A high level committee has recommended adoption of a United Nations model law along with some carve outs for dealing with cross-border insolvency cases, an official release said Monday.
The Corporate Affairs Ministry said inclusion of cross-border insolvency chapter in the Insolvency and Bankruptcy Code (IBC) would be a major step forward and would bring the law on par with that of matured jurisdictions.
The Insolvency Law Committee (ILC), chaired by Corporate Affairs Secretary Injeti Srinivas, on Monday submitted its report on the matter to Corporate Affairs Minister Arun Jaitley.
"The ILC has recommended the adoption of the UNCITRAL Model Law of Cross Border Insolvency, 1997, as it provides for a comprehensive framework to deal with cross-border insolvency issues," the release said.
The panel has also suggested a few carve outs to ensure that there is no inconsistency between the domestic insolvency and the proposed cross-border insolvency frameworks.
According to the ministry, the advantages of the model law are the precedence given to domestic proceedings and protection of public interest.
"The other advantages include greater confidence generation among foreign investors, adequate flexibility for seamless integration with the domestic insolvency law and a robust mechanism for international cooperation," the ministry said in the release.
It said the necessity of having cross-border insolvency framework under the Code arises from the fact that many Indian companies have a global footprint and many foreign companies have presence in multiple countries, including India.
Although the proposed framework would enable in dealing with Indian companies having foreign assets and vice versa, it still does not provide for a framework for dealing with enterprise groups, which is still work in progress with UNCITRAL and other international bodies, the release noted.
Established in 1966, UNCITRAL is a subsidiary body of the General Assembly of the UN with the general mandate to further the progressive harmonisation and unification of the law of international trade, as per its website.
The UNCITRAL Model Law has been adopted in as many as 44 countries.
The model law deals with four major principles of cross-border insolvency, including direct access to foreign insolvency professionals and foreign creditors to participate in or commence domestic insolvency proceedings against a defaulting debtor.
Other key principles include recognition of foreign proceedings and provision of remedies, cooperation between domestic and foreign courts and domestic and foreign insolvency practitioners.
Another principle pertains to coordination between two or more concurrent insolvency proceedings in different countries.
The main proceeding is determined by the concept of Centre of Main Interest (COMI).
As per UNCITRAL, 'harmonisation' and 'unification' of the law of international trade refers to the process through which the law facilitating international commerce is created and adopted.
"Harmonisation may conceptually be thought of as the process through which domestic laws may be modified to enhance predictability in cross-border commercial transactions.
"Unification may be seen as the adoption by States of a common legal standard governing particular aspects of international business transactions," the website said.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)