INTRODUCTION

The essence of insolvency consists in a debtor’s ultimate inability to meet his or her financial
commitments1. The instant paper revolves around an attempt made by the United Nations to
provide for a uniform standard of provisions relating to cross border insolvency. In 1997, the
United Nations Commission on International Trade Law presented the UNCITRAL Model Law
on Cross-Border Insolvency at the UN General Assembly. Since its adoption by the General
Assembly, the Model Law has been hailed as a timely and historic document2. However, before
the Model Law is actually looked into, it would be most prudent to cover some of the
preliminary areas of law relating to cross-border insolvency.
The Wharton’s Law Lexicon defines insolvency as the state of one who has not properly
sufficient funds for the full payment of his debts3. In other words, one who cannot cover his or
her liabilities with the assets that that person possesses, that person is termed to be an insolvent.
According to Shardul Shroff, corporate insolvency law has the following objectives4:
• To restore the debtor company to profitable trading where this is practicable;
• To maximise the return to creditors as a whole where the company itself cannot be saved;
• To establish a fair and equitable system for the ranking of claims and the distribution of assets
among creditors, involving a redistribution of rights and;
• To provide a mechanism by which the causes of failure can be identified and those guilty of
mismanagement brought to book, and where appropriate, deprived of the right to be involved in
the management of other companies.
The term of ‘insolvency’ is often confused with another having a very similar meaning that of
bankruptcy. While insolvency is employed to mean a state of financial distress, the term
bankruptcy is usually used to refer to the proceedings that mark a person as an insolvent5.
However, usually the two terms are used interchangeably.
There are two well-established tests for determining whether a person is solvent or
otherwise. The first is the Balance Sheet Test6 or ‘absolute insolvency7’. This states that a
person is insolvent if his or her liabilities outweigh the assets. In other words, if the net
worth of a person were negative, he or she would be termed insolvent. The other test is
the Cash Flow Test, a condition referred to as ‘liquidity crisis’8. This states that if a
person is unable to pay his or her debts as and when they arise, that person would be
deemed as an insolvent9. Insolvency may apply to all persons whether, real or juristic10.
Therefore, insolvency may apply to incorporated persons such as companies as wellgiving
rise to the area of corporate insolvency.
Cross-border insolvency is a term used to describe circumstances in which an insolvent
debtor has assets and/or creditors in more than one country11. Many businesses have
interests stretching beyond their home jurisdictions. Firms are increasingly organising
their activities on a global scale, forming production chains including inputs that cross
national boundaries. With the advent of sophisticated communications and information
technology, cross-border trade is no longer the preserve only of large multi-national
corporations. This trend is unlikely to change. A cross-border insolvency matter would
arise with regard to a company in the following scenarios12:
• A company may have dealings with parties situated in countries other than of its
incorporation.
• The company may own or have an interest in properties in other countries.
• Liabilities may be owed to whose forensic connections with a different country than
which the debtor is connected
• The relevant obligations may be governed by foreign law, may have been incurred
outside the debtor’s home country, or may be due to be performed abroad
• The diversified state of the debtor’s activities may be such that the conditions for
opening insolvency proceedings are simultaneously met with regard to more than one
country, giving rise to the possibility multiple proceedings in different jurisdictions.
Given such scenarios, in the case of bankruptcy proceedings against such a company,
certain difficulties arise in the adjudication of solvency of the company and if found insolvent,
the consequent realisation of assets and distribution of the proceeds thereof to
the various creditors and contributories13.
Risks of cross-border insolvency
One of the risks that all businesses face is that of a trading partner's failure. Most
domestic laws provide for the handling of an insolvent enterprise. Typically, in the case
of corporate insolvency, domestic laws will prescribe procedures for:
• Identifying and locating the debtors’ assets;
• ‘Calling in’ the assets and converting them into a monetary form;
• Identifying and reversing any voidable or preference transactions which occurred
prior to the administration;
• Identifying creditors and the extent of their claims, including determining the
appropriate priority order in which claims should be paid; and
• Making distributions to creditors in accordance with the appropriate priority.
In a cross-border insolvency context, additional complexities that may arise include14:
• The extent to which an insolvency administrator may obtain access to assets held in a
foreign country;
• The priority of payments: whether local creditors may have access to local assets
before funds go to the foreign administration, or whether they are to stand in line with
all the foreign creditors;
• Recognition of the claims of local creditors in a foreign administration;
• Whether local priority rules (such as employee claims) receive similar treatment
under a foreign administration;
• Recognition and enforcement of local securities over local assets, where a foreign
administrator is appointed; and
• Application of transaction avoidance provisions.
The additional complexities surrounding cross-border insolvencies necessarily result in
uncertainty, risk and ultimately costs to businesses. It would be of overall benefit to
businesses in all countries to have adequate mechanisms in place to deal efficiently and
effectively with cross-border insolvencies. Given India’s place in the world economy, it
is especially important to adopt policies that promote efficiency, reduce legal
uncertainties and transaction costs and enhance international trading efficiency15.

Theories of Cross-Border Insolvency

Cross-border insolvency exemplifies the usual characteristics of the conflict of laws
process16. A number of issues arise in dealing with cross-border insolvency and indeed
most areas of law involving Private International Law. These are as follows17:
• Whether courts of a given country can legitimately exercise jurisdiction over a
particular case;
• If so, what law is to apply;
- Either in the form of specially formulated provisions of the law of the forum in
question or;
- Through the operation of the choice of law process;
• Whether the validity of foreign judgments may be recognised.
There are a number of theories revolving around cross-border insolvency, with an attempt
to explain the operation of this area of law. One is the theory of Unity18. This states that
in the case of cross-border insolvency, all courts, foreign, national and local, must defer
to the authority having the jurisdiction over the locale where the company is situated or
incorporated19. Of course, this would not apply with reference to nations governed by a
treaty providing for the determination of jurisdiction of the matter at hand.
A variation of the theory of Unity occurs when a number of concurrent winding up
proceedings are underway in different jurisdictions20. There exists and is recognised a
main proceeding, either dealing with the actual winding up process or with regard to the
disbursement of assets and a number of other, ancillary proceedings related to the same
matter, usually with regard to assets owned within the jurisdiction of the peripheral
authorities. This is known as the principle of Plurality as opposed to that of Unity.
There is also the principle of Universality, which states that the winding up process
extends not only to the assets located in the jurisdiction in which the insolvent is located
or incorporated but also its assets all over the world21. This is applicable to both the
theories of Unity and Plurality as with the theory of Unity, along with jurisdiction over
the matter, the courts also hand over jurisdiction of the properties belonging to the
company in question22.
16 See generally, Buxbaum, Hannah L., “Rethinking International Insolvency: The Neglected
Role of
Choice-of-Law Rules and Theory”, Stanford Journal of International Law, Stanford Law School,
Stanford,
vol. 36, no. 1, 2000. p.23-71
17Diwan. P., PRIVATE INTERNATIONAL LAW, Deep and Deep Publications, New Delhi, pg
40
18 Crawford, (Dr) Elizabeth, INTERNATIONAL PRIVATE LAW, Sweet and Maxwell,
Edinburgh, 1998, pg 338
19 Doyle, Louis S., INSOLVENCY LITIGATION, Sweet and Maxwell, London, 1999, pg 412;
See also Fletcher,
Ian F., INSOLVENCY IN PRIVATE INTERNATIONAL LAW, Clarendon Press, Oxford,
1999, pg 10-11
20 Diwan. P., PRIVATE INTERNATIONAL LAW, , N.M. Tripathi Pvt. Ltd, Bombay, 1997, pg
49- 51
21 Perkins, Lisa, “A Defence of Pure Universalism in Cross Border Insolvencies”, New York
University
Journal of International Law and Politics, Vol. 32, No. 3, 2000. p. 787-828; see also Re Bank of
Credit and
Commerce International SA (No 11) [1996] B.C.C. 980 at 986 as cited in Fletcher, Ian F.,
INSOLVENCY IN
PRIVATE INTERNATIONAL LAW, Clarendon Press, Oxford, 1999, pg 11
22 Crawford, (Dr) Elizabeth, INTERNATIONAL PRIVATE LAW, Sweet and Maxwell,
Edinburgh, 1998, pg 339
5
However, issues in cross-border insolvency are not that simple. Usually there are a
number of conflicting claims of different jurisdictions and the alleviation of these
difficulties depends upon the acknowledgement of one of the jurisdictions as the main
one and the others as having an ancillary role, especially with reference to assets23.
Although insolvency may be described in a manner that is universally acceptable,
national attitudes towards the phenomenon of insolvency vary from country to country.
These variations may take the form of the manner in which insolvency proceedings may
take place, or even the extent the creditor’s loss is ameliorated. There is obviously an
underlying balance with the debtor’s predicament on one hand and the creditor’s loss on
the other.
In order to have greater co-operation between courts of various states, fair and efficient
administration of cross-border insolvencies that protects the interests of creditors as well
as the debtor, and other objectives24, the UNCITRAL Model Law on cross-border
insolvency is a mammoth step forward in removing the difficulties faced in this area law
so far.
The present section of the instant paper revolves around the concept of cross-border
insolvency as such, in particular, the difficulties faced by creditors and debtors alike
when courts deal with such matters. It gives a brief introduction to the realm of crossborder
insolvency, its basic tenets and theories and also how it forms a part of Private
International Law.
In the next section, this paper would be discussing the importance of standardising certain
laws in order to facilitate a more efficient international trade law regime. To this effect,
the instant paper would take into account the various attempts at providing for the
recognition of foreign authorities and laws in the form of treaties25. However, it must be
noted here that although some treaties have been quite successful, all of these treaties
prior to the UNCITRAL Model Law were regionally based, that is, catering to a limited
number of nations within a given region.
The third section of the paper would provide a critique of the Model Law, and how
certain provisions could be improved, especially with regard to developing nations. This
section would attempt to show the UNCITRAL Model Law as a timely and much needed
document that would make great strides in alleviating the difficulties faced in respect to
cross-border insolvencies. The final section of the paper would be devoted to the
applicability of the UNCITRAL Model Law in India. As such, the recommendations of
the N. L. Mitra Advisory Group on Bankruptcy Laws26 and the Justice Eradi Committee
23 Felixstowe Dock and Railway Co. v. US Lines Inc. [1998] 2 All ER 77
24 Preamble, UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment,
United
Nations, New York, 1999 (E. 99.V.3.)
25 European Convention on Certain International Aspects of Bankruptcy, 1990 and the
Convention
regarding Bankruptcy between Nordic States, 1933 being two of the numerous treaties to this
effect.
26 Reserve Bank of India, Standing Committee on International Financial Standards and Codes:
Report of
the Advisory Group on Bankruptcy Laws, Mumbai, May 2001
6
Report27 would be referred to and the question as to whether India can and should adopt
the Model Law would be looked into.
The growth of multinationals, operating through several organs such as branches,
agencies, franchises, subsidiaries and other forms of collaboration in more than one
country, has given rise to the need to harmonise the municipal laws of nations with regard
to the consequences of insolvency for the operation of their branches, divisions, agencies,
etc spread over different countries28. Therefore, the need for the adoption of the
UNCITRAL Model Law by India is made even greater. On this note, it is hoped that the
instant paper would indeed serve some purpose and would help in the appreciation of the
problem at hand.
THE NEED FOR STANDARDISATION
Imagine a world where every individual went by his or her own laws. No overarching
rules to provide for the basic tenets of civilisation, such as dignity, equality and liberty.
Such a world would be impossible to envisage, being governed by the state of nature29.
Yet the world we live in is not dissimilar to the one imagined above. The concept of
sovereignty in international law provides for the complete freedom of nations with regard
to their own laws, nations being the elements that make up an international society.
However, in order to facilitate certain objectives, this right to sovereignty is sometimes
waived. Be it the appreciation of the need to empower certain incapacitated groups, such
as women, children and refugees, or the use of force in extenuating circumstances,
nations often forgo the right to manage their own laws in order to provide for a more
efficient international law regime. One such area where such efforts have been made to
bring about a standardised legal regime is that of cross-border insolvency.
There have been a number of attempts, in the form of agreements and treaties, at the
standardisation of insolvency laws, especially when they apply to cross border cases,
most of them being regional ones. However, barring a few, none of them have been
relatively successful. We shall now discuss each of these treaties in chronological order.
The Montevideo Treaties of 1889 and 1940
The nations of South and Latin America share a common legal background coming from
similar histories. This was the driving force behind many of the Private International Law
treaties that have come up in the region. One such agreement was the 1889 Montevideo
27 Report of the High Level Committee on Law Relating to Insolvency of Companies (Justice
Eradi
Committee Report), 2000 CLC, Vol XII, 1297
28Reserve Bank of India, Standing Committee on International Financial Standards and Codes:
Report of
the Advisory Group on Bankruptcy Laws, Mumbai, May 2001
29 A state of nature is where man would provide for his own survival without appreciating the
needs of
society, essentially leading an animal existence, as proposed by John Hobbes in Levathian. See
Holland,
Thomas Erskine, THE ELEMENTS OF JURISPRUDENCE, Universal Law Publishers Pvt. Ltd.
Delhi, 2001
7
Treaty, dealing with international insolvency, among other things30. This was the first
attempt at uniformity of laws with special regard to cross-border insolvency anywhere in
the world. The treaty had two main aspects- one providing for the concept of unity of
proceedings31 and the other vesting jurisdiction in the State of the debtor’s commercial
domicile32. However, the term ‘commercial domicile’ was not defined in the agreement
and this, among others, was a reason for the failure of the treaty. Even so, it was ratified
by Argentina, Bolivia, Peru, Paraguay, Uruguay and Colombia.
In 1940, the second Montevideo Treaty was signed. Building upon the first, it provided
for a more comprehensive and coherent system of insolvency proceedings33. It defined
the term ‘commercial domicile’ and upheld the theory of unity of proceedings, as was the
case in the previous edition in 1889. However, it provided for concurrent proceedings in
cases where the debtor had independent commercial establishments in more than one
nation. Another new provision that was added was that of preferential treatment of local
creditors. It must be noted here, that the uniformity that was attained was only partial and
most Latin American nations had their own variations to the laws relating to cross-border
insolvency34. Overall, even though they were largely a failure, the Montevideo Treaties
of 1889 and 1940 were the first instance where the international regulation of cross
border insolvency was addressed.
The Havana Conference35
During the tenure of the Montevideo Treaties, it was realised that the same objective, that
of uniformity of cross border insolvency laws, could be reached, but with a wider scope
of application. The Bustamante Code of the Havana Conference in 1928 was a pan-
American agreement relating to international insolvency with as many as fifteen nations
ratifying it. It provided for a combination of the concepts of unity and universality for
neighbouring countries having a similar legal culture. Generally broad and general in its
application, it too, like its predecessor- the Montevideo Treaty of 1889, gave preference
to local creditors36.
The Nordic Bankruptcy Convention
30 For relevant excerpts of the agreement. see 1889 Montevideo Treaty, Fletcher, Ian F.,
INSOLVENCY IN
PRIVATE INTERNATIONAL LAW, Clarendon Press, Oxford, 1999, Appendix VII, pg 442-3
31 However, under certain circumstances, the agreement allowed for concurrent proceedings.
Even so, there
is a certain lack of clarity as to which circumstances would apply. See Article 37 of the
Montevideo Treaty,
1889
32 Article 35 of the Montevideo Treaty, 1889
33 Montevideo Treaty of 1940, y Punte, J. Irizarry and William, Gladys L. (trans.), (1943) 37
AJIL Suppl.,
pg 139- 140
34 This was an important development, as this practice of enacting a Model Law according to
the needs of
the nation concerned is one that exists even now, as we shall see later.
35 For a full text of the treaty, See The Bustamante Code of the Havana Conference, (1929), 86
L.N.T.S.,
No. 1950, pg 382-4
36 Cunningham, D. and Werlen, T., “Cross-border insolvencies in search of a global remedy”,
International
Financial Law Review, London, 1996 15:12:51-54
8
The Scandinavian countries are blessed with an exceptional regional homogeneity in
terms of lifestyle, social values and legal cultures37. This is clearly the case in the Nordic
Bankruptcy Convention of 193338. The agreement upheld the concepts of unity and
universality of proceedings, but there was no clear rule to determine jurisdiction. When
compared to the treaties of Montevideo and Havana, it was relatively more successful,
being in force even today, having been ratified by Denmark, Iceland, Norway and
Sweden.
The Istanbul Convention
Also known as the European Convention on Certain International Aspects of Bankruptcy,
the Istanbul Convention was drafted under the aegis of the European Committee on Legal
Co-operation and was opened for signature on June 5, 199039. Adopted by the Council of
Europe, an international organisation of nations having a larger strength than the EU, it
provided for the vesting of primary jurisdiction in the courts of the state where the
debtor’s main interests lay40. Also, it was one of the first agreements to provide for the
allocation of jurisdiction to open a secondary insolvency proceeding in a state where the
debtor has an interest. However, the very structure of the convention was flawed and
problematic, even after being an important milestone in the history of international
regulation of cross border insolvency41. Even after ten years of its existence, it is yet to
come into force as only one out of a minimum of three member nations has ratified it42.
But more importantly, it laid the foundation and framework for future conventions
dealing with cross border insolvency and served as a vital catalyst in the development of
the UNCITRAL Model Law43.
AMODEL FOR ALL OTHERS
On 15 December 1997, the General Assembly of the United Nations passed a resolution
(inter alia) recommending that all States review their legislation on cross-border aspects
of insolvency to determine whether the legislation met the objectives of a modern and
37 Colloquium on Cross-Border Insolvency (17-19 April 1994, Vienna, Austria), Fletcher, J. F.,
(ed.),
International Insolvency Review: International Association of Insolvency Practitioners; INSOL,
London
4:1-115, 1995
38 For a full text of the Treaty, see Nordic Bankruptcy Convention (1935), 155 L.N.T.S., No.
3574, pg 33-
39
39 For a full text of the treaty, see European Convention on Certain International Aspects of
Bankruptcy
(Istanbul Convention), European Treaty Series No. 136 as published in Fletcher, Ian F.,
INSOLVENCY IN
PRIVATE INTERNATIONAL LAW, Clarendon Press, Oxford, 1999, App III, pg 409-31
40 Barrett, J. A. “Various legislative attempts with respect to bankruptcies involving more than
one country:
III, The Istanbul Convention”, Texas International Law Journal, University of Texas at Austin
School of
Law, Austin, 1998, 3:3:561-563
41 Fletcher, Ian F., INSOLVENCY IN PRIVATE INTERNATIONAL LAW, Clarendon Press,
Oxford, 1999, pg 863
42 Article 34, European Convention on Certain International Aspects of Bankruptcy
43 Berends, A. J., “The UNCITRAL Model Law on Cross-Border Insolvency: A Comprehensive
Overview”, Tulane Journal of International and Comparative Law, Tulane Law School, New
Orleans,
1998, 6:309-399
9
efficient insolvency system44. The resolution went on to ask that States give favourable
consideration to enacting the Model Law on Cross-Border Insolvency which had been
developed by the Working Group on Insolvency Law and adopted by UNCITRAL,
“bearing in mind the need for an internationally harmonised legislation governing
instances of cross-border insolvency”45.
A number of the reports to which UNCITRAL referred, stress the need for strong
insolvency systems to act as important pillars of support for the financial system as a
whole and the efficient flow of international capital in particular. By way of example, in
the report by the Legal Department of the IMF, Orderly and Effective Insolvency
Procedures: Key Issues it was said46:
“Over the years, the IMF has become increasingly involved in the
promotion of orderly and effective insolvency systems among its
members. Experience has demonstrated that reform in this area can play a
major role in strengthening a country's economic and financial system.
Insolvency reform can be particularly relevant for economies in transition,
where it can play a critical role in addressing the problems of insolvent
State-owned enterprises. In the context of financial crises, an orderly and
effective insolvency system can provide an important means of ensuring
adequate private sector contribution to the resolution of such crises.
Finally, although insolvency procedures are implemented through the
courts, the very existence of an orderly and effective insolvency system
establishes incentives for negotiations between debtors and their creditors,
which may lead to out of court agreement being reached ‘in the shadow’
of the law.”
The UNCITRAL Working Group on Insolvency Law met in Vienna, 6-17 December
1999. In its report, the Group made the following recommendation to UNCITRAL47:
“The Working Group recommends that the Commission give it the
mandate to prepare: a comprehensive statement of key objectives and core
features for strong insolvency, debtor-creditor regime, including
consideration of out-of-court restructuring; a legislative guide containing
flexible approaches to the implementation of such objectives and features,
including a discussion of the alternative approaches possible and the
perceived benefits and detriments of such approaches. A legislative guide
44 UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment, United
Nations
Document A/ CN.9/ 440
45 Barrett, J. A. “Various legislative attempts with respect to bankruptcies involving more than
one country:
IV, UNCITRAL”, Texas International Law Journal, University of Texas at Austin School of
Law, Austin,
1998, 3:3:561-563
46 Legal Department of IMF, “Orderly and Effective Insolvency Procedures: Key Issues”, 1999,
para, vii.
Source www.imf.org/legdept/insol.htm as on 14/07/2004
47 Report of the Working Group on Insolvency Law on the Work of its 22nd Session (Vienna, 6-
17
December 1999) A/CN.9/469, para 140, 33
10
similar to that being prepared by the Commission for privately financed
infrastructure projects would be useful and could contain model legislative
provisions, where appropriate.”
That recommendation was received by UNCITRAL at its plenary session held in June
and July 2000 in New York. There was general agreement in the Commission that a
single model law on insolvency was neither feasible nor necessary. Nevertheless, it was
accepted that a legislative guide similar to that adopted by UNCITRAL for privately
financed infrastructure projects would be useful and could contain model legislative
provisions, where appropriate48.
The Model Law does not attempt any substantive harmonisation of insolvency law.
Indeed, it was recognised in the course of the Working Group meetings that, in some
cases, it was necessary to defer to national laws (for example on the questions of priority
debts) in order to achieve agreement on processes, which would enable the efficient and
effective resolution of cross-border insolvency cases49.
More than the provisions of the Model Law, it is the annexed ‘Guide to Enactment’ that
sheds light upon the nature of the Model Law and the intention of the UN50. It contains
detailed explanations of the Articles of the Model Law and how they may be incorporated
into a municipal, pre-existing, insolvency law regime. It also contains information about
the objectives, formation and feature of the Model Law. In effect, while the text of the
Model Law provides for the substantial portion for the regulation of cross border
insolvency, the ‘Guide to Enactment’ gives us the procedural aspects of the same.
The Guide to Enactment of the Model Law noted that while the increasing incidence of
cross-border insolvencies reflected continuing global expansion of trade and investment,
national insolvency laws had not kept pace with that trend and were often ill-equipped to
deal with cases of a cross-border nature51. The Guide went on to note a number of
consequences flowing from these inadequate and inharmonious legal approaches which52:
(a) Hampered the rescue of financially troubled businesses;
(b) Were not conducive to a fair and efficient administration of cross-border
insolvencies;
48 A/55/17 Report of the United Nations Commission on International Trade Law on the work
of its 33rd
session (New York, 12 June - 7 July 2000), para 409
49 Articles 6 and 7 of the Model Law bestow upon enacting States, a wide discretion in the
choice of
principles and procedure that would be followed. See also: Colloquium on Cross-Border
Insolvency (17-19
April 1994, Vienna, Austria), Fletcher, J. F., (ed.), International Insolvency Review:
International
Association of Insolvency Practitioners; INSOL, London 4:1-115, 1995 for an account of the
deliberations
of the Working Committee
50 UNCITRAL Document A/CN.9/442
51 Guide to Enactment of Model Law on Cross-Border Insolvency para 13, 23-24, UNCITRAL
Model Law
on Cross-Border Insolvency with Guide to Enactment, United Nations Document A/ CN.9/ 440
(hereinafter
referred to as ‘The Guide’
52 Guide to Enactment, para 11- 12, UNCITRAL Model Law on Cross-Border Insolvency with
Guide to
Enactment, United Nations Document A/ CN.9/ 440
11
(c) Impeded the protection of the assets of the insolvent debtor against dissipation;
(d) Hindered maximisation of the value of the assets of the insolvent debtor.
Further, it was noted that the absence of predictability in the way in which cross-border
insolvency cases were administered both
(i) Impeded capital flows and
(ii) Acted as a disincentive to cross-border investment53.
Another problem was the increase in fraud by insolvent debtors and the increasing ability
(and ease) for fraudulent businesspersons to conceal assets or to transfer them to foreign
jurisdictions. The Guide to Enactment noted that this was an increasing problem both in
terms of frequency and magnitude. The Guide continued,
“The modern, interconnected world makes such fraud easier to
conceive and carry out. The cross-border co-operation mechanisms
established by the Model Law are designed to confront such international
fraud54.”
The Philosophy Behind the Model Law
The Model Law itself is divided into five chapters, each dealing with a different aspect of
cross border insolvency. The objectives of the Model Law, as enumerated in the
Preamble are as follows-
- Cooperation between the courts and other competent authorities and foreign
States involved in cases of cross-border insolvency,
- Greater legal certainty for trade and investment,
- Fair and efficient administration of cross-border insolvencies that protects the
interests of all creditors and other interested persons, including the debtor,
- Protection and maximization of the value of the debtor’s assets and
- Facilitation of the rescue of financially troubled businesses, thereby protecting
investment and preserving employment
Therefore, the Model Law reflects practices in cross-border insolvency matters that are
characteristic of modern, efficient insolvency systems. Thus, the States enacting the
Model Law would be introducing useful additions and improvements in national
insolvency regimes designed to resolve problems arising in cross-border insolvency
cases. Both jurisdictions that currently have to deal with numerous cases of cross-border
insolvency and jurisdictions that wish to be well prepared for the increasing likelihood of
cases of cross-border insolvency will find the Model Law useful.
It is the collective nature of an insolvency procedure, which is the cornerstone on which
the Model Law on Cross-Border Insolvency is built. Foreign insolvency proceedings will
only be recognised if they fall within the definition of the term ‘foreign proceeding’ set
out in article 2(a) of the Model Law. Use of the term ‘collective’ distinguishes between a
53 Ibid
54 Ibid para 14; see also Millett, “Tracing the Proceeds of Fraud”, (1991), 107 LQR 71
12
regime operating for the benefit of creditors as a whole and a regime, which operates for
the benefit of a particular creditor55. An example of the latter is a floating charge
debenture pursuant to which a secured creditor may appoint a receiver and manager over
the undertaking of the debtor business.
Provisions of the Model Law
As mentioned before, the Model Law is divided into five chapters. Chapter I lays down
the scope of application of the law, certain definitions and other preliminary provisions.
The chapter defines the terms ‘foreign insolvency proceeding’56 and ‘foreign
representative’57. It also differentiates between a main and non-main proceeding. Where
the debtor has the centre of his main interests, the proceeding in that jurisdiction is known
as the main proceeding and all other proceedings are deemed ancillary or ‘non-main’58.
There are certain exceptions to the application of the Model Law, such as the public
policy of the enacting State59 and the additional assistance rendered by the pre-existing
laws of the enacting State60. In effect, the draft of the Model Law leaves it open to the
enacting State to decide to what extent the Model Law should be implemented.
Chapter II provides for the access of foreign representatives and creditors in insolvency
proceedings having a trans-boundary nature. It gives foreign representatives and creditors
the right to apply to and participate in insolvency proceedings in much the same manner
as creditors belonging to the State61. Also, if any statutory notification has to be sent to
creditors belonging to the State, it is mandatory to send the same notification to foreign
creditors62. It also devised processes designed to recognise foreign insolvency
proceedings and to give effect to them within the State in which assets were located63.
These processes included the ability for the courts of the States in which application was
made to grant relief on the application of the foreign insolvency representative64.
Chapter III provides for the recognition of foreign proceedings and associated relief.
Upon an application for recognition65, by a foreign office- holder, the courts of the
55 Isham, Sara, “UNCITRAL's Model Law on Cross-Border Insolvency: A Workable Protection
for
Transnational Investment At Last”, Brooklyn Journal of International Law Brooklyn, 2001,
26:1177-1205
56 For an office-holder to be able to avail himself of the Model Law, he must be an office-holder
in respect
of ‘foreign insolvency proceedings’. ‘Foreign proceeding’ means a collective judicial or
administrative
proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to
insolvency in
which proceeding the assets and affairs of the debtor are subject to control or supervision by a
foreign
court, for the purpose of reorganization or liquidation. Article 2 (a) of the Model Law
57 ‘Foreign representative’ means a person or body, including one appointed on an interim basis,
authorized
in a foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets
or affairs or
to act as a representative of the foreign proceeding. Article 2 (d) of the Model Law
58 Article 2 (b) and (c) of the Model Law
59 Article 6 of the Model Law
60 Article 7 of the Model Law
61 Articles 9- 13 of the Model Law
62 Article 14 of the Model Law
63 Articles 15-24 of the Model Law
64 Articles 19 and 21 of the Model Law
65 Article 15 of the Model Law
13
enacting State have a discretionary power to grant interim relief to the foreign officeholder
(pending the outcome of the application for recognition)66. If foreign insolvency
proceedings are recognised (in an enacting State) as main proceedings, Article 20 of the
Model Law automatically affords the following relief:
• A stay over commencement or continuation of individual proceedings concerning
the debtor’s assets, rights, obligations or liabilities in the enacting State in which
the foreign insolvency proceedings have been recognised;
• A stay over any type of execution against the debtor’s assets in the enacting State
in which the foreign insolvency proceedings have been recognised; and
• A suspension of the debtor’s rights to transfer, encumber or otherwise dispose of
any assets.
The Enacting State in question can also impose exceptions to the above automatic relief
afforded by Article 20, subject to the same being based on any such exceptions already
existing in domestic insolvency law67. Whether foreign proceedings are recognised as
‘main’ or ‘non-main’ proceedings, Article 21 of the Model Law confers a general
discretionary power upon the Courts of the Enacting State to grant the office-holder ‘any
appropriate relief’68.
Another important element of the Model Law was the emphasis placed upon co-operation
between courts in different jurisdictions and the insolvency representatives themselves69.
Chapter IV is concerned with this very issue. The whole topic of direct communication
and co-operation is one on which a lengthy article or commentary could be written but it
is sufficient for the present purposes of this paper to note that the Model Law has acted as
an impetus to the holding of joint audio and video conferences among courts in different
jurisdictions in an endeavour to deal in a pragmatic way with the difficult issues which
arise in cross-border insolvency cases70. In particular, these rules assist in the expeditious
completion of an insolvency regime and facilitate early payment of dividends to
creditors71. Articles 25-27 are intended to provide a regime for co-operation between
foreign insolvency courts, and foreign office-holders. The regime for co-operation is to
be put, in practice, through allowing direct communication between respective states’
Insolvency Courts, and between the Insolvency Courts of an Enacting State and a Foreign
Office-Holder72.
66 Article 16- 17 of the Model Law
67 Article 20 (1) of the Model Law
68 Article 21 (1) of the Model Law
69 Articles 25-27 of the Model Law
70 Berends, A. J., “The UNCITRAL Model Law on Cross-Border Insolvency: A Comprehensive
Overview”, Tulane Journal of International and Comparative Law : Tulane Law School, New
Orleans,
1998, 6:309-399
71 Harmer, R. W. “The UNCITRAL Model Law on Cross-Border Insolvency with Introductory
Note”,
International Insolvency Review: International Association of Insolvency Practitioners; INSOL
(London)
6:2:145-153, 1997
72 Guide to Enactment, para 17, UNCITRAL Model Law on Cross-Border Insolvency with
Guide to
Enactment, United Nations Document A/ CN.9/ 440
14
Articles 28-32 compliment the provisions for co-operation, through specific directives
concerning procedures to be followed in cases where there are ‘concurrent proceedings’
under the laws of different states. These articles are intended to secure optimum coordination
between the insolvency regimes of the states in question73.
At present, only the United States of America, Canada, Australia, New Zealand, South
Africa, Japan, Mexico, Poland, Romania, Serbia and Montenegro have enacted the Model
Law. While India is yet to begin deliberations upon the enactment of the Model Law,
certain committees have already recommended that the Model Law be enacted in full.
These recommendations are the subject matter of the next section- regarding India’s stand
on the Model Law.
CONCLUSION
In the past few pages we have seen how laws relating to cross border insolvency have
developed over the years. This particular section essentially deals with the Indian stand
on cross border insolvency, in particular, the Model Law. Both the Justice Eradi
Committee as well as the N. L. Mitra Committee have recommended for the
implementation of the Model Law. But more of that later. Let us first determine Indian
laws relating to cross border insolvency for the time being.
The Indian Law on insolvency is governed by the Presidency Town Insolvency Act,
190974 and the Provincial Insolvency Act, 192075, both of which are based on English
Law. In questions of choice of law, Indian courts apply the concept of lex fori76, using the
law of the forum where the proceeding has been initiated77. This in itself outdated, as the
modern day insolvency laws provide for a regime based on lex situs78, or the law of the
forum where the property is situated.
However, certain provisions of the Companies Act, 1956 also throw light upon the
situation of cross border insolvency laws in India. Winding up proceedings under the
Companies Act, 1956 apply to two categories of companies. One, companies which are
registered in India under the Companies Act, 1956 and two, companies that are not
registered79. As far as the first category is concerned, Indian courts have jurisdiction to
hear and adjudicate upon proceedings irrespective of the fact that the main business of the
company may be carried out elsewhere. In such proceedings, Indian as well as foreign
creditors can prove their debts80. Even in cases of unregistered companies, winding up
73 Guide To Enactment Of The UNCITRAL Model Law On Cross-Border Insolvency, para 39
UNCITRAL
Model Law on Cross-Border Insolvency with Guide to Enactment, United Nations Document A/
CN.9/ 440
74 Applicable only to the towns of Madras, Calcutta and Bombay
75 Applicable to the rest of India
76 Section 7 of the Presidency Towns Insolvency Act, 1909 and section 4 (1) of the Provincial
Insolvency
Act, 1920
77 Diwan, Paras, PRIVATE INTERNATIONAL LAW, Deep and Deep Publications, New
Delhi, 1999, pg 461
78 Reserve Bank of India, Standing Committee on International Financial Standards and Codes:
Report of
the Advisory Group on Bankruptcy Laws, (Mumbai, May 2001), pg 38
79 Part X of the Companies Act, 1956
80 Rajah of Vizianagaram v. Official Receiver and Liquidator AIR 1962 SC 500
15
proceedings may be initiated under Section 584 of the Companies Act, 195681. However,
such proceedings may be initiated if it had a place of business in India and in the
following circumstances82:
- if the company is dissolved or has ceased to carry on business, or is carrying on
business only for the purpose of winding up its affairs
- if the company is unable to pay its debts
- if the court is of the opinion that it is just and equitable that the company should be
wound up
In case of recognition of foreign judgements and proceedings, however, the law is clear
in India. Sections 13 and 44A of the Code of Civil Procedure provide for the treatment of
foreign judgments in reciprocating countries83 as conclusive barring certain exceptions,
such as fraud, judgment not based on merits of the case, no competent jurisdiction, etc.
In spite of the existing provisions in the Companies Act and the Code of Civil Procedure,
Indian laws on cross border insolvency are inadequate and need to be revamped in order
to provide for a regime conducive to transnational activity in terms of investment and
security84.
As far as India’s stand on the Model Law goes, although recommendations have been
made by both the Justice Eradi Committee as well as the N.L. Mitra Advisory Group on
Bankruptcy Laws, nothing concrete has been done. The Eradi Committee Report, taking
into account the fact that globalisation of trade and opening up of the economy has taken
place and with these sweeping changes, that the issues relating to cross border insolvency
have become increasingly important, recommended that the Model Law be implemented
in India85. It called for amendment of Part VII of the Companies Act, 1956 in order to
correspond to the provisions in the Model Law86, in particular, those relating to in-bound
requests for recognition of foreign proceedings87, out-bound requests for recognition of
foreign proceedings88, co-ordination of proceedings in two or more States89 and the
81 Mohan Lal v. Chawla Bank Ltd. AIR 1949 All 778, Re Travancore National Bank Ltd. AIR
1939 Mad
318
82 Section 588 of the Companies Act, 1956
83 Most of the nations in the British Commonwealth and some outside it are treated as
‘reciprocating
territories’.
84 Reserve Bank of India, Standing Committee on International Financial Standards and Codes:
Report of
the Advisory Group on Bankruptcy Laws. (Mumbai, May 2001), pg 40
85 Report of the Justice Eradi Committee on Law Relating to Insolvency of Companies,
Company Law
Cases, 2000, Vol XII, pg 1297 at pg 1334
86 Id at pg 1332
87 This would facilitate foreign representatives of creditors to rely upon proceedings already
underway or
past judgments relating to the issue at hand
88 This would ensure that Indian creditors and/or companies be allowed to rely upon
proceedings already
underway in Indian courts or past judgments of Indian courts relating to the issue at hand
89 Articles 25-27 of the Model Law are intended to provide a regime for co-operation between
foreign
insolvency Courts, and foreign office-holders. The regime for co-operation is to be put, in
practice, through
allowing direct communication between respective States’ insolvency courts, and between the
insolvency
courts of an enacting State and a foreign representative
16
participation of foreign creditors in insolvency proceedings taking place in enacting
States.
The N. L. Mitra Committee noted that Indian laws on cross border insolvency are
outdated and that they are not comparable to any standards set in international legal
requirement and as such, stands apart and alone90. It also noted that in the event of an
international insolvency proceeding involving an Indian company, Indian courts are
unlikely to provide any aid or assistance to a foreign liquidator or other insolvency
official if this were to be prejudicial to the companies’ creditors on the basis of how those
creditors are or would have been treated under any equivalent Indian law insolvency
proceeding91.
Although insolvency may be described in a manner that is universally acceptable,
national attitudes towards the phenomenon of insolvency vary from country to country.
These variations may take the form of the manner in which insolvency proceedings may
take place, or even the extent the creditor’s loss is ameliorated. There is obviously an
underlying balance with the debtor’s predicament on one hand and the creditor’s loss on
the other.
In order to have greater co-operation between courts of various states, fair and efficient
administration of cross-border insolvencies that protects the interests of creditors as well
as the debtor, and other objectives92, the UNCITRAL Model Law on cross-border
insolvency is a mammoth step forward in removing the difficulties faced in this area law
so far.
Introduction
In the era of Globalisation, the integration of national economies into a global
economic system has been one of the most important developments of the last
century. Globalisation has resulted in improving international trade drastically.
It has resulted in higherinter connection and awareness of opportunities and now
investors can access new business opportunities across the Globe. Investors
invest in corporate debtors of different jurisdictions which lead to so many risks.
Foreign investors take into consideration various factors while investing in a
country and strong insolvency laws is one of the factors. Every foreign investor
would like to protect his rights when the company becomes insolvent and at that
point the cross border insolvency law will come into picture. Cross Border
Insolvency laws deals with insolvency of companies which operates in more
than one jurisdiction.
Background: Cross Border Insolvency Framework in India
Currently, the cross border insolvency framework of India is as follows:
(i) Under Insolvency & Bankruptcy Code, 20161: Section 234 and 235 of the
Code would deal with cross border insolvency in India. Section 234
empowers the Central Government to enter into bilateral agreements with
other countries to resolve situations pertaining to cross border
insolvency.Section 235 empowers the adjudicating authority under the Code
to issue a letter of request to a court in a country in which an agreement
under Section 234 has been entered into, to deal with assets situated in that
country in a specified manner. (not yet notified)
(ii) Recognition of foreign proceedings in India:For foreign proceedings to be
recognised in India, Civil Procedure Code, 1908 is applicable along with
principles developed in English common Law.
Section 44A of the Code of Civil Procedure of 19082allows Indian courts to
enforce orders passed by non-Indian courts in “reciprocating territories”. A
country would be considered a reciprocating territory if it was declared by
the Government of India through publication in the Official Gazette.
The basic principle which is followed while enforcing a foreign judgment or
decree in India is to ensure that the judgment or decree is a conclusive one,
passed on the merits of the case and by a superior court having competent
jurisdiction.

(iii) Recognition of Indian Proceedings in foreign jurisdictions: For

Indian proceedings to be recognised abroad, the law of that Country will
apply.
The current legislative framework may not be sufficient to deal with situations
for example parallel proceedings, coordination, cooperation etc, and different
agreements will have to be made with different countries which will lead to
complexity. Since, India is a developing Country, a model and common
approach for all the Countries is required to have hassle free solutions.
As per the Interim Report of the Advisory Group on Bankruptcy Laws dated
January 2001 led3 by Dr. N. L. Mitra, it was deliberated that
“In the changing situation of growing cross-border investment, trade and
commerce, cross-border insolvency problems are bound to increase both for
Indian Companies having cross-boundary entities or ventures as well as foreign
entities having Indian subsidiaries and ventures. A comprehensive Bankruptcy
code is bound to address such issues taking into consideration international
practices.
At present, the Committee on Bankruptcy is considering the adoption of
UNCITRAL Model Law on Cross-Border Insolvency to equip the Indian law
with sufficient provisions to deal with international insolvency.”
Further, the Insolvency Law committee report on cross border insolvency dated
October, 20184 provided recommendations of the committee to the Government
on adoption of the UNCITRAL Model law and the modifications necessary in
the Indian context after consultation with public at large.
Overview: Unicitral Model Law on Cross Border Insolvency
The UNCITRAL Model Law on Cross-Border Insolvency was a model law
issued by the secretariat of UNCITRAL on 30 May 1997 to assist states in
relation to the regulation of corporate insolvency and financial distress
involving companies which have assets or creditors in more than one state.
Globally, the UNCITRAL Model Law has emerged as the most widely accepted
legal framework to deal with cross-border insolvency issues and legislation
based on the Model Law has been adopted in 44 countries in a total of 46
jurisdictions4. Thus, the States enacting the Model Law would be introducing
useful additions and improvements in national insolvency regimes designed to
resolve problems arising in cross-border insolvency cases.
The UNICITRAL model law5 is divided into 2 parts:
Part 1 is “UNCITRAL Model Law on Cross-Border Insolvency” which contains
5 chapters covering general provisions, Access of foreign representatives and
creditors, Recognition of a foreign proceeding and relief, Cooperation with
foreign courts and foreign representatives and Concurrent proceedings.

Part 2 is GUIDE TO ENACTMENT OF THE UNCITRAL MODEL LAWON

CROSS-BORDER INSOLVENCY which contains 6 chapters covering purpose
and origin of the model law, main features, article by article remarks, assistance
from UNCITRAL secretariat etc.
The Model Law will be applicable in following scenarios:
(i) Assistance is sought in a State (the enacting State) by a foreigncourt or a
foreign representative in connection with a foreign insolvencyproceeding;
(ii) Assistance is sought in the foreign State in connection with domestic
insolvency proceedings;
(iii) A foreign proceeding and domestic proceedings are taking place
concurrently, in respect of thesame debtor;
(iv) Creditors or other interested persons have an interest in requesting the
commencement of, or participating in, domestic insolvency proceeding.
As per Model Law, the foreign representative will be appointed to administer
the insolvent debtor’s assets inone or more States or to act as a representative of
the foreign proceedings at the time an application under the Model Law is
made.
The Model Law respects the differences among national procedural laws and
does not attempt a substantive unification of insolvency law. Rather, it provides
a framework for cooperation between jurisdictions, offering solutions that help
in several modest but significant ways and facilitate and promote a uniform
approach to cross-border insolvency.
The main principles on which UNCITRAL Model Law is built are:
(1) The “access” principle: It allowsforeign insolvency officials and foreign
creditors to have direct access to domestic courts and so that they can
participate and initiate domestic insolvency proceedings.
(2) The “recognition” principle: It allows recognition of foreign proceedings
and remedies by the domestic court based on such recognition. A foreign
proceeding should be recognized as either a main proceedingor a non-main
proceeding.
 A main proceeding isone taking place where the debtor has its centre of
main interests (COMI). A main proceeding is expected to have
principalresponsibility for managing the insolvency of the debtor, subject to
appropriate coordination.
Centre of main interests (COMI) is not defined under the model law, but
is based on a presumption that it is the registered office or habitual
residence of the debtor.
 A non-main proceeding is one taking place where the debtor has
anestablishment. This is defined as “any place of operation where the
debtorcarries out permanent economic activity with human means and
goodsor services”
(3) The “relief” principle: It specifies that relief is available in both the
proceedings (main or non main). Further, reliefs will also be interim relief
and specified form of relief. If the proceedings of foreign country is termed
as main proceedings, there will be stay on the domestic proceedings and
foreign representative will handle the estate in domestic proceedings and
domestic proceedings will be termed as ancillary proceedings. For non main
proceedings, such relief is at the discretion of the court.
(4) The “cooperation” and “coordination” principle:
Cooperation: The Model Law lays down the basic framework for cooperation
between
 Domestic and foreign courts, and
 Domestic and foreign insolvency professionals.
Notably, cooperation may also be provided to foreign proceedings that have not
been recognised as either main or non-main.
Coordination: It provides a framework for commencement of domestic
insolvency proceedings, when a foreign insolvency proceeding has already
commenced or vice versa. It also provides for coordination of two or more
concurrent insolvency proceedings in different countries by encouraging
cooperation between courts.
Some other important elements of model Law is that it allows a particular
country to refuse the recognition of foreign proceedings if it against its domestic
public policy and it gives priority to domestic proceedings and domestic
stakeholders.
Therefore, adopting UNICITRAL Model Law will help in improving the
ranking for ease of doing business, priority to domestic proceeding, remedy
in other jurisdictions for Indian creditors, mechanism of cooperation etc.
The Insolvency Law committee chaired by Shri Injeti Srinivas submitted
report on cross border insolvency in the month of October, 2018 to Union
Minister of Finance and Corporate Affairs regarding the recommendations
on inclusion of Unicitral Model Law under Insolvency and Bankruptcy
Code, 2016 with suitable modifications in Indian Context.
Impact of Cross Border Insolvency ON Jet Airway’s Insolvency
While admitting the application of Jet Airways insolvency it was appraised to
NCLT, Mumbai Bench that insolvency proceeding has already been initiated in
Holland district Court, Netherlands. However, it was then clarified by the
NCLT that since Section 234 has not been notified by the Government and
running 2 parallel proceedings will complicate the whole process. The order of
the foreign court is a nullity in the eye of law and such order cannot be given
effect.
However, the administrator filed an appeal with NCLAT, appellate Tribunal
against the order of NCLT and questions in consideration were
- Whether separate proceeding(s) in ‘Corporate Insolvency Resolution
Process’ against common ‘Corporate Debtor’ can proceed in two different
countries, one having no territorial jurisdiction over the other?
- whetherby a Joint Agreement or understanding between the ‘Resolution
Professional’of ‘Corporate Debtor’ in India and Administrator in Holland
(Netherland), one proceeding in India canproceed for maximization of the
asset of the ‘Corporate Debtor’ and balancingall the stake holders, including
the Indian/Offshore Creditors/ Lenders.
After detailed deliberations, discussions and hearings, NCLAT directed that6:
- To Set aside the order of NCLT
- Administrator and Interim resolution professional with cooperate with each
other.
- It will be open for the administrator to collate the claims of offshore
creditors and forward the same to Interim resolution professional for the
purpose of preparation of Information memorandum.
- Administrator will cooperate in theproceedings pending in India and will
not sell, alienate, transfer, lease orcreate any third party interest on the
offshore movable and immovable assetsof the ‘Corporate Debtor’ which are
or may betaken in his possession.
- IRP to have terms of settlement with administrator in consultation with
Committee of Creditors.
- Directions to Committee of creditors to cooperate with administrator during
meetings.
- Administrator shall be invited toparticipate in the meetings of the
Committee of Creditors as anobserver but shall not have a right to votein
such meetings
Accordingly, an agreement named “CROSS-BORDER INSOLVENCY
PROTOCOL” was executed between Resolution professional and administrator
and it was clarified that joint ‘Corporate Insolvency Resolution Process’ will
continue in accordance with ‘Insolvency and Bankruptcy Code, 2016.
This implies that Appellate Tribunal applied the principle of justice and tried to
protect the interest of all the stakeholders during the corporate insolvency
resolution process.