-By Satvik Varma The insolvency proceedings against Jet Airways in India and the Netherlands bring to fore the lacunae in the Insolvency and Bankruptcy Code (IBC), 2016 to deal with cross-border insolvencies. Cross-border insolvency involves the handling of distressed debtors who have assets and/or creditors in several countries, and become subject to insolvency proceedings in multiple jurisdictions.
If these companies were to flounder, and insolvency proceedings get initiated, it is imperative that these diversely located assets be protected and the claims of creditors from the various jurisdictions be collated and resolved. In the Netherlands, an administrator was appointed by a Dutch court to take charge of the assets of Jet Airways which confiscated a Boeing 777, which the administrator had undertaken before the National Company Law Tribunal not to dispose of. Owing to non-cooperation of the Indian Resolution Professional and the Committee of Creditors, the administrator sought to withdraw its undertaking and proceed independently of the Indian proceedings. One reason for this withdrawal was payment of fees to the Dutch administrator by the Indian RP. The administrator has now filed an appeal before the National Company Law Appellate Tribunal.
At a time when India is a preferred foreign investment destination, it is startling that the IBC, enacted just a few years ago, chose to give a miss to the UN Commission on International Trade Law, Model Law on Cross-Border Insolvency (Model Law) which many jurisdictions like the US, UK, Singapore and Japan adopted into their domestic legislations.
The IBC has only two provisions, Section 234, which relates to agreements with foreign countries, and Section 235, pertaining to letter of request to a country outside India, that envisage cross-border insolvency cases. In November 2017, an Insolvency Law Committee was appointed to suggest amendments to the IBC, which submitted its reports in 2018 and opined that the “existing provisions in the Code do not provide a comprehensive framework for cross-border insolvency matters”. The committee attempted a comprehensive framework based on the Model Law and contemplated inserting a separate chapter in the IBC. The committee also noted that the cross-border insolvency network needed immediate attention and suggested the IBC be harmonised with the Model Law.
The committee identified four principles on which the Model Law is based that need to be incorporated into our domestic framework, i.e.
(i) Access, to allow foreign insolvency professionals and foreign creditors direct access to domestic courts and enable them to participate in and commence domestic insolvency proceedings;
(ii) Recognition, of foreign proceedings and provision of remedies by domestic courts based on such recognition. Further, granting relief on the basis of whether the foreign proceeding is a main or a non-main proceeding on the basis of the concept of ‘centre of main interests’;
(iii) Cooperation, between domestic and foreign courts, and;
(iv) Coordination, when multiple proceedings have been initiated in several jurisdictions.
These would have allowed a greater degree of streamlining and efficacy in complex cross-border insolvencies like in the case of Jet Airways. Regrettably, nothing came out of these reports. Independently, the Supreme Court ruled in 2017 that foreign creditors shall stand on equal footing as domestic creditors to initiate corporate resolution insolvency process. The IBC provides for a moratorium which operates upon admission of a corporate insolvency and restricts fresh cases or continuation of existing suits against the debtor. It also prohibits the debtor’s assets from being encumbered or transferred. However, the moratorium operates only in India and is only applicable to assets of the debtor in India.
Indian creditors do not have access to the debtor’s foreign assets. Owing to this, the NCLAT observed in its latest hearing that the CoC can only advise the RP on offshore claims and otherwise has no role to play. The appeal before NCLAT by the Dutch administrator highlights how immediate attention is required to decide on the priority of claims of foreign creditors and foreign insolvency proceedings. This harmonisation will have to be done in a manner that it protects alienation of assets belonging to the domestic entity, located in a foreign jurisdiction, to the detriment of domestic creditors, whilst also balancing the claims of foreign creditors and administrators. Jet Airways may be a test case, but many others could follow. After all, it’s only fair that if one is eating in a group with others, the bill is split by going Dutch!
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