Govt proposes a framework for cross-border insolvency


Till 15 December, the corporate affairs ministry has sought comments on the draft framework, is implementing the Insolvency and Bankruptcy Code (IBC),

The government was planning to come out with a cross-border insolvency resolution framework based on the UNCITRAL model law, it is proposed to be made applicable for corporate debtors as well as personal guarantors both to such debtors.

The Ministry of Corporate Affairs(MCA) has approved the prohibition of critical financial service providers such as banks and insurance companies from the applicability of cross-border insolvency provisions under the fresh draft, which it floated outlining a legal framework for such matters.

According to the ministry, the necessity has gained momentum in various jurisdictions, particularly under the aegis of UNCITRAL Model Law, during the last few decades for having robust institutional arrangements to deal with cross-border insolvency issues.

The legal framework to deal with cross-border insolvency issues was accepted by the UNCITRAL Model Law in 1997 on Cross-Border Insolvency.

This law can be implemented as a legislative framework adopted by the countries with modifications of the enacting jurisdiction to suit.

Including Singapore, the UK, the US, and South Africa, it has been adopted by nearly 50 countries.

The direct application of the cross-border law implied corporate debtors and personal guarantors to corporate debtors that the ministry has suggested.

The ministry said that cross-border issues may sparingly occur in the pre-pack method as it implements to small businesses.

Furthermore, since it was recently introduced, constitution and practice under the pre-pack mechanism are at a nascent stage, noted that.

The pre-pack process may not be suitable at this stage was applying cross-border insolvency provisions, given here.

It also added on, “under Section 227, Financial service providers are subject to a specific insolvency process that notified such as exclusion is in line with the design of the Code”.

The pre-pack process is a more manageable resolution process for MSME (Micro, Small and Medium Enterprises).

The applicability of cross-border insolvency provisions has another proposition is to eliminate financial service providers.

Section 227 of the Code enabled the Central government to categorize or notify of FSPs for insolvency and liquidation processes, in consultation with the financial sector regulators, Financial Service Providers.

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