Editorial of the Day (25th Sep): Navigating cross-border Insolvency

Context

• The adoption of cross-border insolvency laws is crucial for facilitating international trade, as it enhances legal certainty and improves the operational health of trading entities involved in cross-border transactions.
• The integration of such laws into a nation’s legal framework is seen as a hallmark of effective insolvency regulation.

UNCITRAL Model Law and Its Implementation

• The UN Commission on International Trade Law (UNCITRAL) has worked on implementing the Model Law on cross-border insolvency since the late 1990s.
• The Model Law is built on four pillars: access, recognition, cooperation, and coordination.
• Countries have tailored the non-binding Model Law to their requirements, often including clauses on reciprocity or public policy exceptions.
• Global Adoption: Despite its benefits, adoption has been slow globally, with only 60 countries having implemented it.
• India’s Stance: Despite recommendations from various committees in India such as the Bankruptcy Law Reform Committee and Economic Survey (2022) , India has yet to adopt it.
  • Instead India is relying on bilateral agreements for cross-border insolvencies, which are viewed as ad hoc and inadequate.

Challenges with Implementing the Model Law:

• While the Model Law is well-recognized, there are questions about its suitability for countries with diverse economic/legal regimes.
• Some scholars advocate for tailor-made international treaties, frameworks, and protocols to address specific insolvency cases, complementing the existing system.

India’s Current Approach to Free Trade Agreements (FTAs)

• India has signed 54 FTAs/Comprehensive Economic Corporation Agreements (CECAs)/Comprehensive Economic Partnership Agreements (CEPAs).
  • Between 2021-2024, India signed four new FTAs and is working on similar agreements with several other nations (as per Economic Survey, 2024).
• FTAs aim to reduce/eliminate tariff and non-tariff barriers, focusing on goods, services, investments, intellectual property rights (IPRs), and trade facilitation.
• CECA/CEPA agreements are more integrated, covering broader regulatory areas.

Lack of Cross-Border Insolvency Provisions in FTAs:

• Despite the increasing number of FTAs, cross-border insolvency provisions are largely missing.
• While CEPAs/CECAs are intended to cover deeper regulatory aspects, they mainly include general disputes and trade remedy clauses, ignoring insolvency.
• The Indian government has focused on improving the Insolvency and Bankruptcy Code (IBC) through technology and judicial infrastructure but has not addressed the need for comprehensive cross-border insolvency laws.

Integrating Cross-Border Insolvency in Future Agreements:

• Pending the adoption of the Model Law, there is a strong case for integrating cross-border insolvency provisions into future FTAs, CEPAs, and CECAs.
• These agreements already cover areas like disputes, IPRs, and sustainability, making insolvency a logical next step.

The Need for a Comprehensive Approach to Cross-Border Insolvency

• Strengthening Trade through Insolvency Provisions: FTAs need to factor in insolvency mechanisms to mitigate the consequences of insolvency on trading entities.
  • This would not only improve trade agreements but also align with India’s broader trade policy objectives.
• Collaboration: The Commerce Ministry, Insolvency and Bankruptcy Board of India (IBBI), and legal experts should collaborate to assess the feasibility of integrating insolvency provisions with FTAs.

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