Catching overseas assets under IBC

The Central government is considering a proposal to
magnify the latitude of Insolvency and Bankruptcy Code (IBC) to cross border
insolvency. Cross-border insolvency controls the conduct of financially
distressed debtors provided such debtors own assets in more than one country.

The underlying intent of the proposal is to facilitate
lenders to unlock the and tap the defaulter’s overseas assets and build a
robust regulatory structure by reinforcing the existing charter – to ensure
that Insolvency and Bankruptcy Board of India (IBBI) is fully armored with all
essential weapons to sternly deal with defaulting companies’ in recovery of bad
loans incurred by such companies.

As of now, there is no provision under the IBC which
specifically deals with the cross border insolvency cases. IBBI is insistent on
insertion of such provision in IBC for effective handling of cross border
insolvency cases.

The proposal to insert cross border insolvency
provision in IBC is enthused from UNCITRAL Model Law, an international governance
legislation on cross-border bankruptcy cases formulated by the United Nations
Commission on International Trade Law.

The objective of UNCITRAL Model Law is to service
countries regulating with cross border insolvency cases and empower lenders of
such countries to handle with overseas assets of defunct companies or debtors
without any hiccups.

A meeting may take place to discuss about cross border
insolvency and certain other issues including:

·       To decide
the enclosure of cross border insolvency provision in IBC and craft the details
about cross border insolvency provision, if any.

·       To discuss
the possibility of formulating distinct contrivance to deal with small and
medium enterprises (SME) under IBC as such SME’s will have buyers limited in
number – in most of the cases rely upon promoters for a resolution.

·       Reconsider
the prospect to countenance promoters of distressed SME’s to participate in the
bidding of such SMEs’.

Insolvency law committee needs to be aware of
potential dangers associated with countenancing of promoters to bid for
distressed assets as it may kill the very intent of prohibiting promoters from
acquiring distressed assets at very low cost.

It is evident that with the serious implementation of
cross border insolvency provision will certainly open the gateway to lenders of
distressed companies to unlock the doors to tap the overseas assets of such
companies – to recover the loans incurred by the distressed companies.

Research inputs by Paruchuri Baswanth Mohan

 ***************

About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at bhumesh.verma@corpcommlegal.com.