India at crossroads with cross-border insolvency

The National Company Law Appellate Tribunal (NCLAT) in the Jet Airways insolvency proceedings upheld the recent cross-border protocol agreed between the National Company Law Tribunal (NCLT) appointed Resolution Professional (RP) and the Dutch insolvency trustee, deciding that the Dutch trustee is equivalent to the RP. The trustee thus has a right to attend the committee of creditors meeting, as insolvency law provides. This decision of the NCLAT foreshadows and approves the apparent drive in the coming winter session of Parliament to introduce provisions for cross-border insolvency (CBI) in the field of corporate debt. It is likely that these provisions will lead the way for similar legislation in the area of personal insolvency.

Any new law affecting corporate insolvency should take note of the model law on international commercial arbitration (ML) adopted in 1985 by the United Nations Commission on International Trade Law (UNCITRAL) and amended in 2016. Key features of the ML relating to CBI are that there should be: (1) accessibility between courts and court appointed insolvency professionals of different jurisdictions; (2) recognition of the main and non-main proceedings in foreign courts; (3) relief both on the application for recognition of foreign proceedings and the recognition itself, and (4) co-operation and coordination between local and foreign counterparts.

In order to address the issues arising out of CBI, the Ministry of Corporate Affairs (MCA) has issued a draft chapter on CBI for corporate debtors based on the ML, but modified to allow for local applicability. Emphasis is placed on: (1) the ease of doing business; (2) flexibility; (3) the protection of domestic interest; (4) the priority of domestic proceedings; (5) empowering insolvency representatives; (6) mechanisms for co-operation, (7) the protection of creditors; and (8) reciprocal remedies in other jurisdictions.

Concerns, however, remain that debtors could forum shop by changing their centres of main interest (COMI). However the draft chapter safeguards the interests of the creditors by providing first that it is presumed that the registered office (RO) of the debtor is the COMI only if the RO has not been moved to another jurisdiction within three months prior to the commencement of insolvency proceedings. Second, the NCLT and the NCLAT must conduct an assessment in this respect in a manner that is transparent to third parties including creditors.

Shweta Bharti is a senior partner and Sukrit Kapoor is a principal associate at Hammurabi & Solomon.

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