One leading development in corporate management in India is the passing of the Insolvency and Bankruptcy Code (IBC) 2016. The IBC contains various steps for resolving an insolvent entity. It created mechanisms, steps and institutions for resolving corporate insolvency. But an important element that missed the IBC is the necessary arrangement for addressing cross border insolvency. Cross border insolvency is a situation where the indebted firm has assets/creditors in more than one country.
What is insolvency?
Insolvency is the situation where a company or individual is in a situation where is not able to repay his debt. When insolvent, the firm’s liability is greater than his assets. Even after selling his firm, the company may not be in a position to service back his debt.
For not allowing further deterioration of the financial situation, the firm should be resolved by undergoing a resolution or insolvency process. Sometime, the company may liquidate itself by selling its entire assets and transferring the money to the creditors. Here, liquidation means the company is winding up its operations. The IBC proposes the steps for the resolution process of an insolvent firm.
What is cross border insolvency?
‘Cross-border insolvency’ denotes circumstances in which an insolvent debtor has assets and/or creditors in more than one country.
When an indebted country has assets and debts only within India, the procedure is fine if we follow the IBC procedures. But when the entity has creditors outside or assets outside India, other countries may have claims on the indebted country. The impact of business failure in a globalised economy often goes beyond national boundaries.
In this case, India has to honour the claims of the foreign entities. Here, special provisions are needed for addressing cross border insolvency under the IBC. At present such procedures are absent in the IBC. Hence, the government is proposing amendment to the IBC to incorporate cross border insolvency.
Attempts for the amendment of the IBC
The government has made several attempts to procured expert opinion for amending the IBC by appointing various committees. In June 2020, the Cross Border Insolvency Rules/ Regulations Committee (CBIRC) under Ministry of Corporate Affairs submitted a Report on the rules and regulations for cross-border insolvency resolution.
Earlier, in October 2018, the Insolvency Law Committee (ILC) submitted a report on cross-border insolvency to the MCA. The budget 2022 suggested amendment of the IBC to address cross border insolvency. Hence, changes in IBC are expected soon to accommodate cross border IBC.
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One leading development in corporate management in India is the passing of the Insolvency and Bankruptcy Code (IBC) 2016. The IBC contains various steps for resolving an insolvent entity. It created mechanisms, steps and institutions for resolving corporate insolvency. But an important element that missed the IBC is the necessary arrangement for addressing cross border insolvency. Cross border insolvency is a situation where the indebted firm has assets/creditors in more than one country.
What is insolvency?
Insolvency is the situation where a company or individual is in a situation where is not able to repay his debt. When insolvent, the firm’s liability is greater than his assets. Even after selling his firm, the company may not be in a position to service back his debt.
For not allowing further deterioration of the financial situation, the firm should be resolved by undergoing a resolution or insolvency process. Sometime, the company may liquidate itself by selling its entire assets and transferring the money to the creditors. Here, liquidation means the company is winding up its operations. The IBC proposes the steps for the resolution process of an insolvent firm.
What is cross border insolvency?
‘Cross-border insolvency’ denotes circumstances in which an insolvent debtor has assets and/or creditors in more than one country.
When an indebted country has assets and debts only within India, the procedure is fine if we follow the IBC procedures. But when the entity has creditors outside or assets outside India, other countries may have claims on the indebted country. The impact of business failure in a globalised economy often goes beyond national boundaries.
In this case, India has to honour the claims of the foreign entities. Here, special provisions are needed for addressing cross border insolvency under the IBC. At present such procedures are absent in the IBC. Hence, the government is proposing amendment to the IBC to incorporate cross border insolvency.
Attempts for the amendment of the IBC
The government has made several attempts to procured expert opinion for amending the IBC by appointing various committees. In June 2020, the Cross Border Insolvency Rules/ Regulations Committee (CBIRC) under Ministry of Corporate Affairs submitted a Report on the rules and regulations for cross-border insolvency resolution.
Cross Border Insolvency Rules/ Regulations Committee (CBIRC) Ministry of Corporate Affairs Government of India June 2020. Earlier, in October 2018, the Insolvency Law Committee (ILC) submitted a report on cross-border insolvency to the MCA. The budget 2022 suggested amendment of the IBC to address cross border insolvency. Hence, changes in IBC are expected soon to accommodate cross border IBC.
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