In today’s interconnected world, business transactions and commercial relationships transcend international boundaries like never before
Recognizing the need for a more streamlined and coordinated approach to resolving such complex insolvency cases, various international frameworks and conventions have emerged.
Considering the huge number of non-performing loans and mounting insolvency issues in corporate, individuals and partnership firms, India enacted a distinctive law in 2016 known as the ‘Insolvency and Bankruptcy Code’ (IBC).
Challenges Faced in Cross-Border Insolvency:
- Jurisdictional Complexity: One of the primary challenges in cross-border insolvency is determining which country’s laws and courts have jurisdiction over the proceedings.
- Asset Identification and Valuation: Identifying and valuing assets scattered across multiple jurisdictions can be challenging. These assets may include physical property, intellectual property rights, financial instruments, and accounts receivable, requiring coordination among various stakeholders.
- Coordination of Proceedings: Coordinating insolvency proceedings across multiple jurisdictions requires effective communication and collaboration among stakeholders, including debtors, creditors, insolvency practitioners, and courts.
Best Practices:
Despite the challenges posed by cross-border insolvency, there are several solutions and best practices that can help facilitate effective resolution:
- International Cooperation: Enhanced international cooperation and coordination among countries can help streamline cross-border insolvency proceedings.
- Appointment of Cross-Border Insolvency Representatives: The appointment of experienced insolvency practitioners or representatives with expertise in cross-border matters can help facilitate communication and coordination among stakeholders across different jurisdictions.
- Recognition of Foreign Proceedings: Countries can enhance the recognition of foreign insolvency proceedings through bilateral and multilateral agreements, allowing for the efficient administration of assets and claims in cross-border cases.
The Model Law is designed to assist States in reforming and modernizing their laws on arbitral procedure so as to take into account the particular features and needs of international commercial arbitration.
Jet Airways Jet Airways was a major Indian international airline that suspended operations in April 2019 after facing significant financial difficulties. The company had operations and assets in various countries, including the United Arab Emirates, the Netherlands, and the United Kingdom. The cross-border insolvency proceedings involved creditors and stakeholders from different jurisdictions, including aircraft lessors, banks, and employees.
An application under Section 7 of the IBC was filed by the State Bank of India against Jet Airways, on the admission of which, the corporate insolvency resolution process began on 20.06.2019. The NCLT was aware of the commencement of insolvency proceedings against Jet Airways in the Dutch Court with a bankruptcy administrator being appointed in the Netherland for deciding the fate of assets of the Jet Airways located in The Netherlands. The Dutch proceedings began when two European creditors filed a bankruptcy petition against Jet Airways with a claim of unpaid dues amounting to INR 280 crores.
Parallel proceedings in separate jurisdictions would detriment the interest of the creditors and have a bearing on the restructuring of the assets and claims against the corporate debtor. The NCLT, however, refused to stay the proceedings since Section 234 and 235 of the IBC which covered cross-border insolvency had not been into effect, thereby barring the Bankruptcy Administrator from participating in the Indian insolvency proceedings. The NCLT also refused to recognize the proceedings which had commenced in The Netherlands and declared them void.
However, the path to a truly unified and efficient system for resolving cross-border insolvencies remains filled with challenges. Disparities in national laws, cultural differences, and varying interpretations of legal principles can often result in conflicting decisions and protracted legal battles, further compounding the difficulties faced by creditors, employees, and other stakeholders.
Conclusion
Cross-border insolvency presents unique challenges that require innovative solutions and international cooperation to address effectively. By finding the complexities of jurisdictional differences, creditor interests, and asset distribution mechanisms, stakeholders can achieve fair and efficient resolutions that maximize value for all parties involved. As businesses continue to operate in an increasingly interconnected global marketplace, the importance of addressing cross-border insolvency in a coordinated and harmonized manner cannot be overstated.
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