New Delhi, 26 November
The government is preparing to come up with a cross-border insolvency resolution framework based on the UNCITRAL model law and proposes to make it applicable for both corporate debtors as well as personal guarantors for such debtors.
The Ministry of Corporate Affairs, which enforces the Insolvency and Bankruptcy Code (IBC), has sought comments on the draft framework by December 15.
Broadly speaking, the cross-border insolvency process deals with debtors who have assets and creditors abroad.
According to the ministry, during the past few decades, the need to put in place strong institutional arrangements to deal with cross-border insolvency issues has gained momentum in various jurisdictions, especially under the aegis of the UNCITRAL Model Law.
The UNCITRAL Model Law on Cross-Border Insolvency, 1997, is the most widely accepted legal framework for dealing with cross-border insolvency issues. The law provides a legislative framework that can be adopted by countries with amendments to suit the domestic context of the enacted jurisdiction.
It has been adopted by about 50 countries including Singapore, UK, USA and South Africa.
The ministry has proposed to immediately implement the cross-border law for corporate borrowers and personal guarantors to corporate borrowers.
In a notice dated November 24, the ministry said that cross-border issues may arise less in the pre-pack process as it is applicable to small businesses.
“Further, since it has been introduced recently, the jurisprudence and practice under the pre-pack mechanism are at an early stage. In view of this, applying cross-border insolvency provisions to the pre-pack process is not appropriate at this stage. Maybe,” it noted.
The pre-pack process is a simple resolution process for MSMEs (Micro, Small and Medium Enterprises).
Another proposal is to exclude financial service providers from the applicability of cross-border insolvency provisions.
It said, “Such exclusion is consistent with the design of the Code as financial service providers are subject to a special insolvency procedure notified under section 227.”
Section 227 of the Code enables the central government to notify financial sector regulators, in consultation with financial service providers (FSPs) or categories of FSPs, for the purpose of insolvency and liquidation proceedings. – PTI