M U M BA I S I L I C O N VA L L E Y BA N G A LO RE S I N G A P O RE M U M BA I B KC NEW DELHI MUNICH N E W YO RK

Introduction to
Cross-Border
Insolvency

April 2020

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Introduction to Cross-Border Insolvency

April 2020

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© Nishith Desai Associates 2020

Introduction to Cross-Border Insolvency

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Introduction to Cross-Border Insolvency

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Acknowledgements
Vyapak Desai
[email protected]

Arjun Gupta
[email protected]

Bhavana Sunder
[email protected]

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Introduction to Cross-Border Insolvency

Contents
1. GLOSSARY OF TERMS 01

2. INTRODUCTION TO CROSS-BORDER INSOLVENCY 02

3. THE UNCITRAL MODEL LAW ON CROSS BORDER INSOLVENCY 04

4. EC REGULATION ON INSOLVENCY PROCEEDINGS 05

5. SINGAPORE MODEL LAW AND GUIDELINES 07

6. UNITED STATES OF AMERICA 08

7. STATUS OF CROSS BORDER INSOLVENCY IN INDIA 09

I. Recommendations of the Insolvency Law Committee Report 9

II. Practical Implications 13

8. ROAD AHEAD 16

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Introduction to Cross-Border Insolvency

1. Glossary of Terms
Abbreviations and terms used in this document shall have the meaning set forth below for each such
term. Certain other terms shall have the meaning set forth elsewhere in this document.

NCLT National Company Law Tribunal

NCLAT National Company Law Appellate Tribunal
EU European Union
EC European Commission
EC REGULATION Council Regulation (EC) No. 1346/2000
IBBI Insolvency and Bankruptcy Board of India
INSOLVENCY As per Code, an Insolvency Professional is a person:
PROFESSIONAL
a. enrolled with an insolvency professional agency as its member
and,

b. registered with Insolvency and Bankruptcy Board of India as an

insolvency professional.
MODEL LAW UNCITRAL Model Law on Cross Border Insolvency, 1997
NCLT National Company Law Tribunal
NCLAT National Company Law Appellate Tribunal
COMI Centre Of Main Interests
RECAST REGULATION Regulation (EU) No. 2015/848
CODE The Insolvency and Bankruptcy Code, 2016
COMMITTEE The Insolvency Law Committee
REPORT The Insolvency Law Committee report submitted on October 16, 2018
DRAFT PROVISIONS Provisions pertaining to cross border insolvency suggested by the
Insolvency Law Committee through its report dated October 16, 2018
for incorporation into the Code.

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2. Introduction to Cross-Border Insolvency

Recently, in the insolvency proceedings recognized as the ‘centre of main interests’ and
of Jet Airways (India) Private Limited,1 the the Dutch proceedings were recognized as the
National Company Law Tribunal (“NCLT”) in ‘non-main insolvency proceedings’.3 Through
Mumbai expressly stated that while insolvency this Protocol, the Resolution Professional
proceedings against the corporate debtor have and the Dutch Court Administrator have
already been initiated before the NOORD – agreed on terms and conditions on which
Holland District Court, “there is no provision they will cooperate in the ongoing insolvency
and mechanism in the I&B Code, at this moment, to process, except the involvement of the Dutch
recognize the judgment of an insolvency court of any Administrator in Committee of Creditors
Foreign Nation. Thus, even if the judgment of Foreign meetings. The NCLAT, in response, allowed the
Court is verified and found to be true, still, sans the Administrator the right to attend Committee of
relevant provision in the I&B Code, we cannot take this Creditors meetings but to only observe, in order
order on record.” Earlier in the year, a Jet Airways to prevent an overlap of powers.4
flight had been grounded in Amsterdam over non-
In the same order, the NCLAT also set aside the
payment of dues to a European Cargo firm. The
order of the Mumbai-bench of NCLT, which had
Jet group has been facing insolvency proceedings
said that the Dutch court administrator had no
in the Netherlands and in India at the same time.
jurisdiction in India and therefore would not be
The Dutch court-appointed administrator in
able to take part in Jet Airways’ CoC meetings or
charge of the proceedings in Netherlands moved
raise claims on the airlines’ assets in India.
the NCLT (Mumbai) to have the NCLT recognize
the Dutch proceedings. Upon the NCLT rejecting The Jet Airways case is only one of many such
its plea, the Dutch administrator approached cases that exemplify the need for a regime that
the National Company Law Appellate Tribunal deals with situations where a corporate debtor
(“NCLAT”) to recognize Jet Airways’ insolvency may have creditors and assets dispersed across
proceedings in the Netherlands. various jurisdictions. Similarly, in the Videocon
Industries insolvency saga, news reports had
On August 21, 2019, the NCLAT asked the
indicated that Videocon has requested the NCLT
creditors of Jet Airways to file an affidavit on
to include its overseas assets in the ongoing
whether they are willing to cooperate with the
corporate insolvency resolution process.5 The
Dutch Administrator, pay his fees and accord
NCLT, in a recent order, has permitted the
foreign lenders the same status as the Indian
inclusion of Videocon’s foreign businesses in
creditors, who otherwise are also eligible to file
the corporate insolvency resolution process in
their claims before the resolution professional
India.6 However, for situations such as these,
coordinating the insolvency proceedings.2
the tribunals are proceeding on a case-by-case
Pursuant to the NCLAT’s directions, the Dutch basis as there is no clear cross-border insolvency
Court Administrator and the Resolution framework in India yet.
Professional agreed upon a ‘Cross Border
Insolvency Protocol’ wherein India was
3. Jet Airways (India) Ltd. (Offshore Regional Hub/Offices) v.
State Bank of India Company Appeal (AT) (Insolvency) No.
707 of 2019, Order dated 26 September 2019.
1. State Bank of India v. Jet Airways (India) Ltd., CP 2205 (IB)/ 4. Id.
MB/2019, CP 1968(IB)/MB/2019, CP 1938(IB)/MB/2019, Order
dated 20 June 2019. 5. Videocon requests NCLT to include overseas oil assets
in insolvency process, Economic Times, available at://
2. Jet Airways (India) Ltd v. State Bank of India, Company economictimes.indiatimes.com/articleshow/70779728.
Appeal(AT)(Insolvency) No. 707 of 2019, Order dated 12 cms?from=mdr&utm_source=contentofinterest&utm_medi-
August 2019; NCLAT seeks Jet lenders’ response on Dutch um=text&utm_campaign=cppst.
insolvency administrator’s plea, Business Standard, available
at: https://www.business-standard.com/article/companies/ 6. Order dated February 12, 2020, in the matter of Videocon
nclat-seeks-jet-lenders-response-on-dutch-insolvency- Industries Limited and Ors. [MA 2385-2019 in C.P.(IB)-02-
administrator-s-plea-119082101584_1.html. MB-2018].

2 © Nishith Desai Associates 2020

Introduction to Cross-Border Insolvency

Cross-border insolvency denotes a situation where of Lehman Brothers in September 2008, a

the insolvent debtor has assets in more than one firm that conducted business in over forty
jurisdiction or where some of the creditors of countries through instrumentality of about
the debtor are not from the jurisdiction where 650 legal entities outside the United States, is
the insolvency proceedings have been filed.7 the best illustration of the scale, complexity,
Professor Ian Fletcher, a renowned scholar on and financial significance of cross-border
aspects of commercial insolvency, proposes that insolvency. The consequence of such a situation
‘cross-border insolvency’ should be considered results in clashes between competing national
as a situation‘…in which an insolvency occurs in laws on questions including, inter alia, the
circumstances which in some way transcend the recognition of security interests, processes
confines of a single legal system, so that a single set related to the disbursal of assets, and different
of domestic insolvency law provisions cannot be policy preferences underlying the protection
immediately and exclusively applied without regard to of different kinds of creditors. This may result
the issues raised by the foreign elements of the case.’8 A in various uncoordinated legal proceedings in
majority of significant corporate failures in recent separate jurisdictions which are connected to
times highlight the involvement of more than one the affairs of such a multinational enterprise.11
jurisdiction making international insolvencies
In the absence of a framework for cross-border
common, and not an exceptional scenario.9
insolvency resolution, several questions remain
With a spurt in commercial technology, unanswered and unclear, the recent Jet Airways
cross-border trade has no longer remained and Videocon cases being a primary examples.
the preserve only of large multi-national For instance, if insolvency proceedings have
corporations. The growing size of economies commenced in India for a particular debtor
have lured companies to stretch their who has assets abroad, what are the measures
business beyond their home jurisdictions, to ensure that such assets will not be the subject
organizing their activities across national matter of a parallel proceeding in that foreign
boundaries. Due to increasing globalization jurisdiction? What if there exist concurrent
of business activities, businesses encounter a insolvency proceedings in several jurisdictions
wide array of legal systems. Therefore, when in relation to the debtor and its assets? A
multinationals become insolvent, it comes possible solution to confront these problems is
as no surprise that such insolvencies have a certain degree of harmonization of insolvency
cross-border consequences.10 The collapse laws of multiple jurisdictions. Since there exist
several pervasive differences between the legal
systems of countries, the goal of harmonisation
7. Halliday, T.C. and Carruthers, B.G., 2007. The recursivity of
law: Global norm making and national lawmaking in the
of such statutes must be pursued.12
globalization of corporate insolvency regimes. American
Journal of Sociology, 112(4), pp.1135-1202.
8. Bogdan, M., 2000. Ian F. Fletcher, Insolvency in Private
International Law: National and International Approaches.
Nordic Journal of International Law, 69(4), pp.527-528.
9. Masoud, B.S., 2014. The Context for Cross-Border Insolvency
Law Reform in Sub-Saharan Africa. International Insolvency
Review, 23(3), pp.181-200.
10. Fletcher, I.F., 2005. Insolvency in Private International Law: National
and International Approaches (Oxford Private International Law
Series). Oxford University Press. (“Many different factors are capa-
ble, either singly or in combination, of imparting a cross-border
dimension to a case of insolvency. The debtor may have had
dealings with one or more parties from other countries, or may
own or have interests in property not all of which is exclusively
within the jurisdiction of a single state. Liabilities may be owed
11. Buxbaum, H.L., 2000. Rethinking International Insolvency:
to parties whose forensic connections are predominantly with a
The Neglected Role of Choice-of-Law Rules and Theory. Stan.
different country to that with which the debtor is associated; or
J. Int’l L., 36, p.23.
the relevant obligations may be governed by foreign law, may
have been incurred outside the debtor’s home country, or may 12. McKenzie, D., 1996. International Solutions to International
be due to be performed abroad.”) Insolvency: An Insoluble Problem. U. Balt. L. Rev., 26, p.15.

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3. The Uncitral Model Law on Cross Border

Insolvency
In order to devise an effective method to handle The Model Law recognizes two kinds of
cases involving cross-border insolvency, the proceedings i.e. foreign main proceeding and
United Nations Commission on International foreign non-main proceeding. These concepts
Trade Law proposed the UNCITRAL Model Law are dealt with in further detail in this paper.
on Cross Border Insolvency, 1997 (“Model Law”). Briefly, a foreign main proceeding takes place
The Model Law was adopted on May 30, 1997 in the State where the debtor has the ‘centre
by the UNCITRAL at its thirteenth session of of its main interests’.16 A foreign non-main
UNCITRAL held in Vienna. States can implement proceeding is a foreign proceeding other than
the Model Law into their domestic regimes the foreign main proceeding, where the debtor
to assist in the coordination and resolution of has an ‘establishment’.17 The Model Law
complicated cross-border insolvency issues. provides guidance as to how the ‘centre of main
Unlike a United Nations convention, the Model interests’ can be identified. For the purpose of
Law does not require a State to notify the United recognizing a foreign non-main proceeding,
Nations or any other States of its decision to the Model Law also defines ‘establishment’ as a
implement it.13 As of today, 44 States have place of operations where the debtor carries out
adopted the Model Law in varying degrees into a non-transitory economic activity with human
their domestic legal systems.14 means and goods or services.18 Further, the
Model Law contains a public policy exception
Interestingly, the Model Law does not
which holds that courts in a State may refuse
prescribe the mandatory unification of the
to take an action governed by the Model Law,
substantive domestic laws of the various
if such action would be ‘manifestly contrary
States implementing it. Rather, it proposes
to the public policy’ of that State.
four elements to facilitate the cross-border
insolvency resolution process - access, States have adopted the Model Law into their
recognition, relief (assistance) and cooperation.15 domestic legal systems after making variations
The Model law is divided into five chapters they determine as suitable to their jurisdictions.
which cover general provisions; access of For instance, the word ‘manifestly’ in the public
foreign representatives and creditors to courts policy exception discussed above is absent from
in a state; recognition of foreign proceedings the domestic legislation in countries such as
and relief; cooperation with foreign courts and Singapore,19 whereas countries such as the
foreign representatives; and lastly procedure to United States of America20 and the United
deal with concurrent proceedings. Kingdom21 have chosen to include it.

16. Article 2(b), UNCITRAL Model Law.

13. UNCITRAL Model Law on Cross-Border Insolvency with
Guide to Enactment and Interpretation, available at: https:// 17. Article 2(c), UNCITRAL Model Law.
www.uncitral.org/pdf/english/texts/insolven/1997-Model-
18. Article 2(f), UNCITRAL Model Law.
Law-Insol-2013-Guide-Enactment-e.pdf.
19. Article 6, Tenth Schedule, Companies Act, 2006
14. http://www.uncitral.org/uncitral/en/uncitral_texts/
insolvency/1997Model_status.html 20. Section 1506, Chapter 15, Title 11, US Code
15. http://www.uncitral.org/uncitral/en/uncitral_texts/insolven- 21. Article 6, Schedule 1, The Cross-Border Insolvency
cy/1997Model.html Regulations, 2006.

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Introduction to Cross-Border Insolvency

4. EC Regulation on Insolvency Proceedings

The European Commission (“EC”) has administration of his interests regularly and
formulated regulations on cross-border can be ascertained by third parties.25
insolvency, creating a framework for the
ii. secondary proceedings, where the debtor
member States of the European Union
has an establishment;
(“EU”). On May 29, 2000, the EC passed
Council Regulation (EC) No. 1346/2000 (“EC As per the EC Regulation, secondary
Regulation”) on insolvency proceedings, proceedings may be opened in a
which came into force on May 31, 2002.22 The Member State where the debtor has an
EC Regulation, consisting of 47 articles and 3 ‘establishment’.26 Establishment has been
annexures, is applicable to all member States of defined to mean any place of operation
the EU, except Denmark. wherein the debtor undertakes non-
transitory economic activity with human
The EC Regulation does not attempt to
means and goods27 run in parallel with the
harmonize the domestic insolvency regime of EU
main proceedings. Secondary proceedings
members. Rather, it facilitates the member States
may be opened in the Member State where
in determining the jurisdiction and applicable
the debtor has an establishment. The effects
law for cross-border insolvency proceedings.
of secondary proceedings are limited to the
Further, it provides for automatic recognition
assets located in that State.
of insolvency proceedings across the member
states of the EU. The scope of the EC Regulation iii. territorial proceedings, where the debtor
is limited to “collective insolvency proceedings which has an establishment, but main proceedings
entail the partial or total divestment of a debtor and the have not yet commenced elsewhere.28
appointment of a liquidator.”23
In order to provide further clarity to the EC
The EC Regulation recognizes three kinds of Regulation, Regulation (EU) No. 2015/848
insolvency proceedings that may take place: (“Recast Regulation”) on insolvency
proceedings was approved by the European
i. main proceedings, where the debtor has its
Parliament on May 20, 2015 to replace the EC
centre of main interest within the EU;
Regulation. Barring a few provisions, the Recast
When insolvency proceedings may take Regulation applies to insolvency proceedings
place in over one jurisdiction, the EC initiated after June 26, 2017,29 while the EC
Regulations recognizes main insolvency Regulation continues to apply to insolvency
proceedings in one jurisdiction and proceedings initiated prior to this date. Similar
secondary proceedings in another. The to the EC Regulation, the Recast Regulation
main proceedings have universal scope also does not attempt to directly harmonize the
and aim at encompassing all the debtor’s substantive domestic insolvency laws of the
assets.24 For a proceeding to be recognized member States of the EU. Thus, EU member
as ‘main proceedings’, the debtor must States (except Denmark) are required to pass
have its ‘centre of main interests’ in the domestic laws to incorporate the provisions of
jurisdiction of that Member State. Centre the Recast Regulation.
of main interests corresponds to the
place wherein the debtor conducts the
25. Id.
26. Id.
22. https://eur-lex.europa.eu/legal-content/EN/TXT/PD- 27. Regulation 2(h), EC Regulation
F/?uri=CELEX:32000R1346&from=en.
28. Article 3, EC Regulation
23. Article 1(1), EC Regulation
29. https://eur-lex.europa.eu/legal-content/EN/TXT/
24. Preamble, paragraph 12, EC Regulation PDF/?uri=CELEX:32015R0848&from=en

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The Recast Regulation provides clarity by effecting a change in process of communication

further defining the concept of centre of main between liquidators and courts and the
interests. There is now a rebuttable presumption introducing of a novel concept of voluntary
that the centre of main interest is at the place of ‘group coordination proceedings’, amongst
the registered office, the individual’s principal other changes.30 The concept of ‘group
place of business or habitual residence. This coordination proceedings’ aims to coordinate
presumption may be rebutted based on several multiple insolvency proceedings in Member
factors, for instance, where the company’s State concerning the same group of companies
central administration is re-located in another through cooperation and coordination between
Member State or the registered office or business Member States. In this regard, Member States
to another Member State within 3 months may coordinate to appoint the same insolvency
prior to requesting the opening of insolvency practitioners for the group of companies and
proceedings. The Regulation also includes allow for a coordinated restructuring of the
provisions for; creating a central database group of companies.

30. https://www.lexisnexis.com/uk/lexispsl/
restructuringandinsolvency/document/393781/55KG-
P041-F18C-C101-00000-00/EC%20Regulation%20on%20
Insolvency%201346/2000%E2%80%94overview#

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Introduction to Cross-Border Insolvency

5. Singapore Model Law and Guidelines

Singapore has adopted the UNCITRAL Model In October 2016, the Supreme Court announced
Law. To this tune, amendments were made to establishment of a network of insolvency
the Companies Act31 which became operative judges from several jurisdictions to encourage
on May 23, 2017. By virtue of introduction communication and cooperation among
of Section 354B and Xth Schedule to the national courts. The network, known as
Companies Act, first-hand legislative tools the Judicial Insolvency Network (“JIN”),
to enhance cross-border insolvency were comprises judges from various jurisdictions
introduced. The amendments, inter alia, now including United States of America, Australia,
permit the recognition of foreign insolvency etc.33 The JIN issued a set of guidelines titled
proceedings and insolvency representatives in the “Guidelines for Communication and
Singapore. Further, provisions have been made Cooperation between Courts in Cross-Border
for imposing and respecting moratorium in line Insolvency Matters” (“Guidelines”). In
with the UNCITRAL Model Law. Singapore, these Guidelines supplement all
legislation, rules and procedure concerning
Further, Model Law protects the power of the
insolvency. These guidelines are to be
Singapore Courts to intervene when the public
considered in any case involving cross-border
policy of Singapore would be affected. Singapore
proceedings relating to the insolvency or
Model Law by virtue of Article 7 therein,
adjustment of debt commenced in more than
signifies that the common law will continue
one jurisdiction.34 These Guidelines were also
to play a role in interpreting the sections of
recently invoked last year by the Singapore High
the Singapore Model Law as well as for the
Court and the US Bankruptcy Court (Southern
alternative relief options.
District of New York) to jointly manage the
Recently, in the case of Re. Zetta,32 the Singapore insolvency of Ezra Holdings Ltd, a leading global
High Court recognized proceedings of Zetta offshore services provider.35
entities pending in the United States as foreign
main proceedings. In doing so, the Court was
grappled with the question of determining a
centre of material interest, in light of presence
of Zetta entities in Singapore. This was resolved
by the courts by adopting the US position by
prioritizing the date at which application for
recognition is made.

33. http://www.jin-global.org/about-us.html
34. https://www.supremecourt.gov.sg/docs/default-source/
module-document/registrarcircular/rc-1-2017---issuance-of-
31. https://sso.agc.gov.sg/Act/CoA1967?ProvIds=Sc10- guidelines-for-communication-and-coorporation-between-
courts-in-cross-border-insolvency-matters-.pdf
32. Re Zetta Jet Pte Ltd and others (Asia Aviation Holdings Pte
Ltd, intervener) [2019] SGHC 53 35. Id.

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6. United States of America

Chapter 15 of the Bankruptcy Code of the is executed by the statute’s five tiered objectives.
United States of America provides for cross- First, to promote cooperation between the US
border related provisions. This chapter was Courts and parties of interest and other courts
added by the Bankruptcy Abuse Prevention and competent authorities of foreign countries
and Consumer Protection Act, 2005. It replaced involved in cross-border insolvency cases.
Section 304 of the Bankruptcy Code to make Second, to establish greater legal certainty. Third,
way for USA’s adoption of UNCITRAL Model to inculcate fairness and efficiency in cross
Law. As a result, the U.S. interpretation must be border insolvencies to protect interests of all
coordinated with the interpretation given by stakeholders. Fourth, to afford protection and
other countries that have adopted it as internal maximization of the value of the debtor’s assets
law to promote a uniform and coordinated legal and Fifth, to facilitate the rescue of financially
regime for cross-border insolvency cases. This troubled businesses.36

36. 11 U.S.C. § 1501

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Introduction to Cross-Border Insolvency

7. Status of Cross Border Insolvency in India

India has experienced a complete overhaul request to a court or an authority of a country
of its insolvency regime in recent times. The with whom a reciprocal arrangement has been
Insolvency and Bankruptcy Code, 201637 established pursuant to Section 234 of the Code.
(“Code”) came into force on December 15, 2016,
Although the inclusion of Sections 234 and
consolidating several laws relating to insolvency
235 in the code was to facilitate resolution
resolution of companies, partnerships and
of cross border insolvencies, it was observed
individuals. The Code currently extends
that no steps had been taken to effectively
its applicability to corporate persons, and
implement the inter government agreements.
the provisions relating to partnerships and
As of today, an order of the NCLT in a cross-
individuals are yet to be notified. Although the
border insolvency matter would not directly be
Code is recent, it has been evolving immensely
recognized or enforced in any foreign country.
through amendments, regulations and judicial
Further, even if notified, these provisions do
interpretation. For a more detailed analyses
not adequately address the complicated issues
and latest updates on the Code regime in India,
arising out of cross-border insolvency cases.
you may refer to our paper A Primer on the
Insolvency and Bankruptcy Code, 2016.38 Considering this, the Insolvency Law Committee
(“Committee”) submitted a report on October
Currently, the Code contains two provisions to
16, 2018 (“Report”) suggesting the incorporation
assist with cross-border insolvency disputes:
of the Model Law (“Draft Provisions”) into the
ƒ Agreements with foreign countries Code.39 The Draft Provisions contain certain
modifications and variations of the Model Law
The Central Government may enter into an
as deemed necessary by the Committee in the
agreement with the Government of another
Indian context. The key features of the Draft
country for enforcing the provisions of the Code
Provisions are discussed below.
pursuant to Section 234 of the Code. Further, the
Central Government may direct the application
of the provisions of the Code in relation to I. Recommendations of the
assets or property of a corporate debtor or an Insolvency Law Committee
individual, including a personal guarantor of a
corporate debtor, situated outside India through Report
a reciprocal arrangement.
ƒ Letter of request A. Applicability
When evidence or action relating to assets of
a corporate debtor situated outside India is i. Who does the Draft Provisions
required in relation to an insolvency resolution apply to?
process, the resolution professional, liquidator
or bankruptcy trustee, can make an application The Code has been notified only with respect
to the NCLT pursuant to Section 235 of the Code. to corporate persons as corporate debtors. The
If the NCLT deems it fit, it may issue a letter of Draft Provisions would thereby apply only
to corporate debtors. For partnerships and
individuals, Section 234 and 235 of the Code
37. The Insolvency and Bankruptcy Code, 2016, available at:
https://ibbi.gov.in/webadmin/pdf/legalframwork/2018/Jun/ would to apply, as and when notified.
Insolvency%20and%20Bankrutpcy%20Code,%202016%20
(31%20of%202016)_2018-06-08%2020:06:32.pdf.
38. A Primer on the Insolvency and Bankruptcy Code, 2016,
available at: http://www.nishithdesai.com/fileadmin/user_ 39. https://ibbi.gov.in/webadmin/pdf/whatsnew/2018/
upload/pdfs/Research_Papers/A-Primer-on-the-Insolvency- Oct/Report%20on%20Cross%20Border%20
and-Bankruptcy-Code.pdf. Insolvency_2018-10-22%2018:55:11.pdf

© Nishith Desai Associates 2020 9

Provided upon request only

ii. When can it be applied? with claims on foreign companies which

have assets in India can, through a foreign
Proceedings under the Code may be commenced
representative under the Code, have access to
only if the corporate debtor has assets in India. It
the foreign companies’ assets in India.
must be noted that under the Code as it stands
today, foreign creditors are already included The Draft Provisions also provide the Central
as creditors, and can thereby initiate and Government the power to prescribe a code of
participate in an insolvency resolution process conduct to apply to foreign representatives.
commenced in India. The Supreme Court’s Further, if the foreign representative violates
judgment in Macquarie Bank Limited v Shilpi the Draft Provisions or any rules or regulations
Cable Technologies Ltd.40 was a step forward in made under it, the Insolvency and Bankruptcy
clarifying the accessibility of foreign creditors to Board of India (“IBBI”) may impose a penalty for
the insolvency resolution process and the non- the contravention; or pass any other direction
discriminatory nature of the Code.41 that the IBBI is authorized to grant against
an insolvency professional (“Insolvency
For proceedings commenced outside India, the
Professional”) under the Code.
Draft Provisions imbibe a reciprocity requirement
to be applicable foreign countries. Therefore, Similarly, if the reciprocity requirement is
their applicability would extend to foreign met, a resolution professional or liquidator
countries that have adopted the Model Law into recognized and authorized under the Code may
their domestic regimes. Additionally, the Central be authorized to act on behalf of a proceeding
Government may notify any other country to under the Code in a foreign country, as permitted
which the Draft Provisions would apply. This by the applicable foreign law. Thus, subject to
reciprocity requirement is further analyzed in the the requirements under Indian law and the
‘Practical Implications’ section below. applicable foreign law being met, creditors in
India (through the resolution professional or
liquidator) may also have access to the assets of a
iii. How is access granted when corporate debtor in a foreign country.
proceedings are commenced
outside India? B. Recognition of Foreign
Once reciprocity is established, a ‘foreign Proceedings
representative’ can apply to the NCLT for the
recognition of a foreign proceeding. Upon Foreign proceeding is a judicial or administrative
recognition of the foreign proceeding by the proceeding in a foreign country pursuant
NCLT, the foreign representative can participate to a law relating to insolvency. In a foreign
in the insolvency resolution process as proceeding, the assets and affairs of the corporate
prescribed under the Draft Provisions. debtor are under the control or supervision of a
foreign court for reorganization or liquidation.
The Draft Provisions provide a wide definition
to the term ‘foreign representative’, as a person The Draft Provisions highlight two types of
or body who has been authorized in a foreign foreign proceedings – foreign main proceedings
proceeding to manage the insolvency resolution and foreign non-main proceedings. Such a
process; or to act as a representative of the distinction is created to determine the level of
foreign proceeding, including those appointed control that jurisdiction has over the insolvency
on an interim basis. Therefore, if the Draft resolution process, and the type and extent of
Provisions are implemented, foreign creditors relief that the NCLT can grant in relation to the
foreign proceedings. Further, as discussed in
detail below, the NCLT can grant mandatory
40. Civil Appeal No.15135 OF 2017
relief in case of a foreign main proceeding and
41. http://www.nishithdesai.com/information/research-and-
articles/nda-hotline/nda-hotline-single-view/newsid/4417/
non-mandatory relief in case of a foreign non-
html/1.html?no_cache=1. main proceeding.

10 © Nishith Desai Associates 2020

Introduction to Cross-Border Insolvency

i. Foreign Main Proceeding Acknowledging that the Code is still evolving,

the Committee determined that inclusion of a
Foreign main proceedings are those which
look-back period relating to the registered office
are commence in the jurisdiction where the
was necessary in the Indian context.
corporate debtor has its centre of main interests
(“COMI”). The COMI is one of the most heavily Further, the Central Government has been given
debated concepts arising out of the Model Law. the power to prescribe additional factors for the
The Draft Provisions provide guidance for the determination of COMI through subordinate
determination of the COMI42: legislation. Upon consideration of the factors
above, the COMI of a corporate debtor is
a. Unless there is proof to the contrary, there
determined by the NCLT. This results in the
is a presumption that the jurisdiction
classification of the proceeding at that identified
where the corporate debtor’s registered
jurisdiction as the foreign main proceeding.
office is located is its COMI.
b. This presumption would apply only if the
registered office of the corporate debtor
ii. Foreign Non-Main Proceeding
has not moved to another country three ‘Foreign non-main proceedings’ may commence
months prior to the filing of an application in jurisdictions where the corporate debtor has
for initiation of insolvency proceedings in an ‘establishment’. It is a proceeding, other than
that country. a foreign main proceeding which takes place
in a country where the corporate debtor has an
c. The NCLT will conduct an assessment to
establishment. Like the Model Law, the Draft
determine where the corporate debtor’s
Provisions define an establishment as a place of
central administration takes place
operations where the corporate debtor carries
and whether such location is readily
out a non-transitory economic activity with
ascertainable by third parties, including
human means and assets or services. Lately,
the creditors of the corporate debtor.
there is a surge in business activity which does
d. If the COMI is not determined by the not necessarily involve human means, such
above factors, the NCLT may conduct an as e-commerce companies and companies
assessment using factors prescribed by the primarily operating over the Internet. Therefore,
Central Government. some jurisdictions such as the US have
specifically excluded the requirement of ‘human
A rebuttable presumption regarding the
means’ from the definition of establishment.44
COMI at the registered office of the corporate
However, the Committee has retained the same
debtor was inserted to simplify the resolution
in the Draft Provisions as there is insufficient
of straight-forward cross-border insolvency
conclusive jurisprudence on the consequences
matters. However, the Model Law does not
of altering the definition of establishment.
prescribe a three month look back period
regarding the registered office for application
of the rebuttable presumption. However, C. Mandatory and Non-Mandatory
the Recast Regulation contains a provision Relief
providing for a three month look back period
in order to prevent forum shipping by parties A moratorium ensures that the corporate
involved in the insolvency resolution process.43 debtor’s assets are protected during the course
of the insolvency proceedings. Establishing
a moratorium is especially of importance in
42. Section 14, Draft Part Z, Insolvency Law Committee
cross-border insolvency matters as the assets of
Report, available at: http://www.mca.gov.in/Ministry/pdf/ the corporate debtor may be situated in more
CrossBorderInsolvencyReport_22102018.pdf
43. Regulation 31, EC Recast Regulation, available
at: https://eur-lex.europa.eu/legal-content/en/
TXT/?uri=CELEX%3A32015R0848. 44. Section 1502(2), Chapter 15, Title 11, US Code.

© Nishith Desai Associates 2020 11

Provided upon request only

than one legal jurisdiction. The Draft Provisions satisfied that the interests of creditors in India
provide for mandatory and non-mandatory are adequately protected.
reliefs, based on the nature of the foreign
proceeding.
D. Cooperation and coordination
Mandatory Relief: If the NCLT determines between countries
that the foreign proceeding is a foreign main
proceeding, it shall grant mandatory relief by The Draft Provisions provide a framework for
declaring a moratorium on the following: cooperation and coordination between foreign
courts and foreign representatives in the
a. the institution of suits or continuation of
following forms:
pending suits or proceedings against the
corporate debtor including execution of a. Cooperation and communication between
any judgment, decree or order in any court the NCLT and foreign courts or foreign
of law, tribunal, arbitration panel or other representatives
authority;
b. Cooperation and direct communication
b. transferring, encumbering, alienating or between the resolution professional and
disposing of, by the corporate debtor, any liquidators of foreign courts or foreign
of its assets or any legal right or beneficial representatives.
interest therein;
The Central Government has been given
c. any action to foreclose, recover or the power to issue guidelines to ensure such
enforce any security interest created cooperation and coordination between the
by the corporate debtor in respect of its NCLT and foreign courts and representatives.
property including any action under Apart from ensuring direct communication
the Securitisation and Reconstruction channels across countries, foreign proceedings
of Financial Assets and Enforcement of may involve joint hearings in when occurring
Security Interest Act, 2002; concurrently.
d. the recovery of any property by an owner or
lessor where such property is occupied by E. Concurrent Proceedings
or in the possession of the corporate debtor.
The Draft Provisions envisage three situations of
A moratorium ensures that the corporate debtor is
concurrent cross-border insolvency proceedings:
prohibited from engaging in the abovementioned
activities. In the case of recognition of a foreign i. Recognition of foreign main proceeding-
main proceeding, such moratorium is automatic. If a proceeding is recognized as a foreign
The Draft Provisions clarify that the moratorium main proceeding, any proceeding may
imposed will be similar to the moratorium under be commenced under the Code if the
Section 14 of the Code. corporate debtor has assets in India. This
proceeding will be limited to the assets
Non-Mandatory Relief: If the NCLT determines
of the corporate debtor located in India.
that there exists a foreign non-main proceeding
The framework for cooperation and
it may declare a moratorium on the aspects
coordination of proceedings would apply to
highlighted in points (a) to (d) above, as it deems fit.
such a proceeding.
Further, upon recognition of a foreign
ii. Simultaneous proceedings – If an
proceeding (main or non-main), the NCLT
application for recognition of foreign
may entrust the distribution of the corporate
proceeding is received after a proceeding
debtor’s assets located in India to the foreign
has commenced under the Code, any non-
representative upon his request; or another
mandatory relief granted by the NCLT with
person designated by the NCLT. However, in
respect to such foreign proceeding must be
order to pass such an order, the NCLT must be

12 © Nishith Desai Associates 2020

Introduction to Cross-Border Insolvency

consistent with the proceedings under the in countries such as Singapore,45 whereas
Code. Further, if such foreign proceeding countries such as the United States of America46
is identified as a foreign main proceeding, and the United Kingdom47 have chosen to
the automatic mandatory relief prescribed include it. In the US, courts have recognized
under the Draft Provisions are excluded that the public policy exception must be used
from application. sparingly and applied only in the rarest of rare
cases.48 In Singapore, the High Court recently
If proceedings under the Code commence
held that the omission of the word ‘manifestly’
after the recognition of a foreign
during its adoption of the Model Law subjects
proceeding, any mandatory or non-
Singapore to a lower threshold of determination
mandatory relief granted by the NCLT with
of when an action is against the public policy of
respect to the foreign proceeding shall be
the country.49
modified or terminated if inconsistent with
the provisions of the Code. The Draft Provisions have not attempted
to define what constitutes public policy. It
iii. Coordination of more than one
remains to be seen how the public policy
proceeding – If the corporate debtor has
exception will be interpreted by courts in the
more than one foreign proceeding, the
Indian context and should be in for varying
NCLT is expected to seek cooperation and
juridical interpretations given the history
coordination with the other jurisdictions
of jurisprudence of ‘public policy’ in the
as prescribed under the Draft Provisions.
arbitration law context. An analysis of the
Further, the Draft Provisions further
public policy exemption can be found in the
provide that the NCLT has the power to
section below.
modify a non-mandatory relief granted
under the Draft Provisions to be consistent
with the foreign main proceedings. If more II. Practical Implications
than one foreign non-main proceeding is
recognized, the NCLT has the power to
grant, modify or terminate any relief to
A. Impact on Legal Proceedings in
ensure the coordination of such foreign India
proceedings.
If the Draft Provisions are implemented, and
the NCLT determines that a foreign proceeding
F. Public Policy is a foreign main proceeding, arbitration and
litigation proceedings in India against the
At the very outset, the Draft Provisions provide
corporate debtor (including their initiation or
a wide public policy exception. This exception
continuation) would be mandatorily subject
states that the NCLT may refuse to take an
to a moratorium. If the NCLT determines
action otherwise authorized by the Draft
that a foreign proceeding is a foreign non-
Provisions if such action is manifestly contrary
main proceeding, the NCLT has the discretion
to the public policy of India. Further, the Central
to impose a moratorium on litigation and
Government has also been given the power to
arbitration proceedings against the corporate
apply to the NCLT if an action authorized by
debtor in India.
the Draft Provisions is considered manifestly
contrary to the public policy of India.
As discussed previously, the Model Law
prescribes this public policy exception, which 45. Article 6, Tenth Schedule, Companies Act, 2006

has been adopted in varying degrees by 46. Section 1506, Chapter 15, Title 11, US Code

countries. For instance, the word ‘manifestly’ 47. Article 6, Schedule 1, The Cross-Border Insolvency
Regulations, 2006.
in the public policy exception discussed
48. In re Dr. Jürgen Toft, 453 B.R. 186 (Bankr. S.D.N.Y. 2011).
above is absent from the domestic legislation
49. Re: Zetta Jet Pte Ltd and others [2018] SGHC 16.

© Nishith Desai Associates 2020 13

Provided upon request only

Until the Draft Provisions are implemented, any lower than in jurisdictions that have adopted
litigation or arbitration proceedings in India the word “manifestly” in their public policy
may continue even if insolvency proceedings exemptions. The United States cross-border
have been initiated against the corporate debtor insolvency legislation contains an exemption
in foreign countries. However, if insolvency if an action in manifestly contrary to its public
proceedings have been initiated against the policy. In the case of In Re Qimonda AG,51 the
corporate debtor in India, upon admission of the United States Bankruptcy Court reiterated that
insolvency application, a moratorium would the public policy exemption is limited to the
be imposed on initiating or continuing legal most fundamental policies and purposes of the
proceedings against the corporate debtor. United States.
It is unpredictable how Indian courts will
B. Primacy of Local Law interpret the public policy exemption. For
instance, in the arbitration context, India
the Draft Provisions, like the Model Law, do
saw varied and diverse interpretations of
not mandatorily unify domestic insolvency
public policy, often to the detriment of Indian
regimes of countries. As can be seen above,
arbitration landscape. Subsequently, judicial
the Draft Provisions provide supremacy to
precedents and statutory amendments were
proceedings commenced under the Code. Thus,
effected to reverse such diverse interpretations,
if insolvency proceedings under the Code are
and narrow down the scope of public policy.
initiated, any foreign proceeding that may
In this regard, perhaps the Committee could
be recognized by the NCLT under the Draft
have taken a leaf out of the lessons learnt in
Provisions must not be inconsistent with the
the arbitration context and defined the public
proceedings under the Code. The NCLT has
policy exemption more exactly, stressing upon
been given the power to modify or terminate
a narrow scope of its applicability through
reliefs to ensure coordination and consistency
legislation itself.
with the provisions of the Code. It remains to
be seen how effective the recognition of foreign
proceedings will actually be in coordination of D. Procedural Predicaments
concurrent insolvency proceedings in light of
In order to provide effect to the Draft Provisions,
the wide powers provided to the NCLT.
a slew of amendments and sub-ordinate
legislations would be necessary. For instance,
C. Public Policy Exemption currently the legislations in India do not
provide for concurrent hearings with other
The NCLT may refuse to take any action under
jurisdictions. Further, the Draft Provisions have
the Draft Provisions if it is considered manifestly
left a lot of detailing to subordinate legislation
contrary to the public policy of India. Public
from the Central Government and IBBI. Such
policy, however, has not been defined under the
amendments and promulgations of rules and
Draft Provisions.
regulations must coincide with the vision of the
Countries that have adopted the Model Law Model Law and be effected in a timely manner
previously have evolved their definition of to avoid a muddle in the resolution of cross-
public policy through judicial precedents. border insolvency cases.
Singapore has not used the term “manifestly” in
The Code as it stands today prescribes strict
its public policy exemption. Thereby, in its first
timelines for resolution of cases, which have
judgment of interpreting public policy under
been time and again determined as inviolable.
its insolvency legislation, the Singapore High
It is unclear if these strict timelines will be
Court in Zetta Jet Pte Ltd50 held that the standard
applicable to cross-border insolvency cases, and
for interpreting public policy grounds is much

50. Zetta Jet Pte Ltd, [2018] SGHC 16 51. In Re Qimonda AG, 462 B.R. 165 (Bankr. E.D. Va. 2011).

14 © Nishith Desai Associates 2020

Introduction to Cross-Border Insolvency

if so, how they would be effectively adhered is less than one-third of the countries which have
to in the presence of multiple insolvency ratified the New York Convention. Considering
proceedings. the general hesitation in implementing
reciprocity provisions, it remains to be seen how
The requirement of reciprocity for the
the reciprocity requirement under the Draft
applicability of the Draft Provisions is an
Provisions will be implemented.
ambitious one, which may not bear fruit in the
short run given India’s past experience with Further, there are several pervasive challenges
reciprocity requirements. In a separate example, that countries adopting the Model Law are
India has ratified the 1958 Convention on the facing, such as the manner of defining the
Recognition and Enforcement of Foreign Arbitral COMI and harmonizing the diverse domestic
Awards (the New York Convention) for the insolvency legislations of various countries.
enforcement of arbitral awards with a reciprocity It remains to be seen how Indian courts
reservation along with an Official Gazette will overcome such challenges and provide
notification. Till date, India has officially notified consistent interpretations.
50 countries as reciprocating countries,52 which

52. Enforcement of Arbitral Awards and Decrees in India,

Nishith Desai Associates (January 2019).

© Nishith Desai Associates 2020 15

Provided upon request only

8. Road Ahead
Currently, there is no effective legal framework If the Draft Provisions are adopted, despite
for resolving cross-border insolvency the existence of some procedural and legal
proceedings in India. The Draft Provisions challenges, the framework suggested by it
suggested by the Committee would necessarily could go a long way in ensuring coordination
require to be formulated as a Bill, which must and communication between jurisdictions to
be passed, in order to be inserted in the Code successfully address the resolution of cross-
as it stands today. Presently, there is no clarity border insolvency cases.
as to when such amendments will be effected,
although newspaper reports claim that the
Government is contemplating adding a chapter
on cross-border insolvency to the Code soon.53

53. Govt likely to tweak IBC for cross-border cases, Bill after
elections, Business Standard, 5 March 2019, available at:
https://economictimes.indiatimes.com/news/economy/
policy/work-is-on-to-amend-ibc-to-address-cross-border-
insolvency-m-s-sahoo/articleshow/72308982.cms?from=mdr

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February 2019 December 2018

NDA Insights
TITLE TYPE DATE
Delhi Tribunal: Hitachi Singapore’s Liaison Office in India is a Permanent Tax November 2019
Establishment, Scope of Exclusion Under Singapore Treaty Restrictive
CBDT issues clarification around availment of additional depreciation Tax October 2019
and MAT credit for companies availing lower rate of tax
Bombay High Court quashes 197 order rejecting Mauritius tax treaty benefits Tax May 2019
Investment Arbitration & India – 2019 Year in review Dispute January2020
Changing landscape of confidentiality in international arbitration Dispute January2020
The Arbitration and Conciliation Amendment Act, 2019 – A new dawn or Dispute January2020
sinking into a morass?
Why, how, and to what extent AI could enter the decision-making boardroom? TMT January2020
Privacy in India - Wheels in motion for an epic 2020 TMT December 2019
Court orders Global Take Down of Content Uploaded from India TMT November 2019
Graveyard Shift in India: Employers in Bangalore / Karnataka Permitted to HR December 2019
Engage Women Employees at Night in Factories
India’s Provident Fund law: proposed amendments and new circular helps HR August 2019
employers see light at the tunnel’s end
Crèche Facility By Employers in India: Rules Notified for Bangalore HR August 2019
Pharma Year-End Wrap: Signs of exciting times ahead? Pharma December 2019
Medical Device Revamp: Regulatory Pathway or Regulatory Maze? Pharma November 2019
Prohibition of E-Cigarettes: End of ENDS? Pharma September 2019
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