What is Cross Border Insolvency?


What you mean by cross border insolvency? Imagine there are the two countries A and B, here is a company which has taken loan not only from the domestic market, but also has taken loan from let's say a foreign market. But now one question comes in our mind that how can this particular company take a loan from external market, there are various routes best example is external commercial borrowing ECB. So, essentially what has happened here is the company which is present in country A has not only taken loan from the domestic market but also it has taken loan from the external market. Now, what if this particular company has entered into insolvency? That is essentially the liabilities of the company are much higher compared to the assets of this particular company. So what if it has entered into a phase of insolvency? Now essentially because the creditors are there in different countries like the creditor present in different countries or else.


Imagine same two countries A and B, here is a company it has assets not only in country A, it also has assets in Country B. If you understand this, it is also a prime example of a cross border insolvency situation. First situation is where the company has taken loans from different lenders from different countries and in the second situation that company has taken loan let's say from the country A but it has its assets not only in one country but across many other countries. Both of these situations are generally covered under the concept of cross border insolvency. Now, whenever this particular situation arises, it is very difficult to conduct the insolvency resolution in that particular case. Now the confusion will be which country should file the case against this? Where should the proceedings be started? What if all the countries want to conduct insolvency resolution against the same company and want to get the recovery? Don't you think that will create a lot of confusion? That is a precise reason.


United Nations Commission on international trade law under this, many of the countries have introduced the concept of cross border insolvency and essentially under these particular laws any country where this particular company has the maximum assets that particular country will take the lead on insolvency resolution what do you mean by this, I take the same example rather than saying country I'll write this or replace this with the country India. So, imagine one particular company is present in India, majority of the assets are there in India and it has entered into insolvency resolution now, in which country or which country should take the lead to go for insolvency resolution for this particular company, it should be India, what about other countries that basically in other countries they will have to follow the suit they will have to find a supplementary petitions as such. So, this is a basic idea for cross border insolvency and do we have the provisions related to cross border insolvency under the IBC, definitely yes. There are two sections here, section 234 and a section 235 under insolvency Bankruptcy Code of India which essentially deals with the cross border insolvency itself. Once we introduced the concept of cross border insolvency and government of India feels that the law that we have implemented for cross border insolvency under union central if it is not going to lead to effective outcomes, that is case by case basis, if the result is not satisfactory for India, in such cases, the government of India essentially will retain the say in case of these particular cross border insolvency cases.

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