Government to Unveil Cross-Border Insolvency Framework in Coming Months

Government to Frame Rules on Group and Cross-Border Insolvency in Next 3-4 Months

The central government is expected to introduce rules on group and cross-border insolvency norms through the new IBC Bill in the next 3-4 months, according to government officials. The government's primary focus is on limiting asset value erosion during insolvency proceedings, which will enable higher recoveries for creditors.

The Lok Sabha passed the IBC (Amendment) Bill on March 30, a move aimed at addressing the "practical challenges" in the insolvency regime experienced since 2016, when the principal code was introduced. Finance Minister Nirmala Sitharaman stated that the Bill will address all these challenges.

Group insolvency, a legal framework used when a large corporation composed of multiple subsidiaries goes bankrupt simultaneously, is a key component of the Bill. The framework seeks to efficiently resolve insolvencies involving complex corporate group structures, minimize value destruction, and maximize value for creditors through coordinated decision-making.

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On the other hand, the cross-border insolvency framework aims to lay the foundation for protecting stakeholder interests in domestic and foreign proceedings, promoting investor confidence, and aligning domestic practices with international best practices. This will also pave the way for improved recognition of Indian insolvency proceedings in other jurisdictions.

India's insolvency framework is at a critical juncture, with value erosion driven less by standalone defaults and more by fragmented group structures and cross-border assets, according to insolvency experts. The proposed reforms must therefore move beyond incremental changes and directly address these coordination gaps.

Comparison of Group Insolvency Frameworks

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Soumitra Majumdar, Partner at JSA Advocates & Solicitors, suggests a three-pronged strategy to minimize inter-creditor disputes in group insolvency: due recognition and protection of pre-insolvency inter-creditor arrangements, disincentives for creditors who do not comply with obligations or strategies as approved by the specified majority of the Committee of Creditors (COCs), and proper coordination amongst the various COCs.

Cross-Border Insolvency

For cross-border insolvency rules, the primary challenge is designing effective procedures for the implementation of Indian awards in reciprocal foreign jurisdiction(s) and subsequent recognition of foreign awards herein. Experts suggest that legislators may need to specify the process to be followed by resolution professionals in detail, drawing inspiration from the UNCITRAL Model Law on Cross-Border Insolvency.

Siddharth Srivastava, Partner at Khaitan & Co, notes that cross-border provisions need a practical UNCITRAL-based framework, anchored in a clear 'centre of main interests' test and supported by enforceable cooperation between jurisdictions.

The UNCITRAL Model Law on Cross-Border Insolvency (MLCBI) is a global instruction manual created by the United Nations to help countries handle cross-border bankruptcies. The 'centre of main interests' is the specific country where a debtor regularly conducts their business and is most recognizable to their creditors. It is the legal "anchor" used to determine which country's courts should lead the bankruptcy proceedings.

Experts also suggest that a robust framework for discovery and production of information and documents in respect of foreign assets will have to be prepared in lines similar to Automatic Exchange of Information (AEOI), Common Reporting Standard (CRS), Tax Information Exchange Agreements (TIEAs), and so on under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Anjali Jain, Partner, Areness, adds that considering CIRP works on quick timelines, the Ministry of External Affairs will also have to prepare a digital infrastructure based on international treaties and data exchange mechanisms.