Navigating cross-border Insolvency

Table of Contents

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.

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 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.

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.

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.

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.