ANALYSING CROSS BORDER INSOLVENCY LAWS:

(with reference to India, United States and Singapore)

ABSTRACT:
The pandemic’s destructive path has been unsparing on global trade, and while financial
liquidity is constantly being pushed to cope with losses, the resilience of businesses and
economies is being tested like never before. Businesses have been exposed to financial
difficulties with the looming risk of insolvency or bankruptcy and with the assets spread out in
multiple jurisdictions, their reorganization can only be done through an established universal
framework for cross-border insolvency. The purpose of cross-border insolvency is to provide
legal certainty to better organization of such assets while protecting the interest of creditors
and stakeholders and maximizing the value of assets. The purpose of the Model Law was to
co-ordinate proceedings among countries, however they do not exercise any coercive power to
impose any of its decisions. This article follows the UNCITRAL Model Law, its purpose, the
law in operation in US and Singapore and laws relating to Cross-Border Insolvency in India.

What is Cross-Border Insolvency?

Cross-order Insolvency or International Insolvency is more concerned with the insolvency of
companies which operate in more than one country rather than the bankruptcy of individuals.
A company is said to be insolvent when its liabilities exceeds its assets, ultimately resulting in
the company’s inability to pay off its debts.

The issue of cross border insolvency arises where an insolvent debtor has assets in more than
one country, or when the debtors/creditors are not residents of a country where the insolvency
proceedings are going to take place. When a company is declared insolvent, it holds
proceedings regarding the compensation of creditors, in a cross-border situation the primary
issue that arises is which country’s laws will govern these proceedings. Cross Border
insolvency mainly revolves around three questions; Who will initiate the insolvency
proceedings? Which law will be applied? and How are the judgements enforced over the
debtor’s assets?

There are three main theories/principles that is followed across different countries:

1. The Principle of Universality - a universalism regime, the jurisdiction lies with the court
of the country, where the insolvent company’s assets are located.

2. The Principle of Territoriality -This principle allows a particular country to exercise its
local laws relating to insolvency in relation to the debtor’s assets and of the creditors
residing within its boundaries, without deferring to foreign proceedings.

3. The Principle of Modified Universalism/Hybrid Theory – it is a relatively new theory

that recognizes that a cross-border insolvency case should be administered under a
single controlling insolvency proceeding governed by the laws of the country
 commencing that proceeding. However, the theory allows countries other than the
country where the insolvency proceeding was commenced, before giving deference to
the controlling proceeding, to determine whether such an act of cooperation would
infringe on local interests.1

UNCITRAL Model Law:

All countries have their own laws which operate within their boundaries regarding
debtor/creditor relationships. the United Nations recognised the need for a universal model law,
where the domestic laws of the countries posed a barrier to the effective flow of international
trade and commerce. The United Nations Commission on International Trade Law
(UNCITRAL) is a subsidiary body of the U.N. General Assembly responsible for facilitating
international trade and investment. For this purpose, they introduced a Model Law in
International Commercial Arbitration in June 1985 to unify the laws of the countries and ease
International Trade. The purpose of the model law is to provide measures to deal with cases of
Cross-Border Insolvencies, to promote the objectives of:
• Cooperation between the courts and other competent authorities of different countries
dealing with Cross-Border Insolvency.
• Greater legal certainty for trade and investment.
• Fair and efficient administration of Cross-Border Insolvencies which protect the
interests of all creditors and other interested persons including debtors.
• Protection and maximisation of the Debtors’ assets.
• Facilitation of the rescue of financially troubled businesses, thereby protecting
investment and preserving employment.2
The UNCITRAL Model Law recognises two types of proceedings:
1. Foreign Main Proceedings (where debtors’ centre of main interests in located)
2. Foreign Non-Main Proceedings (where the debtor has an establishment3)
Moreover, a state may refuse to take an action governed by the Model Law if it ‘manifestly’
goes against its public policy.

1
Outau Marcela, 2014, ‘Modified universalism for cross-border insolvencies: does it work in practice?’,
University of British Columbia.
2
11 U.S.C. § 1501
3
Establishment is the place of operations where the debtor carries out a non-transitory economic activity with
human means and goods or services
Cross-Border Insolvency Laws around the World:
More than 50 countries have already implemented and adopted the UNCITRAL Model Law
into their domestic regimes, yet there are few who are still to apply these laws. While many of
them adhere to the principle of Universality, countries like India follow Territoriality in the
absence of the former agreement. Below we analyse the development of insolvency laws and
adoption of the UNCITRAL Model Law in the US and Singapore.
USA: The UNCITRAL Model Law draws parallels from the Bankruptcy Laws in the United
States, from the previously ascribed section 304 of the Bankruptcy Code of 1978. The
amendment in 2005, brought in the Bankruptcy Reform Act which replaced section 304 with
Chapter 15, which incorporated the Model Law in the United Status. It paved the way for the
US Courts to coordinate the judgements passed by foreign courts regarding insolvency
proceedings of a company; those companies which have also incorporated the model law into
their regime, to promote a uniform and structured legal regime for cross-border insolvency
cases. This is executed by the statute’s five tiered objectives. First, to promote cooperation
between the US Courts and parties of interest and other courts and competent authorities of
foreign countries involved in cross-border insolvency cases. Second, to establish greater legal
certainty. Third, to inculcate fairness and efficiency in cross border insolvencies to protect
interests of all stakeholders. Fourth, to afford protection and maximization of the value of the
debtor’s assets and Fifth, to facilitate the rescue of financially troubled businesses.4 The US
saw several developments in its laws and principles regarding Insolvency, primarily established
by cases and their judgements.
In the 19th century, the US Supreme Court started amplifying cross-border insolvency laws,
adopting a territorial model. It was only by the 1930’s that the US started treating the foreign
and domestic creditors alike. In the 1895 case of Hilton vs Guyot, the Supreme Court had to
decide on the issue of whether the French judgment should have any effect within the territory
of the United States. It held: ‘Comity5’, in the legal sense, was neither a matter of absolute
obligation, on the one hand, nor of mere courtesy and goodwill, upon the other. But it is the
recognition which one nation allows within its territory to the legislative, executive, or judicial
acts of another nation, having due regard both to international duty and convenience, and to
the rights of its own citizens or other persons who are under the protection of its laws.6
The Court then cited the principle of reciprocity in which foreign judgments would only be
recognized in the United States, if the foreign country would also recognize the judgments
passed by courts in the US. However, in the 1930’s case of Aktiebolaget Kreuger & Toll, which
was a Swedish company with American Creditors, against whom insolvency proceedings had
been initiated in Sweden, the US Court stated that doctrine of reciprocity (as mentioned in the
previous case of Hilton v Guyot), was not part of American doctrine, and held that there was
no reason as to why the court would not consider the judgements passed by the Court in
Sweden. In the 1970’s the US Court of Appeals abided by the principle of international co-
operation and recognition of judgements passed by foreign courts, in the case involving
Banque de Financement, a Swiss bank against which bankruptcy was first filed in Switzerland
and thereafter in the United States.

4
11 U.S.C. § 1501
5
Comity is a practice among different political entities involving the mutual recognition of legislative,
executive, and judicial acts.
6
Hilton v. Guyot - 159 U.S. 113, 16 S. Ct. 139 (1895)
SINGAPORE: Singapore adopted the UNCITRAL Model Law, by way of an amendment to
the existing Companies Act, by incorporating Section 354B and the Xth Schedule. Previously,
Singapore followed a territorial approach, which meant that the courts applied their own laws
while deciding insolvency cases. The Companies Act Amendment officially became a law in
2017, and while it has not been fully implemented yet, Singapore has provided a grace period
for lawyers and companies to understand the new policy. The new policy allows judgements
and representatives from foreign courts to be recognised, while establishing comity amongst
foreign nations. The new law paved the way for Singapore to move on from its territorial
practises to following a principle of Modified Universalism. The amendment abolished the
ring-fencing rule, where the liquidator of a foreign company with assets in Singapore was
obliged to pay the local creditors before any of the debtor's assets could be turned over to be
administered in the insolvency proceeding. A key issue that arises in cross border insolvency
proceedings is the determination of the debtor’s centre of main interests or COMI. This is
mostly in cases where the debtor has assets in more than one country and faces further
complications due to the absence of an established definition within the Model Law.
In Re Zetta Jet Pte Ltd and Others [2018] SGHC 16, the court determined that the centre of
main interests of the company would be the United States and hence recognised its proceedings.
Under Article 17(2) of the Singapore Model Law, the Court must recognise a foreign
proceeding as a foreign main proceeding if it takes place in a state where the debtor has its
COMI, and as a foreign non-main proceeding, if it takes place in a state where the debtor does
not have a COMI but merely an establishment. Under Article 16(3) of the Singapore Model
Law, a debtor's COMI is presumed to be the location of its registered office, unless proved to
the contrary.7

Cross- Border Insolvency in India:

Insolvency Laws in India had no place before the 19th century until the British passed the
Government of India Act in 1800, and through Sections 23 and 24, conferred Insolvency
jurisdiction on the Presidency Towns.
It wasn't until 1828, that through Statute 9, a special insolvency legislation in India was passed.
Under this, Insolvency Courts were established for the first time, for providing relief to the
Insolvent Debtors. Originally meant to last only for four years, it was subsequently extended
till 1843, while in 1848 the Indian Insolvency Act was passed, whose provisions proved to be
inefficient.
The framework for Individual Insolvency was only dealt with in the Provincial Insolvency Act
of 1920, which was applicable to all the provinces in India and the Presidency Town Insolvency
Act of 1909, which was applicable to the Presidency Towns. The acts allowed an application
to be filed either by the creditor or the debtor, to initiate insolvency proceedings, if the debtor
was unable to pay debts amounting to five hundred rupees. In case of a petition by a creditor,
it would be upon him to show that the insolvent had committed an act of insolvency. The
Provincial Insolvency Act 1907, was later repealed by the Provincial Insolvency Act 1920,
only to be replaced by the current Insolvency and Bankruptcy Code of 2016.

7
Re Zetta Jet Pte Ltd and others (Asia Aviation Holdings Pte Ltd, intervener) [2019] SGHC 53
Presently, the laws related to Cross-Border Insolvency in India are governed by Section 234
and 235 of the IBC, but are yet to be notified. The Code states the following:
Section 234 provides a provision for the Central Government to make any agreements with a
foreign country to start insolvency proceedings. But the government may only do so with
countries with which there are reciprocal arrangements.
Section 235 says that a letter of request can be sent to the authorities of a foreign nation with
which such reciprocal arrangements have been made to provide evidence with relation to the
assets of the debtor in that country.
The procedure for enforcement of foreign judgments in India is mentioned in the Code of Civil
Procedure,1908. The basic principle which is followed while enforcing a foreign judgment is
to ensure that such a judgment or decree is a conclusive one; meaning it qualifies the tests under
the provisions of Section 13 of the CPC, has been passed on the merits of the case and by a
court having competent jurisdiction. There are two ways in which a foreign judgment can be
enforced in India, one is where the judgment or decree has been given by a court in a
reciprocating territory and the other is where such a judgement has been passed by a court
which is not in a reciprocating territory.
In case of Foreign Decrees from Reciprocating Territories:
Under the provisions of Section 44A of the CPC, a decree of any superior court of a
reciprocating territory shall be executed in India as a decree passed by the Indian district court.
A reciprocating territory means any country or territory outside India which the Central
Government may, by notification in the Official Gazette, declare to be a reciprocating territory
for the purposes of this section, and "superior courts", with reference to any such territory,
means such courts as may be specified in the said notification.8A decree from a reciprocating
territory can be directly enforced in India by filing an execution application through Section
44A (1) of the CPC which states that when a certified copy of a decree from the court of a
reciprocating territory having the competent jurisdiction, has been filed in a District Court, the
decree may be executed in India as if it had been passed by the District Court itself. While
filing the execution application, the original certified copy of the decree along with a certificate
from the competent court revealing the extent to which the decree has been satisfied has to be
attached with the fresh execution application.
In case of Foreign Decrees from Non-Reciprocating Countries:
Where a judgment or decree from a reciprocating country is passed by a court not having
competent jurisdiction, a fresh suit will have to be filed on that foreign judgment or on the
original cause of action or both in a court of competent jurisdiction in India.
The party seeking the execution of any such decree will have to prove its conclusiveness under
Section 13 of the Code of Civil Procedure.
The above principle was observed by the Bombay High Court in the case of Marine
Geotechnics LLC v/s Coastal Marine Construction & Engineering Ltd, where the court also
stated that Section 13 is a substantive law and the distinction between judgements from
reciprocating and non-reciprocating territories is made only in Section 44A.

8
Anselmo Reyes, 2019, Recognition and Enforcement of Judgments in Civil and Commercial Matters,
Bloomsbury Publishing.
Shortcomings of the Law:
Cross-Border Insolvency laws were introduced to ease international trade and make the process
of dealing with international insolvency easier, yet the present sections dealing with the issue
in India lack structure. The code expressly does not specify or lay down the procedures for
insolvency proceedings to take place. Further, the insolvency is made much more difficult
when the assets of the debtor are located in more than one states or where the creditors are in
more than one country. In India, the central government can make any arrangements with a
foreign company to start insolvency proceedings, but only with such countries with which they
have reciprocal agreements. The process of entering into a reciprocal arrangement with a
country is an extremely long and cumbersome process, which ultimately defeats the purpose
of saving time and solving insolvency cases with ease. Moreover, establishing co-operation
and coordination across foreign courts and jurisdictions in cases of international insolvency is
a primary concern, along with the issue of determining the COMI (Centre of Main Interests)
of the debtor; without the COMI having an exact definition even in the Model Law.
The Jet Airways Case:
The Jet Airways case is a prime example of the lacunae that exist in the current provisions of
the Indian Bankruptcy Code regarding insolvency laws. In April 2019, two European
companies who were creditors for Jet Airways, H.Esser Finance Company and Wallenborn
Transport filed a bankruptcy petition in the Noord-Holland District Court of Netherlands,
against Jet Airways over unpaid debts of Rs.280crores. The Dutch Court, citing Article 2(4)
of the Bankruptcy Court of Netherlands, passed an order declaring Jet Airways bankrupt
ordered the seizure of Jet Airways’ Boeing 777 aircraft which was parked in the
in Amsterdam’s Schiphol airport. Similarly, in June 2019 a number of Indian banks headed by
SBI and other creditors went to the NCLT, for declaring Jet Airways bankrupt. An
administrator was appointed by the Dutch court approached the NCLT asking to withhold the
insolvency proceedings against the company as a similar insolvency proceeding had been
initiated in Netherlands; citing that two simultaneous insolvency proceedings would be
damaging for the creditors of the company. The NCLT refused, stating that “there is no
provision and mechanism in the I&B Code, at this moment, to recognize the judgment of an
insolvency court of any Foreign Nation. Thus, even if the judgment of Foreign Court is verified
and found to be true, still, sans the relevant provision in the I&B Code, we cannot take this
order on record.”9 The Dutch administrator the moved to the NCLAT, which held the order of
the NCLT, and allowed the Dutch Administrator to co-ordinate with the Indian authorities to
agree upon a Cross Border Insolvency Protocol while keeping the best interest of the creditors
and the company in mind, and allowed the administrator to take part in the Committee of
Creditors Meetings.
Besides the absence of an established procedure dealing with insolvency, the main issue in the
above case was that both India and The Netherlands have different approaches to dealing with
such cases. The Netherlands follows the principle of Modified Universalism as established by
the case of Yukos Finance Vs Liquidator, OAOU Oils Company, whereas India in the absence
of a reciprocal arrangement with a country, follows Territoriality. This is precisely why with
the increase in foreign trade and investment, it is essential for India to incorporate the Model
Law into its existing code so as to facilitate the rulings in cases of Cross-Border Insolvency.

9
State Bank of India vs. Jet Airways (India) Ltd., 2019
CONCLUSION:

The pandemic continues to disrupt global trade and the need for harmonization has become
more pressing than ever. While the number of cross-border insolvency cases have increased
significantly since the 1990s, the adoption of national or international legal regimes equipped
to address the issues raised by those cases has not kept up with the lack of such regime. This
has often resulted in inadequate and uncoordinated approaches to cross-border insolvency that
are not only unpredictable and time-consuming in their application but also lacking
transparency and the necessary tools to address the disparities
(https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency,1997).
Currently, there exists a lacuna in the Indian insolvency regime with the absence of any sort of
comprehensive provision to deal with insolvencies that have international implications. This
gap was noted by the Joint Parliamentary Committee at the time when it was reviewing the
insolvency and bankruptcy bill of 2016 and since then we've had the insolvency law committee
which submitted its report in October 2018 and recommended that India adopt the UNCITRAL
model law on cross-border insolvency with some modifications. However, the law hasn't yet
been notified yet, and there is another committee that is looking into the rules and regulations
to implement cross-border provisions into the Indian insolvency code. In case of recognition
of foreign judgements and proceedings, Sections 13 and 44A of the Code of Civil Procedure
(1908) deals with the execution of decrees passed by courts in reciprocating territories.
The dealings in the Jet Airways and Videocon Industries case serves as a grim reminder for
India to make changes in the current laws and incorporate a universal model to provide efficient
remedies to aggrieved foreign creditors, while harmonising rulings in any Cross-Border
Insolvency cases thereafter.