Published on 25th March 2025
Authored By: Aditi Yashasvi
Amity Law School, Noida
Introduction
In an increasingly globalized world, cross-border insolvency has emerged as a significant legal challenge, making it pertinent to have a structured framework for the governance of insolvency proceedings across jurisdictions by way of providing recognition and instilling a successful coordination. A debtor’s COMI i.e., Centre of Main Interest comes into play as a vital instrument in determining the nature of such cross-border proceedings- whether it will be deemed as a main proceeding or non-main proceeding for different countries or jurisdictions involved, which directly impacts the recognition to be given and relief to be granted by the respective domestic courts. India’s Draft Chapter on cross border insolvency i.e., Part Z under the Code of 2016 (IBC), modeled on the UNCITRAL Law on Cross-Border Insolvency, addresses this need by providing a structured approach to recognizing foreign proceedings and representatives. By empowering a foreign representative, appointed in a foreign proceeding, to have a direct access to Indian courts and ensuring a seamless integration of international insolvency mechanisms, the draft provisions endeavor to maintain a balance between the interests of creditors and debtors while advocating for judicial cooperation and comity. This framework, with its emphasis on COMI and the significance of foreign representatives, seeks to streamline the process in an insolvency involving multiple jurisdictions, safeguard assets, and enhance the predictability of outcomes in cases involving multiple jurisdictions.
Foreign Representative under Part Z
Clause 2 (h) of CBDR i.e., Cross Border Insolvency Rules, 2020, “foreign representative” is defined as a person authorized or a body entrusted in a proceeding of another country (foreign-proceeding) to carry out the reorganization/ restructuring or the liquidation of the CD’s (Corporate debtor’s) assets or affairs or to act as a “representative of the foreign proceeding”. This definition of “foreign representatives” is pertinent to be decoded as applications for obtaining ‘access, recognition and relief’ from the domestic courts, can be brought by only a foreign representative fulfilling the pre-requisites of the said provision given under CBDR.[1] Further, the Model Law (UNCITRAL) allows such foreign officials ‘direct-access’ to domestic courts. Therefore, it permits such representatives, to duly participate in the domestic insolvency proceedings ongoing in a domestic court against the debtor[2] , as stated in the judgement of Hon’ble Supreme Court in the landmark case of Bar Council of India (BCI) v. A.K. Balaji & Ors.[3]
Further, Part Z has adopted Article 9 of the UNCITRAL Law (Model Law) to allow a foreign representative to have ‘direct access to the courts of the enacting State’ in an efficient manner.[4] Additionally, Article 9 of the UNCITRAL Law provides an ‘expedited and direct access’ to courts for the foreign-representative in the country in which he/ she is seeking recognition, cooperation or both, without any other formal requirements to be adhered to as required earlier.[5] Similarly, the domestic courts in India have also adopted such a practice to permit access to its courts to foreign representatives in case of an insolvency proceeding involving multiple jurisdictions. Such recognition is to be granted even in circumstances where there is an absence of an enabling framework providing such relief.[6] However, in an instance where a continued absence of legislative guidance is witnessed, Indian courts are likely to continue following an ‘ad-hoc approach’ to recognizing foreign representatives as observed in the landmark insolvency proceedings of Jet Airways.[7] Thus, for instance, if a person has already been appointed as a liquidator in the foreign proceeding in UK, he can directly access the Indian court for recognition as a Liquidator and attain the role of a foreign representative.
In the case of Re Cozumel Caribe, S.A. de C.V., [8] the brief facts were that the United States court had granted recognition to a Mexican insolvency-proceeding of a debtor with its assets in the US. Further, a US creditor of the debtor filed a petition to revoke recognition of the foreign-proceeding, on the grounds of- public policy, citing various alleged acts of misconduct on the part of foreign representative of the Mexican proceeding. However, the Court, in its ground-breaking decision, did not revoke such recognition and held that all other remedies that were available to the creditor have not been exhausted and the interests of creditors could be protected by granting comity in favor of certain foreign orders or judgements which do not harm US creditor interests, setting an example that protection of the interests of the creditors is of utmost importance. Further, through this case, the US court noted a firm hesitance in condemning the recognition of foreign representatives or foreign proceedings.
In Re SNP Boat Service S.A.,[9], another example of how courts have adjudicated upon cross border matters, the Bankruptcy court noted its grave dissatisfaction with the ‘foreign representative’ of the French proceeding. Due to a continued lack of cooperation by the ‘foreign representative’, the bankruptcy court setting a precedence, dismissed the proceeding in entirety. However, the matter went in appeal and the district court reversed the decision granted by the Bankruptcy court and held that dismissal is ‘appropriate only as a last resort, when less drastic sanctions would not ensure compliance with the orders of the Court’. De-recognition or dismissal of the foreign proceedings and of the foreign representative has been considered an extreme measure as discussed above.[10] Hence, refusing to grant recognition to a foreign representative or a foreign proceeding as a measure of providing respite to the debtor, would not harm the foreign representative but rather may harm interests of the creditors and debtor.[11] Rather, in case of any circumstances warranting rejection of authorization of the foreign representative, it is recommended that the recognition and related reliefs granted to the foreign proceeding remain unaffected.[12] The crucial role of the foreign representative is encapsulated in the provisions governing coordination of multiple recognized proceedings, as well as cooperation in case of unrecognized proceedings. Thus, it is in the interest of the debtors and creditors to approve such recognition, to achieve the objectives of a successful insolvency resolution or liquidation proceeding, that are facilitated by the existence of the foreign representative in cross-border proceedings.
The Adjudicating Authority while granting an unjustified refusal to recognize undermines the legislative intent of Cross Border Insolvency. Firstly, judiciary has recognized the detrimental effects of multiple insolvency proceedings as cross-border insolvency proceedings in their inception are premised on the principle of universality. The Court In re African Farms Ltd[13] had observed that:
“If we can assist the liquidator, we should, as it ensures proper asset distribution to satisfy the company’s debts. If not, the directors cannot manage the property, and the liquidator cannot stop creditors from seizing assets to enforce their judgments, leading to unnecessary costs and a chaotic scramble among creditors.”
The convenience of having a single integrated global bankruptcy proceeding has been emphasized by the courts in other common law jurisdictions as:[14]
“When an external company is being wound up in its home country, a South African court may, at its discretion, recognize the foreign liquidator. This recognition allows the liquidator to manage local assets, subject to local laws, based on principles of comity, convenience, and equity.”
Secondly, due to nature of the proceedings, there is a general mistrust of the debtor-in-possession models followed in certain jurisdictions, foreign representatives are increasingly relied upon as objective professionals representing such foreign proceedings.[15] Thirdly, an important consideration is that the person facilitating coordination between cross-border insolvency proceedings should be ideally a ‘disinterested person’ or a person whose pecuniary interest does not arise during the proceeding. Hence, owing to these reasons, it becomes crucial for an independent foreign representative to be duly recognized to ensure the creditors’ and debtors’ interests are not compromised in an instance where any pecuniary interest of a foreign representative arises.
Question on COMI to Determine Liquidator’s Recognition before Adjudicating Authority
For the purposes of recognition in pending Indian Insolvency proceeding, if the domestic courts determine that the debtor has its COMI in a foreign country, they will accordingly consider insolvency proceedings in such foreign country to be the ‘main-proceedings’, conversely, if not, they will be considered ‘non-main proceedings’.[16] Draft Part Z recognizes that in Clause 2 (e) & (f) read with Clause 15(2)[17] when deciding to ‘recognize a foreign proceeding’. Further, under Clause 18 (1) of Draft Part Z, when a foreign proceeding is recognized, whether as ‘main or non-main’, where it is of primacy to protect the assets of the corporate debtor (CD) or the interests of the creditors, the Adjudicating Authority (AA) may by passing an order, at the request of a foreign-representative, grant any appropriate relief duly sought.
Conclusion
The ‘recognition of foreign representatives’ under Draft Part Z of IBC strengthens India’s ‘cross-border insolvency framework’ by aligning it with international standards, such as the UNCITRAL Law. By emphasizing the COMI as a decisive factor, the framework ensures clarity in determining ‘main and non-main proceedings’. This recognition not only facilitates judicial cooperation and protects the interests of creditors and debtors but also fosters efficiency in resolving transnational insolvency disputes.
References
[1] Report of Insolvency Law Committee on Cross Border Insolvency MCA, March 2018
[2] UNCITRAL Model Law on Cross Border Insolvency 1977, Ch II
[3] Bar Council of India v. A.K. Balaji and Ors., [2015]
[4] Draft Part Z Cross Border Insolvency Rule 2020, Clause 5
[5] UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation, para 108
[6] Shikha N., “Cross-Border Insolvency in India: What Lies Ahead?” International Insolvency Review, (2021), Vol. 30(2), pp. 163, 168
[7] Jet Airways (India) Ltd. (Offshore Regional Hub/Offices Through its Administrator Mr. Rocco Mulder) v. State Bank of India & Anr., [2019]
[8] In Re Cozumel Caribe, S.A. de C.V., 508 B.R. 330 [2014]
[9] In Re SNP Boat Service S.A., 453 B.R. 446 [2011]
[10] In Re Creative Finance Ltd., 543 B.R. 498 [2016]
[11] In re Manley Toys Ltd., 580 B.R. 632, 635 [2018], para 651
[12] CBIRC Report, Page 42
[13] In Re African Farms Ltd [1906] TS 373, 377
[14] Ward and Another v Suit and Others In Re: Gurr v Zambia Airways Corporation Ltd (51/96) [1998] ZASCA 16, [1998] 2 All SA 479
[15] Flaschen E.D. and Planket L. (2002), “The Foreign Representative: A New Approach To Coordinating The Bankruptcy Of A Multinational Enterprise”, American Bankruptcy Institute Law Review, Vol. 10, pp. 111-137
[16] UNCITRAL Model Law on Cross-Border Insolvency 1997, Article 17
[17] Draft Part Z Insolvency and Bankruptcy Code 2016, c 2 (e) & (f) & 15 (2)
