Cross-border IBC framework: Foreign creditors can approach tribunals in India

The Ministry of Corporate Affairs has sought public comments on granting these powers to foreign creditors and bankruptcy authorities.

The proposal – a new section to be created in the Insolvency and Bankruptcy Code (IBC) – would allow foreign creditors to get local courts to recognize foreign proceedings in cases where the personal guarantor’s main interests are in that foreign country. According to a resolution issued by the ministry for consultation by December 15, this will automatically put on hold the domestic proceedings against that debtor.

In addition to the insolvency provisions against individual guarantors, which are proposed in the latest draft, proposals made earlier covering a defaulting Indian company in a cross-border insolvency scenario will also be made law as part of a new clause in the IBC . This framework, which will be ‘Part Z’ of the IBC, will also cover foreign companies and limited liability partnerships with an entity in India.

However, it will exclude any defaulting banks and financial institutions in India. In addition, micro, small and medium enterprises (MSMEs) that are unlikely to be in a state of cross-border bankruptcy, and for whom a simple insolvency resolution regime was offered earlier this year, will be exempted from the proposed Part Z. has been laid out.

This move is a major milestone in the growth of IBC and ease of doing business in India. The remedial measures available to tide over the economic stress are an important consideration for investors at the time of investing and are expected to ease exits by helping to improve capital flows.

The proposed regime is based on the United Nations framework for cross-border insolvency adopted by 49 countries, including the US, UK and Singapore.

In the case of a personal guarantor, his ‘habitual’ place of residence will be taken into account for deciding the jurisdiction where the main bankruptcy proceedings will take place. Debt Recovery Tribunals and National Company Law Tribunal (NCLT) benches and their appellate tribunals are platforms where foreign creditors can initiate or participate in proceedings against individual guarantors in India.

“The introduction of a cross-border insolvency law in the IBC, which is in line with international best practices and appropriate to the Indian context, could be beneficial to all stakeholders. Draft Part Z, as recommended by the Insolvency Law Committee, is under consideration for enactment,” the ministry said while proposing additional measures with respect to individual guarantors.

The proposed cross-border insolvency regime only covers cases of individual companies and not groups involving multiple entities.

Work is underway on another set of proposals to amend the IBC as recommended by the Parliamentary Standing Committee. The effort is focused on allowing greater flexibility in the resolution process, improving the resolution value of the distressed company, and reducing the time taken to complete the process.