not resident in India" in the definition of persons and, as a consequence, in the definition of creditors, the new legislation permits foreign creditors to commence and participate in the proceedings under the Indian Bankruptcy Code. Further, foreign creditors also have the same rights as similarly situated domestic creditors regarding the distribution of assets on the liquidation of an insolvent company. India is becoming a sought after destination for foreign investors. Hence, it is important to ensure that foreign entities have full rights to collect their dues, just like Indian entities. Thus, to promote FDI in India and standardize regulations on par with foreign countries, the new Bankruptcy helps in the following ways:

A cross-border insolvency law helps in providing effective mechanisms for dealing with cases of cross-border insolvency, and it is by promoting cooperation between the courts and other competent authorities of different countries.
Greater legal certainty for trade and investment, fair and efficient administration of cross-border insolvencies that protects the interests of all stakeholders.
Protection and maximization of the value of the debtor's assets.
Facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment.

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Frequently Asked Questions

Common questions about Cross Border Insolvency Solutions in India.

Cross-border insolvency refers to situations where a financially distressed debtor has assets, business operations, or creditors in more than one country. It governs how such cases are handled when there are international elements involved.

As India emerges as a global business hub, Indian businesses have more international transactions, creating a need for a robust mechanism to resolve international creditor-debtor relationships. Cross-border insolvency provisions in the Bankruptcy Code help protect the rights of foreign creditors and promote foreign direct investment (FDI) in India.

The Bankruptcy Code includes provisions that allow foreign creditors to commence and participate in insolvency proceedings in India on an equal footing with domestic creditors. It also enables Indian courts to cooperate with foreign authorities and protect the interests of all stakeholders in cross-border insolvency cases.

The Code addresses situations where foreign creditors have claims over a debtor's assets in another jurisdiction, where the debtor has assets or branches in multiple countries, and where insolvency proceedings are ongoing simultaneously in multiple jurisdictions.

Cross-border insolvency provisions promote cooperation between courts and authorities of different countries, provide legal certainty for trade and investment, facilitate fair and efficient administration of cross-border insolvencies, protect the interests of all stakeholders, maximize the value of the debtor's assets, and help rescue financially troubled businesses.

The Bankruptcy Code does not discriminate between foreign and domestic creditors. Foreign creditors are allowed to commence and participate in insolvency proceedings in India and have the same rights as domestic creditors regarding the distribution of assets upon liquidation.

Incorporating cross-border insolvency provisions in the Bankruptcy Code helps promote foreign direct investment (FDI) in India by ensuring that foreign entities have full rights to collect their dues, just like Indian entities. It also helps standardize regulations on par with foreign countries.

The Bankruptcy Code provides mechanisms for Indian courts and authorities to cooperate with their counterparts in other countries when dealing with cross-border insolvency cases. This cooperation helps protect the interests of all stakeholders and maximize the value of the debtor's assets.

Cross-border insolvency cases can arise when an insolvent company has foreign creditors, assets located in another jurisdiction, insolvency proceedings ongoing in multiple countries, or when a corporate group faces financial difficulties with different entities in different jurisdictions.

By incorporating provisions for cross-border insolvency, the Bankruptcy Code aligns with international best practices that promote cooperation between countries, legal certainty for trade and investment, fair and efficient administration of cross-border insolvencies, and the protection of stakeholders' interests.