Fixing domestic bankruptcy regime gets top policy priority
NEW DELHI: India’s cross-border bankruptcy resolution mechanism will have to wait a while as the government focuses on fixing the domestic bankruptcy regime with a set of amendments to the Insolvency and Bankruptcy Code (IBC).
The ministry of corporate affairs is working on letting foreign lenders to Indian businesses initiate bankruptcy action in local tribunals and enabling Indian lenders to access global assets of defaulting companies, but the contours of the proposed cross-border insolvency regime are yet to be finalized, a person familiar with discussions in the government said.
Parallelly, work is going on in revamping IBC for speedy admission of cases and creation of corporate rescue plans while ensuring lenders are able to realize maximum value for their investments in the distressed firm.
The urgency on improving outcomes of the domestic bankruptcy regime also stems from the fact that its shortcomings were flagged by the parliamentary standing committee on finance led by Bharatiya Janata Party leader Jayant Sinha in August.
Talks on the cross-border insolvency regime are taking place on finer points at the highest levels in government, said a second person, who also spoke on condition of anonymity. In contrast to improving the domestic bankruptcy resolution regime, the proposed cross-border insolvency framework involves structural changes.
It seeks to let foreign creditors and bankruptcy professionals initiate or take part in bankruptcy action in an Indian tribunal. It would cover Indian lenders requiring assistance in another country against Indian businesses and corporate guarantors with overseas assets. A cross-border insolvency regime is expected to help creditors to trace global assets of defaulting debtors and recover dues.
An email sent to the spokesperson of the corporate affairs ministry on Tuesday remained unanswered.
Experts said while developing the domestic regime is critical, it is also important to give creditors and debtors cross-border insolvency tools to maximize the value of the distressed firm’s assets.
L. Viswanathan, a partner at law firm Cyril Amarchand Mangaldas, said cross-border insolvency resolution could also help offset some challenges in domestic insolvency resolution, including accessing established legal and insolvency resolution framework available in overseas jurisdictions for resolving assets that have an inherent cross-border nexus.
“Framing the legislation to mitigate against abuse would be important. Access to established offshore jurisdictions should be balanced with the relative stage of evolution of our insolvency tribunals. The economic benefit of quicker resolution and access to well-established and advanced insolvency regimes is certainly welcome,” he said.