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Last Updated : May 20, 2019 09:03 PM IST | Source: Moneycontrol.com

Govt mulls amending insolvency code to introduce chapter on cross border cases

Cross-border insolvency laws will give power to foreign creditors to recover money lent to Indian companies and enable Indian firms to also claim their dues from foreign companies.

Kamalika Ghosh @GhoshKamalika
Representative Image
Representative Image

The government expects to bring about an ordinance to amend the Insolvency and Bankruptcy Code (IBC) to introduce a chapter on cross border insolvency cases.

"The idea is to bring about laws that talk of insolvency of subsidiary companies of a parent company located in India or elsewhere," a senior government official told Moneycontrol.

The government plans to get a Cabinet nod when it returns to power. The Ordinance will be based on the United Nations Commission on International Trade Law (UNCITRAL) model law for cross-border insolvency, the official said.

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Cross-border insolvency laws will give power to foreign creditors to recover money lent to Indian companies and enable Indian firms to also claim their dues from foreign companies.

Cross-border insolvency provisions are currently included in sections 234 and 235 of the Code but need to be notified to get enforced.

"We need to create a separate provision for insolvency that would be globally accepted and well organised," the official said.

"For cross-border insolvency to get implemented, India needs bilateral treaties with foreign governments. The government is treading the ground with caution as finalising bilateral treaties take time and different treaties have different legal dimensions, which gives rise to uncertainty among foreign investors," a senior lawyer dealing with insolvency and a part of the government's insolvency law committee said on condition of anonymity.

The need for separate bilateral treaties leads to confusion among Indian courts and the National Company Law Tribunal, which has to treat each case separately, the lawyer said.

The use of UNCITRAL model law was recommended by a panel headed by Corporate Affairs Secretary Injeti Srinivas.

The model law deals with four major principles of cross-border insolvency. It allows foreign insolvency professionals and foreign creditors to begin domestic insolvency proceedings against a defaulting debtor, recognition of foreign proceedings and provision of remedies, cooperation between domestic and foreign courts and domestic and foreign insolvency practitioners, and coordination between two or more concurrent insolvency proceedings in different countries.

The Model law has been adopted by 44 countries, including the US, the UK and Singapore.

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First Published on May 20, 2019 09:03 pm
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