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Post at: Jul 22 2022

UNCITRAL and IBC (Insolvency and Bankruptcy)

Why in News?

  • Insolvency and Bankruptcy Code (IBC) currently lacks an instrument to reorganise enterprises involving cross-border jurisdictions, so the Economic Survey 2021-22 has urged for a standardised framework for cross-border insolvency.

Insolvency proceedings that span borders-

  • For the resolution of distressed enterprises with assets and liabilities spread across numerous jurisdictions, cross-border insolvency proceedings are necessary.
  • A cross-border insolvency framework provides for the following:
    • The location of the foreign assets of this corporation
    • Lenders and their claims are identified.
    • Creating a payment plan for claims and
    • Coordination process among courts in different nations.

What is the UNCITRAL Model, and how does it work?

  • The UNCITRAL approach for dealing with cross-border insolvency difficulties is the most widely acknowledged legal framework.
  • It is used in 49 nations, including the United Kingdom, the United States, South Africa, South Korea, and Singapore.
  • Its goal is to help countries in revising and modernising their arbitration rules to reflect the unique characteristics and needs of international commercial arbitration.

This law works on four main principles-

  1. Direct contact with overseas insolvency experts and foreign creditors in order to participate in or initiate domestic bankruptcy procedures against a failing debtor.
  2. Foreign proceedings are recognised, and remedies are available.
  3. Collaboration between domestic and international courts, as well as domestic and international insolvency practitioners
  4. Coordination of two or more insolvency proceedings that are taking place simultaneously in different countries: The concept of the Center of Main Interest determines the main process (COMI).

What is UNICTRAL?

  • It is an affiliate organization to the UN made up of business and legal professionals.
  • This group develops model standards and procedures for dealing with issues affecting international business.
  • Perhaps most notably, UNCITRAL promulgated the Convention on International Sale of Goods (CISG).
  • The CISG is a model law commonly used as the governing provisions in contracts between parties from different nations.

India's Implications

  • As in the case of certain other nations, India's system for cross-border insolvency may demand reciprocity from any country seeking to have its insolvency proceedings recognised by Indian courts.
  • This will make it possible for Indian procedures aga inst overseas corporate debtors to be recognised in other countries.

What distinguishes the INDIA's IBC from the model law?

  • Many countries that adopt the UNCITRAL model law do so with some modifications to meet their unique needs.
  • Financial service providers are exempt from cross-border insolvency procedures under India's cross-border insolvency system.
  • Because many nations exempt enterprises that provide important financial services, such as banks and insurance companies, from cross-border bankruptcy frameworks, this is the case.

 


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