With the advent of Globalization, the world witnessed meteoric growth in International Trade. Like all coins have two sides, the growth in trade and development faced potential challenges in the form of increased possibilities of Cross Border Insolvency.
What is Cross Border Insolvency? In lucid language, Cross Border Insolvency are the insolvency proceedings wherein the assets or creditors of the debtor are situated in more than one nation. In this globalized world, the major trading nations have adopted such legal framework where they can address the concerns of creditors situated in a foreign land in addition to the creditors within their own Jurisdiction. Principles of Private International Law, Major Conventions, and Reciprocity Agreements have played significant role in shaping the Cross Border Insolvency Law as we know today.
Model Law & Legislations
The Cross Border Insolvency Law owes much of it development to the UNCITRAL Model Law on Cross Border Insolvency (2014) which encouraged co-operation and coordination between Jurisdictions. The provisions of the Model Law emphasize upon Access, Recognition, Relief, Cooperation and Co-ordination. 20 Plus Countries including The U.S.A, Australia, and United Kingdom have substantially incorporated the UNCITRAL Model Law in their domestic legislation. While speaking of UNCITRAL Model Law one must also acknowledge EC Regulation on Insolvency Proceedings (2000) for its contribution towards the development of Insolvency Law. EC Regulation operates between the members of the European Union. The Regulation seeks establish Recognition and Co-operation amongst the member States.
The United States of America has a uniform federal law that governs all bankruptcy cases. The procedural aspects of the Bankruptcy process are governed by Federal Rules of Bankruptcy Procedure and local rules of each bankruptcy court. Chapter 7, 11, & 13 are the primary Chapters concerning bankruptcy procedure. An Individual or Body Corporate can file for bankruptcy under Chapter 7 for liquidation. However, the Chapter 11 of the United States Bankruptcy Code permits the Body Corporate, Partnerships, Sole Proprietorships etc. to reorganize/ reconstruct under Bankruptcy Law. In simple language it provides a situation where there is an option for the Body Corporate, Partnerships, Sole Proprietorships etc. to continue their business operations amidst reconstruction under Bankruptcy Law. The private individual can also be benefited by similar reconstruction program however the same is governed by Chapter 13.
United Kingdom made explicit demarcation between Body Corporates and individual by using exclusive terms insolvency and bankruptcy respectively. Insolvency Act, 1986 plays the key role in the realm of insolvency which is duly supported by the Insolvency Rules 1986 governing the procedural aspect of Insolvency Law. The legislation has undergone several amendments. The significant reforms in the Insolvency law of United Kingdom were introduced through Insolvency Act 2000 and Enterprise Act 2002. There are three legal jurisdictions within UK, however, the regime across the jurisdictions are substantially similar barring certain procedural and legal principles.
India, in an effort to keep up with the globalised world introduced, Insolvency and Bankruptcy Code 2016. The enactment of the legislation is a major step in itself in the era of globalization. One of the key provisions addressing the Cross Border Insolvency issue within the enactment is the enabling mechanism which allows the Central Government of India to enter into a reciprocal agreement with Governments of any other State for the purpose of enforcing the provision of the Code.
The Law across the world may not be the uniform on Cross Border Insolvency issues with several areas within the realm of Cross Border Insolvency are still suffering from challenges like issues with respect to secured creditors, situating Corporate Reconstruction under Bankruptcy Law, Set Off of Claims etc. However, one wouldn't doubt that Cross Border Insolvency Laws have crossed a significant distance since pre 1991 era.
Our team at Justitia Law Offices and our liaisons offshore, in addition to keeping abreast with the development happening in different jurisdictions on the subject are also actively engaged in court proceedings, counseling, advising and providing end to end support to our clients.
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