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Cross Border Insolvency

4.66 Cross border insolvency signifies circumstances in which an insolvent debtor has assets
and/or creditors in more than one country. Typically, domestic laws prescribe procedures, for
identifying and locating the debtors’ assets; calling in the assets and converting them into a
monetary form; making distributions to creditors in accordance with the appropriate priority
etc. for domestic creditors/debtors. However, there are various insolvency cases in which
corporations owes assets and liabilities in more than one country.

4.67 At present, Insolvency and Bankruptcy Code, 2016 (IBC) provides for the domestic
laws for the handling of an insolvent enterprise. IBC at present has no standard instrument to
restructure the firms involving cross border jurisdictions. The problem of not having a cross
border framework problem was also expressed by the National Company Law Tribunal (NCLT)
in Mumbai in a cross-border insolvency case involving an Indian entity . NCLT stated that while
9
insolvency proceedings against the corporate debtor have already been initiated before a District
Court in Netherlands, “there is no provision and mechanism in the IBC, at this moment, to
recognize the judgment of an insolvency court of any Foreign Nation. Thus, even if the judgment
of Foreign Court is verified and found to be true, still, sans the relevant provision in the IBC,
we cannot take this order on record.” The absence of standardized cross border insolvency
framework creates complexities and raises various issues such as:

• The extent to which an insolvency administrator may obtain access to assets held in a foreign
country.
• Priority of payments- Whether local creditors may have access to local assets before funds
go to the foreign administration or not.

• Recognition of the claims of local creditors in a foreign administration.
• Recognition and enforcement of local securities, taxation system over local assets where a
foreign administrator is appointed etc.

4.68 Presently, while foreign creditors can make claims against a domestic company, the IBC
currently does not allow for automatic recognition of any insolvency proceedings in other
countries. Cross border insolvency is regulated by Section 234 and 235 of IBC. Section 234
empowers the Central Government to enter into bilateral agreements with other countries to
resolve situations about cross-border insolvency. Further, the Adjudicating Authority can issue
a letter of request to a court or an authority (under Section 235) competent to deal with a request
for evidence or action in connection with insolvency proceedings under the Code in countries
with the agreement (under Section 234).

4.69 As can be seen, the current provisions under IBC are ad-hoc in nature and are susceptible
to delay. Entering into mutual (reciprocal) agreements require individual long-drawn-out
negotiations with each country. This leads to uncertainty of outcomes of claims for creditors,
debtors and other stakeholders as well.

9 State Bank of India v. Jet Airways (India) Ltd., CP 2205 (IB)/MB/2019, CP 1968(IB)/MB/2019, CP 1938(IB)/MB/2019, Order dated 20 June
2019