What is Cross-Border Insolvency?

Cross-border insolvency is a complex financial situation where a debtor, who is in financial distress, owns assets and owes debts in multiple countries.

• In such circumstances, the laws of each country where the debtor has assets or creditors come into play to decide how to manage the debtor’s assets, liquidate them, and distribute the proceeds among creditors based on their priority.
• The situation becomes even more complicated when multinational corporations are involved, which have assets and liabilities spread across different countries.
• Despite the complexity, the Indian government has currently decided to postpone the implementation of a cross-border insolvency regime.

Why India is not adopting Cross-Border Insolvency?

• Only around 50 countries worldwide have adopted the United Nations model for cross-border insolvency.
• Most of these countries have strict regulations and restrictions in place.
• According to industry experts, the overall bankruptcy ecosystem in India is not yet mature enough to handle the complexities of cross-border insolvency.

Government's Current Focus:

• The government is currently focusing on expanding the scope of an informal debt resolution scheme to encompass large corporations.
• It is working to establish a framework to tackle the bankruptcies of group companies.
• The government is also planning to implement a dedicated regime for the real estate sector.
• Addressing key concerns around the operation of the bankruptcy code is another area of focus.
• The government is working on reducing delays in the admission of cases and approval of rescue plans.
• It is also looking to 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 decision to postpone the implementation of the cross-border insolvency regime has delayed India's integration with international debt resolution practices.

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