Cross-Border Insolvency Lecture Notes

Introduction to Cross-Border Insolvency

• Definition: Involves corporate debtors with assets or creditors in more than one country.
• Importance: Increasing globalization has made cross-border transactions common.
• Legislative Background: National insolvency laws vary, leading to ambiguity and confusion.

Historical Context

• 1966: UN General Assembly announced legislative text providing guidelines for member states on handling cross-border insolvency.
• Subsequent Developments: UN established UNCITRAL (United Nations Commission on International Trade Law) to create a model law for insolvency.
• 2018 Recommendation: Insolvency Bankruptcy Committee recommended adopting UNCITRAL model law in India.

Key Components to Study

1. UNCITRAL Overview
   • Key objective: Effective and efficient insolvency law.
   • Legislative guide and model law for cross-border insolvency.
2. US Bankruptcy Code
   • Reference in historical development of Indian insolvency.
3. Objectives of Cross-Border Insolvency
   • Use acronym METFRET:
     • M: Maximization of Value
     • E: Equitable Treatment of Creditors
     • T: Timely and Impartial Resolution
     • F: Framework for Cross-Border Insolvency
     • R: Recognition of Existing Creditors' Rights
     • E: Equitable Distribution to Creditors

UNCITRAL Model Law

• Purpose: To create a framework for addressing cross-border insolvency.
• Key Principles:
  1. Access: Direct access for foreign professionals and creditors to participate in domestic proceedings.
  2. Recognition: Acknowledgment of foreign proceedings and court orders.
  3. Cooperation: Coordination between domestic and foreign courts.
  4. Relief: Automatic stays on actions against companies undergoing cross-border insolvency.

Legislative Guide vs Model Law

• Model Law: Text for states to adopt into national law.
• Legislative Guide: Framework for creating effective insolvency laws, not mandatory but advisory.

US Bankruptcy Code Overview

• Categories: Six types of bankruptcy cases:
  1. Liquidation
  2. Municipal Corporations
  3. Reorganization Plans
  4. Family Farmers/Fishermen
  5. Individuals
  6. Cross-Border Cases
• Reorganization: Under Chapter 11, allows companies to maintain operations while restructuring.

Key Sections in Indian IBC 2016

• Section 234: Agreements for cross-border insolvency enforcement.
• Section 235: Applications for action regarding assets situated in foreign countries.

World Bank Principles on Insolvency

• Principles for Effective Systems:
  1. Credit Environment: Establish credit history and lending systems.
  2. Insolvency Law System: Integrate insolvency laws with broader legal systems.
  3. Implementation Framework: Institutional framework to oversee insolvency proceedings.
  4. Comprehensive Considerations: Ensure transparency, predictability, and accountability in laws.

Conclusion

• Cross-border insolvency is critical in a globalized economy, necessitating a structured approach through legislative guides and model laws to ensure fairness and efficiency in resolving insolvency issues.