Personal guarantors may be part of cross-border insolvency framework under the Insolvency and Bankruptcy Code (IBC)

What is the News?

The government is planning to bring personal guarantors for corporate debtors under the purview of the cross-border insolvency regime.

What is Cross Border Insolvency?

Cross border insolvency denotes the treatment of financially burdened debtors where: the assets are in more than one country (or) creditors are in more than one country.

For example – Jet Airways (India) was one such case wherein Insolvency proceedings were initiated in the Netherlands and India simultaneously.

Does India have a Cross Border Insolvency Framework?

Cross border insolvency framework is yet to be notified under the Insolvency and Bankruptcy Code

So far, the Government was planning to bring the Cross border framework only for corporate insolvency resolution. But now the government wants to notify it together for both companies and personal guarantors for corporate debtors.

Note:  A personal guarantor is a person or an entity that promises the payment of another person’s debt, in case the latter fails to pay it off.

What will be the basis of the Cross Border Insolvency Framework?

The government is discussing bringing the Cross Border Insolvency Framework based on the UNCITRAL Model Law on Cross-border Insolvency, 1997.

About UNCITRAL Model Law on Cross-border Insolvency, 1997

UNCITRAL Model Law on Cross-Border Insolvency, 1997 (Model Law) provides a legal framework to deal with cross-border insolvency issues while ensuring the least intrusion into the country’s domestic insolvency law.

Principles: The model law deals with four major principles of cross-border insolvency:

  • Direct access to foreign insolvency professionals and foreign creditors to participate in or commence domestic insolvency proceedings against a defaulting debtor; 
  • Recognition of foreign proceedings & provision of remedies; 
  • Cooperation between domestic and foreign courts & domestic and foreign insolvency practitioners; and 
  • Coordination between two or more concurrent insolvency proceedings in different countries. The main proceeding is determined by the concept of centre of main interest (“COMI”).

Source: This post is based on the article “Personal guarantors may be part of cross-border insolvency frameworkpublished by Business Standard on 18th Nov 2021.

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