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    IBC to get welcome cross-border teeth

    Synopsis

    Rightly, India wants to adopt the UNCITRAL Model Law of Cross Border Insolvency, 1997, aligning with global practice.

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    The UN model law gives precedence to domestic proceedings and protection of public interest.
    The government's reported move to adopt a legal framework for cross-border insolvency resolution is welcome. It would enlarge the scope for debt recovery, provide comfort to foreign investors and improve the ease of doing business here. In a rapidly globalising economy, the impact of any business failure transcends national boundaries. An insolvent debtor can have assets and creditors in more than one country.

    Rightly, India wants to adopt the UNCITRAL Model Law of Cross Border Insolvency, 1997, aligning with global practice. It will enable foreign creditors to start or participate in insolvency proceedings in India, sell or attach assets of the debtor to recover their loans. Similarly, Indian creditors will receive assistance from other countries that have adopted this model law. Any incentive to create assets overseas to escape domestic creditors would disappear. The UN model law gives precedence to domestic proceedings and protection of public interest. It also fosters cooperation between domestic and foreign courts and insolvency professionals. India's draft legal framework, to be a part of the Insolvency and Bankruptcy Code (IBC), excludes banking and financial services, as well as pre-packs for small businesses.

    The draft distinguishes between foreign main proceedings and foreign non-main proceedings to determine the level of control that a jurisdiction has over the insolvency resolution process, and the extent of relief that the National Company Law Tribunal can grant. NCLT's adjudication capacity must be beefed up, if it has to work on par with foreign counterparts. Lenders (read Indian banks) too must act swiftly at the first sign of distress to prevent other, foreign, creditors from initiating insolvency proceedings.

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