Aviation, communication may not come under cross-border insolvency ambit

India could exclude some key strategic sectors, such as aviation, telecommunications and critical infrastructure services, from the cross-border insolvency framework’s ambit.

The Ministry of Corporate Affairs (MCA) released a consultation paper on November 24 seeking public comments on a draft cross-border insolvency framework under the Insolvency and Bankruptcy Code (IBC) by December 15.

The government intends to amend the IBC in the Winter session of the Parliament that begins on Monday.

“Certain sectors are of national importance, highly sensitive and bound by various regulations and conditions, so their insolvency significantly affects public interest,” said a senior government official.

Once the Bill is introduced, the government is likely to put out a negative list of sectors, the official added.

While financial services providers have been kept out of the ambit of cross-border insolvency provisions, the government is looking to exclude some more sectors when the final rules are issued after the amendment, the official said.

The proposed amendment would empower the government to notify a class or classes of corporate debtors or entities to whom the provisions of cross-border insolvency provisions would not apply.

“We need to see how the rules get implemented on the ground, its implications and challenges. Cross-border matters under IBC are at a nascent stage,” the official said, adding that the provision would be complex and will need to be handled cautiously.

The Insolvency Law Committee (ILC) tasked by the MCA to look into cross-border business failures had also recommended that certain debtors be exempted from the applicability of these provisions.

The committee had noted that several jurisdictions had exempted certain kinds of businesses from the purview of the cross-border provisions in their respective insolvency laws.

Apart from financial services providers, those sectors or companies providing critical utility or infrastructure services, such as electricity, water, or railways, have been kept out of the purview of their cross-border insolvency framework, as they form part of special insolvency law in those jurisdictions.

“One can expect that sectors which are sensitive or have FDI caps or conditionalities would not be covered under the cross-border insolvency proceedings…This is quite expected, as even free economies like the US and UK restrict the applicability of cross-border insolvency on certain categories of companies,” said Rakesh Nangia, founder and managing partner, Nangia Andersen India.

The MCA has based the framework on the United Nations Commission on International Trade Law (UNCITRAL).

This model law, which seeks to promote cooperation among countries, also provides flexibility to courts to refuse any action that may be against the public policy of the enacting jurisdiction.

It suggests that businesses whose resolution is governed by a special law or whose insolvency significantly affects public interest may be exempt from the applicability of the cross-border insolvency law.



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