Cross border insolvency framework proposed by the Ministry of Corporate Affairs (MCA)

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Cross border insolvency framework

Recently the Ministry of Corporate Affairs (MCA) has invited public opinion on the proposed cross-border insolvency framework.

Cross border insolvency refers to circumstances in which an insolvent debtor has assets and/or creditors in more than one country.

At present, it is resolved under Sections 234 and 235 of the Insolvency and Bankruptcy Code, 2016. Section 234 empowers the Central Government to enter into bilateral agreements. Provision has been made for adjudicating authorities to issue letters of request to foreign courts under section 235.

Key provisions under the proposed framework:

  • Extending the provisions of cross-border insolvency beyond corporate to personal guarantee providers of corporate debtors.
  • All benches of the National Company Law Tribunal (NCL) and Debt Recovery Tribunals (DRIs) will adjudicate applications under cross-border insolvency.
  • Exclusion of pre-determined insolvency resolution process.

Requirement of cross-border insolvency law:

  • The current framework requires the finalization of bilateral treaties. This requires long-term negotiations and can create uncertainty for foreign investors.
  • Where multiple jurisdictions are involved, bilateral treaties have to be implemented with each country. This would lead to legal and procedural complications.
  • There is no guidance/remedy available when the assets of the Indian debtor are located in a foreign jurisdiction and with which there is no bilateral agreement.

Source – The Hindu

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