Cross Border Insolvency [UPSC Notes]

The government has decided to shelve plans for a cross-border insolvency regime in India. In this context, it is important to understand what is cross-border insolvency and what is the law related to cross-border insolvency in India. This topic is relevant for the IAS exam economy as well as governance segments.

Cross-Border Insolvency

Cross-border insolvency refers to situations where a debtor facing financial difficulties has assets and creditors in multiple countries. 

• In such cases, each country’s laws determine how to handle the debtor’s assets, convert them into money, and distribute them among creditors based on priority. 
• This becomes more complex when corporations have assets and liabilities in different countries.
• The government has decided to shelve plans for a cross-border insolvency regime in India.

Reason for not adopting

• Just about 50 countries have adopted the UN model of cross-border insolvency.
• Most of these countries have stringent restrictions in place.
• Experts’ opinion that the overall bankruptcy ecosystem in the country is not ready for it

Current focus of government:

• Expanding the scope of an informal debt resolution scheme to include large corporations.
• Establish a framework to address the bankruptcies of group companies.
• Implement a dedicated regime for the real estate sector.
• Address key concerns around the operation of the bankruptcy code.
• Reducing delays in the admission of cases and in approving rescue plans. 
• Check inappropriate transactions by the management of a defaulting company during its period of distress leading up to the admission of cases in tribunals. 

Impact:

• The shelving of the cross-border insolvency regime delays the integration of India with international debt resolution practices.

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