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Catching overseas assets under IBC

Published: 26 Jan 2018

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

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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.

Bhumesh Verma

Firm: Corp Comm Legal
Country: India

Practice Area: Contract

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