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The National Company Law Appellate Tribunal (NCLAT) in the Jet Airways insolvency proceedings upheld the recent cross-border protocol agreed between the National Company Law Tribunal (NCLT) appointed Resolution Professional (RP) and the Dutch insolvency trustee, deciding that the Dutch trustee is equivalent to the RP. The trustee thus has a right to attend the committee of creditors meeting, as insolvency law provides. This decision of the NCLAT foreshadows and approves the apparent drive in the coming winter session of Parliament to introduce provisions for cross-border insolvency (CBI) in the field of corporate debt. It is likely that these provisions will lead the way for similar legislation in the area of personal insolvency.
Any new law affecting corporate insolvency should take note of the model law on international commercial arbitration (ML) adopted in 1985 by the United Nations Commission on International Trade Law (UNCITRAL) and amended in 2016. Key features of the ML relating to CBI are that there should be: (1) accessibility between courts and court appointed insolvency professionals of different jurisdictions; (2) recognition of the main and non-main proceedings in foreign courts; (3) relief both on the application for recognition of foreign proceedings and the recognition itself, and (4) co-operation and coordination between local and foreign counterparts.
In order to address the issues arising out of CBI, the Ministry of Corporate Affairs (MCA) has issued a draft chapter on CBI for corporate debtors based on the ML, but modified to allow for local applicability. Emphasis is placed on: (1) the ease of doing business; (2) flexibility; (3) the protection of domestic interest; (4) the priority of domestic proceedings; (5) empowering insolvency representatives; (6) mechanisms for co-operation, (7) the protection of creditors; and (8) reciprocal remedies in other jurisdictions.
Concerns, however, remain that debtors could forum shop by changing their centres of main interest (COMI). However the draft chapter safeguards the interests of the creditors by providing first that it is presumed that the registered office (RO) of the debtor is the COMI only if the RO has not been moved to another jurisdiction within three months prior to the commencement of insolvency proceedings. Second, the NCLT and the NCLAT must conduct an assessment in this respect in a manner that is transparent to third parties including creditors.
The Insolvency Law Committee then submitted its second report to the MCA and proposed that part Z in the draft chapter, based on the provisions of the Model Law, apply only to corporate debtors, and that a court should refuse to take any action under the cross-border insolvency law if this would be manifestly contrary to public policy. A recent case on this point involved the courts in Singapore, a country which adopted a modified ML by enacting the Companies (Amendment) Act 2017. Earlier this year, in Re Zetta Jet Pte Ltd and ors (Asia Aviation Holdings Pte Ltd, intervener) the high court, in deciding the question of recognition of US proceedings that had continued despite there being in existence an injunction granted by another Singapore court, held that “In any event, the most important public policy consideration in this case is to ensure the orderly and efficient recovery of assets for the benefit of Zetta Jet Singapore’s creditors” and reinforced this finding by stating that public policy also required the court to have regard to the international basis of the ML and the promotion of its uniform application. Therefore, the court, in line with Singapore’s aspirations of becoming a leading center for cross-border insolvency, held that the threshold for the application of public policy in the context of cross-border insolvencies in Singapore was lower than that provided in the ML. Singapore has even expanded the rights of foreign companies to make application for debt restructuring in Singapore courts where such companies have agreed in commercial or financial contracts that Singapore law shall govern the transaction or that Singapore shall be the seat of dispute resolution when disputes arise.
The draft chapter appears to be a conservatively modified version of the ML However, the advances made by other regional jurisdictions in the fields of CBI frameworks and the provision of cross-border dispute resolution now requires MCA to focus on the details of the proposed provisions in order to bring about a robust cross-border regime. In view of the challenges already being faced by regulators and tribunals in this regard, it may be that the Jet Airways case should be seen as the example of the way in which CBI regulation should be strengthened and brought up to date.
This article was originally published in India Business Law Journal