New Delhi: Foreign lenders to Indian companies may have to wait longer before initiating bankruptcy proceedings against defaulting Indian companies in local courts.
New Delhi: Foreign lenders to Indian companies may have to wait longer before initiating bankruptcy proceedings against defaulting Indian companies in local courts.
The government has shelved its plan to introduce a cross-border insolvency regime that would have integrated India with several other markets that have introduced a harmonized debt resolution regime for companies whose assets are spread across multiple markets.
The government has shelved its plan to introduce a cross-border insolvency regime that would have integrated India with several other markets that have introduced a harmonized debt resolution regime for companies whose assets are spread across multiple markets.
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“Only about 50 countries have adopted the UN model of cross-border insolvency, and many of them have severe restrictions. “The adoption of this model is not high on the agenda right now,” said a person briefed on the government discussions.
Priorities now included qualifying larger companies for an informal debt resolution program currently only available to small companies, a new system for dealing with bankruptcy of group companies as a whole and a special spin-off for the real estate sector, the person said further the condition of anonymity. These changes to the Insolvency and Bankruptcy Code (IBC) are expected in the monsoon session of Parliament.
A cross-border insolvency regime has several benefits, but there are also several issues that need to be addressed, including the readiness of the entire insolvency ecosystem. Aside from allowing foreign creditors to initiate or participate in bankruptcy proceedings in local courts, it would also allow creditors in India to pursue foreign assets of Indian debtors as part of the debt settlement process. Such a rule would also result in a foreign court granting a moratorium on fee collection in certain cases in India as well.
Experts said the time may not yet be right to introduce such far-reaching measures. “It could be ideal to introduce a cross-border insolvency regime once we have made the institutional capacity and the entire insolvency processing ecosystem more robust to deal with such a demanding system,” said Anoop Rawat, partner (insolvency and bankruptcy) at law firm Shardul Amarchand Mangaldas & Co.
“We need to first have a robust debt resolution infrastructure that takes cases and completes resolution plans without delays, and also build the knowledge base for practice and jurisprudence in cross-border cases before we put in place a corresponding system.” Given the amount of work that needs to be done in this direction is needed, it makes sense not to rush into a cross-border insolvency regime at this time,” said Rawat.
The government’s current priority is to address key concerns related to the application of the Bankruptcy Act, particularly reducing delays in admitting cases and approving bailout plans. She also wants to focus on the review of improper transactions by the management of a defaulting company during the period of distress leading to the admission of cases to court. The proposed changes, which are currently being considered by senior government officials, will include specific measures in this regard. In addition, the behavior of resolution professionals will be a key focus of the proposed legislation. The Insolvency and Bankruptcy Board of India (IBBI), the rule maker, takes strict action in case of faulty settlement professionals as the government believes that professional discipline and transparent decision-making are key to solving occupational diseases.
An email sent Friday to the spokesman for the Department of Corporate Affairs seeking comment went unanswered.
In the absence of a tailor-made system for dealing with troubled companies with assets in multiple markets, the judicial authorities create a protocol for handling parallel bankruptcy proceedings in different countries. Jet Airways (India) Ltd is an example of parallel insolvency proceedings in India and the Netherlands.
In such cases, the parties coordinate their efforts to minimize costs and maximize the value of assets while respecting the independence of local authorities. The UN Model Law on Cross-Border Insolvency provides a template for dealing with such situations, recognition of foreign proceedings from a local court, and access to local courts for foreign professionals and creditors.
