| Introduction: Contextual Introduction Body: What is the role of cross-border insolvency laws in international trade and India’s current approach? Conclusion: Way forward |
Cross-border insolvency laws play a crucial role in facilitating international trade and ensuring the smooth resolution of insolvency cases involving assets and creditors in multiple jurisdictions. These laws provide legal certainty, improve the health of multinational trading entities, and encourage foreign investments.
Role of Cross-Border Insolvency Laws in International Trade
- Legal Certainty: In a globalized economy, businesses engage in cross-border trade and investments, often dealing with foreign creditors and debtors. Cross-border insolvency laws provide a predictable and uniform framework for the resolution of insolvency cases across borders, thus reducing the risks associated with international trade.
- Health of Trading Entities: Insolvency laws help maintain the financial health of multinational companies by offering structured procedures for asset distribution and debt resolution across jurisdictions. This facilitates the survival or orderly liquidation of firms, thereby preserving value for creditors and maintaining economic stability.
- Encouraging Investment: The presence of robust cross-border insolvency laws boosts investor confidence as it ensures that their claims will be treated equitably, even in foreign jurisdictions. This leads to greater international capital flow and trade.
- Harmonization: The adoption of harmonized insolvency laws, such as the UNCITRAL Model Law, reduces the legal conflicts arising from different national insolvency regimes, making cross-border cooperation smoother. It allows countries to cooperate more effectively in cases of multinational insolvency, which is vital for global trade.
India’s current approach to legal frameworks
- UNCITRAL Model Law: India has not yet adopted the UNCITRAL Model Law, although the Bankruptcy Law Reform Committee and the Economic Survey 2022 have recommended its implementation. Currently, India relies on limited provisions under the Insolvency and Bankruptcy Code (IBC) 2016, which allows for bilateral agreements on cross-border insolvency cases. The lack of a comprehensive cross-border insolvency framework reduces the predictability and efficiency of insolvency proceedings involving international creditors, affecting India’s attractiveness as an investment destination.
- Free Trade Agreements (FTAs): India has signed Free Trade Agreements (FTAs), Comprehensive Economic Cooperation Agreements (CECAs), and Comprehensive Economic Partnership Agreements (CEPAs) with over 54 countries. While CECAs and CEPAs are more ambitious and aim to cover deeper regulatory aspects of trade, they still mostly ignore the insolvency dimensions, focusing instead on disputes, intellectual property rights (IPRs), and sustainability. This omission is a significant gap, as insolvency laws are a vital ingredient of international trade, helping trading entities manage the risks of financial distress.
Conclusion
The adoption of cross-border insolvency laws is vital for promoting legal certainty, facilitating investment, and improving the health of trading entities with international operations. The integration of these dimensions into FTAs, alongside the potential adoption of the UNCITRAL Model Law, would significantly strengthen India’s legal and trade frameworks, positioning the country to better manage the complexities of cross-border insolvency and enhance its global trade competitiveness.
