New Delhi, March 18, 2018

India is likely to tweak the Insolvency and Bankruptcy Code to create a mechanism to resolve cross-border insolvency cases using a reciprocal arrangement with other countries.

The 14-member high level committee reviewing the Insolvency and Bankruptcy Code (IBC) is likely to suggest that India take a cue from countries including the US, the UK, Australia and Singapore, and adopt a similar model law set by the United Nations (UN), a senior government official said.

“Many companies are in the eye of the storm and have subsidiaries abroad,” the official said. “If we have cross-border insolvency and reciprocal arrangement with these countries, then these cases can be resolved easily,” the official said, not wanting to be named.

The final recommendations of the committee are likely to come by the end of this month.

The government is of the view that as more and more Indian companies become global, it is important to have a cross-border insolvency mechanism. If a holding company becomes insolvent but has a solvent subsidiary abroad, then a reciprocal arrangement can make resolving such cases simpler.

Many countries have adopted the United Nations Commission on International Trade Law to resolve cross-border insolvency cases. India is not a signatory to the law yet. The government has faced hurdles in getting access to foreign assets of defaulters including billionaire diamond jeweller Nirav Modi and Vijay Mallya, promoter of defunct Kingfisher Airlines.

Section 234 of the IBC provides: “The central government may enter into an agreement with the government of any country outside India for enforcing the provisions of this Code.”

The review committee is also likely to recommend an online system to resolve individual insolvency cases. The move could impact 98% of medium and small enterprises (MSMEs) which have registered as sole proprietorships or partnerships. Such cases could fall into individual insolvency cases.

While the government is working out special exemptions for the MSME sector in the IBC, it is also considering a separate mechanism to resolve individual insolvency cases.

The online system would work separately from the Debt Recovery Tribunal and do away with all physical interface and requirement of a resolution professional, the senior official said.

Ministry of corporate affairs also plans to measure the success of IBC on three parameters – time taken, money recovered and the cost burden on the corporate debtor. The statistic will be compared with global counterparts to further improve the Code. The government is keen to remove the ambiguities in the Code for faster and effective resolution of NPAs which have gone into insolvency proceedings.

The committee is expected to finalise its recommendations soon, based on which the government will move a bill in Parliament to amend the Insolvency and Bankruptcy Code.

[The Economic Times]