Foreign creditors will have to wait to stake claims in insolvent companies

Cross-border insolvency will help creditors from other countries that have a stake in Indian cos

Creditors across the border will have to wait to be part of the insolvency process in India.While the sections pertaining to cross-border insolvency in the Insolvency and Bankruptcy Code have been notified, the rules are yet to be framed. 

M S Sahoo, chairman of the Insolvency and Bankruptcy Board of India (IBBI), says that the rules are in the making. Sahoo told Business Standard: “We are working on the rules for cross-border insolvency. We need to lay down what kind of agreements India should get into with other countries. It has to be decided what clauses should be part of those agreements.”

Cross-border insolvency will help creditors from other countries that have a stake in Indian companies. Insolvency professionals say that infrastructure and transport companies will be the ones to benefit the most once the government gets into agreements with other countries. Some of the obvious sectors that can benefit once such agreements are in place would be aviation, shipping, infrastructure, etc. among others.

Based on the recommendations of the Report of the Joint Committee on the Insolvency and Bankruptcy Code, 2015, a mechanism for dealing with cross-border insolvency was incorporated into the Code.

This provision is likely to reduce red tape across borders. In line with the model cross-border insolvency law approved by the United Nations General Assembly in 1997, India’s code allows unhindered access to foreign assets and allows foreign creditors to be part of insolvency proceedings.

Meanwhile, the IBBI has opened the floor for information utilities to be set up and store the information of companies that file for insolvency. These information utilities will help insolvency professionals in the case of accessing credible data pertaining to the debt and assets of the company that has gone in for insolvency.