Jet case brings to the fore problems in cross-border insolvency resolution

One among the many issues that the insolvency proceeding of Jet Airways has brought to light is the added complexity when cross-border issues surface.  Nearly a month before the National Company Law Tribunal (NCLT) admitted the insolvency application filed by the State Bank of India-led consortium of banks, the Noord-Holland District Court declared Jet Airways bankrupt based on the insolvency laws of the Netherlands. The NCLT initially refused to entertain the intervention application of the Dutch administrator and, interestingly, declared the order of the Dutch court to be void. However, on appeal, the National Company Law Appellate Tribunal (NCLAT) has now agreed to hear the Dutch administrator’s petition, while staying parts of the NCLT’s order that declared the foreign order void.

The NCLT stated that it had no powers to accept a foreign intervention application or to recognise an insolvency judgment of another country as the Insolvency and Bankruptcy Code, 2016, (IBC) currently has no provisions on cross-border insolvency. However, the NCLAT has quite rightly recognised that cross-border issues in Jet Airways cannot be ignored without repercussions for the ongoing proceedings under the IBC.  

Cross-border insolvency laws seek to address three broad issues. First, a corporate debtor may have foreign creditors whose rights need to be protected when an insolvency proceeding is commenced in another jurisdiction. Second, a corporate debtor may have assets in foreign jurisdictions, which the insolvency representative or liquidator may want to access. Third, if there are concurrent insolvency proceedings in multiple jurisdictions, adjudicatory authorities would need to coordinate across jurisdictions to ensure a holistic approach to the resolution process.

The IBC addresses the first issue as foreign creditors are permitted to participate in Indian insolvency proceedings. The other two issues, however, remain unresolved by the existing legislation. Both these issues are likely to play out in the Jet Airways case.

With regard to foreign assets, the IBC technically allows the resolution professional access to all of Jet Airways’ assets for the benefit of creditors in the Indian proceeding. However, this may be difficult in practice. Certain assets of the beleaguered airline have been seized by the Netherlands court and accessing them may be a challenge without a level of co-operation from the Dutch authorities. The NCLAT, in allowing the Dutch administrator to be heard, was probably aware of this fact as it required an undertaking that the Dutch administrator would cooperate in the Indian proceedings and not transfer any of Jet Airways’ offshore assets in its possession.

The issue of parallel insolvency proceedings in different jurisdictions are also at play here. If the Netherlands proceedings were to continue without any coordination with the IBC proceedings, this could create much confusion on the effect of the order of the Netherlands court on the assets of Jet Airways and the rights of its creditors. The NCLAT has recognised the need for cooperation and coordination, though it appears undecided on the form such cooperation is to take. Nevertheless, it has mandated cooperation between the resolution professional and the Dutch administrator and has asked SBI, as the lead financial creditor, to suggest a procedure to ensure there are no conflicts in addressing the interests of stakeholders of both countries. In the absence of a cross-border resolution framework, these appear steps in the right direction.

The Jet Airways case brings to light the urgent need to address the lacuna in the IBC on cross-border insolvency.  The Insolvency Law Committee, in its October 2018 report, recommended the adoption of the UNCITRAL Model Law of Cross Border Insolvency with certain modifications. The Model Law itself has certain limitations, such as its failure to address the insolvencies of group companies (an issue that is currently being considered by another committee), and adopting it will not provide a solution for each issue that comes up in insolvencies that cross domestic borders. However, it would at least provide an enabling framework for the NCLT or the NCLAT to cooperate with adjudicatory authorities and resolution professionals in other jurisdictions to achieve an optimal outcome that protects the interest of all stakeholders. In the meantime, the adjudicating authorities and other stakeholders in the Jet Airways proceedings will need to come up with creative solutions to ensure that cross-border complications don’t come in the way of an efficient and timely resolution.

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Ravi is a partner, and Udupa an associate, at Samvad Partners. The views are personal