Official Discussion Paper on Cross-Border Insolvency Coming Soon: Banking & Finance News

The government is gearing up to introduce new frameworks on cross-border insolvency and group insolvency, with a cautious approach, post elections. Sudhaker Shukla, a member of the Insolvency and Bankruptcy Board of India (IBBI), revealed that the Ministry of Corporate Affairs will soon issue discussion papers on these frameworks, which are aimed at enhancing the effectiveness of insolvency processes.

Shukla highlighted the record-high resolutions under the Insolvency and Bankruptcy Code (IBC) in FY24, attributing the success to the speedy disposal of cases by the National Company Law Tribunal (NCLT). He also emphasized the importance of out-of-court settlements and providing technological platforms to insolvency professionals for better case management.

Former NCLAT Justice Mukhopadhaya stressed the need for a robust cross-border insolvency framework in India, emphasizing the importance of balancing Indian and foreign jurisdictions. He pointed out the lack of instruments in the current IBC to restructure firms involving cross-border elements, leading to ad-hoc decisions by the NCLT.

Mukhopadhaya also raised concerns about the treatment of operational creditors under the current resolution mechanism, stating that they receive minimal amounts from the resolution plans. He questioned whether the same treatment would be extended to foreign operational creditors, particularly large overseas industries.

The new cross-border insolvency norms are expected to be based on the UNCITRAL Model Law on Cross-Border Insolvency (MLCBI), aiming to address these issues and provide a more structured approach to resolving insolvency cases involving multiple jurisdictions. The government’s focus on these frameworks signals a significant step towards strengthening the insolvency framework in India.