As the government prepares amendments to the Insolvency and Bankruptcy Code (IBC) to introduce a cross-border resolution framework that would be tailored around a model United Nations law, it should retain the power to intervene in exceptional circumstances, sources told FE.

The cross-border insolvency law aims to ensure that lenders have easier access to the foreign assets of companies in difficulty. It will allow India to seek the cooperation of foreign countries to bring the assets of defaulters there for insolvency proceedings.

“The government will have the power to intervene if it is satisfied that its insolvency framework based on the United Nations Commission on International Trade Law (UNCITRAL) does not adequately protect the public interest in a particular case. He can then make whatever decision he sees fit,” one of the sources said. However, this will only be done in exceptional circumstances and in all other cases the framework modeled on that of UNCITRAL would be adopted, sources familiar with the matter said.

If the government chooses to intervene, it can do so by issuing only an executive notification. It will not need to go through the rigors of amending the IBC’s cross-border insolvency framework through parliamentary authorisations, they added. However, to introduce the cross-border framework into the IBC, the government must amend the law.

“This is an important requirement that will allow some latitude for the government to act. Many countries that have adopted the UNCITRAL framework have also incorporated such provisions,” one of the sources said.

The cross-border insolvency framework was to be part of the Insolvency and Bankruptcy (Second Amendment) Bill 2021, which the government wanted to introduce in the winter session of Parliament to further strengthen the Code, reduce time limits resolution of toxic assets to prevent the erosion of value. However, he did not introduce the bill, as he wanted broader consultations on a range of issues.

Cross-border insolvency law recognizes that a country should deal with the main insolvency case and the others with the additional case, depending on the location of the defaulters’ assets. Similarly, if a foreign country has already initiated insolvency proceedings against a particular defaulter to recover troubled assets some of which are located here, India will also have to cooperate with that country.

In November 2021, the Ministry of Commercial Affairs (MCA) published a draft proposing that such a framework be applied not only to corporate debtors, but even to their personal guarantors, in sync with existing corporate insolvency resolution standards. businesses for distressed assets located in the countryside.

The MCA also recommended that financial service providers such as banks and insurance companies be excluded from the scope of cross-border insolvency, in line with the provisions of many countries. This is also because these financial service providers are already subject to special insolvency proceedings notified under Section 227 of the IBC. The RBI, for example, has a leading role to play in resolving bank insolvency.

Analysts have pointed to the need for cross-border insolvency law in the bankruptcy proceedings against Amtek Auto, Videocon Industries, Essar Steel and even Jet Airways, citing the numerous obstructions these cases have faced due to issues that cross borders – in the form of the location of assets, complex procedures, etc.

According to Anoop Rawat, Partner (Insolvency and Bankruptcy) at Shardul Amarchand Mangaldas & Co, the IBC is currently considering the resolution of cross-border insolvency through bilateral agreements and letters rogatory in accordance with Articles 233 and 234 of the IBC . “As no such bilateral agreement has yet been signed, the current regime remains hollow and inadequate. To effectively address this situation, the government has proposed the current framework in accordance with the UNCITRAL Model Law on Cross-Border Insolvency,” Rawat said.

Late last year, the parliamentary standing finance committee said the IBC may have strayed from its original targets, due to excessive delay in resolution and low recovery rates. The strong observations of the expert panel prompted the government to work to further strengthen the insolvency framework with a renewed sense of urgency.