CS Professional · Corporate Restructuring, Valuation and Insolvency

Cross Border Insolvency: formula sheet

Full chapter guide

Key formulas

Territorial approach: Each country: own assets + own law + own court; Foreign proceedings not recognised. Result: multiple proceedings and possible conflict.
Universal approach: One main proceeding = all assets worldwide; Other countries recognise and assist. Needs cooperation between courts.
Section 235 IBC (letter of request): RP / liquidator / bankruptcy trustee → application to Adjudicating Authority → letter of request to foreign court or authority; Only where assets are in a country with which reciprocal arrangements exist under section 234, and evidence or action on those assets is required.
Section 3(23) IBC: "person" includes a person resident outside India; Foreign persons, including foreign creditors, fall within the definition of person.
Section 234(1): Central Government may enter into an agreement with the Government of any country outside India for enforcing the Code; Enabling power. It is the Central Government that acts, not the NCLT or the IP.
Section 234(2): Notification in Official Gazette → Code's application to assets of corporate debtor or debtor (including personal guarantor of a corporate debtor) in a reciprocating country is subject to specified conditions; Applies only to a country with which reciprocal arrangements have been made.
Section 235(1) – who applies: Resolution professional, liquidator or bankruptcy trustee → application to Adjudicating Authority; Applies during CIRP, liquidation or bankruptcy. The IP must hold the opinion that assets are in a reciprocating country.
Section 235(2) – what the Adjudicating Authority does: Satisfied that evidence or action on the assets is required → may issue a letter of request to a competent court or authority of that country; Two tests: the application, and the Adjudicating Authority's satisfaction. The power is discretionary.
Section 18(f)(i) and Explanation: IRP takes control and custody of assets the debtor owns, including those in a foreign country; assets of subsidiaries and third-party trust or bailment assets are excluded; Use it to show the IRP's duty to reach foreign assets, with its limits.
Foreign main proceeding: Foreign main proceeding = foreign proceeding in the country of the debtor's COMI; Registered office is presumed to be the COMI unless there is proof to the contrary.
Foreign non-main proceeding: Foreign non-main proceeding = foreign proceeding in a country where the debtor has an establishment, but not its COMI; Establishment means a place of non-transitory economic activity using human means and goods or services.
Recognition and effect: Recognition of main proceeding → stay and suspension of transfer powers (subject to local law); non-main → relief is discretionary; Relief for either type may be refused only on grounds such as manifest public policy conflict.
Public policy exception: Court may refuse an action only if it is manifestly contrary to the public policy of the enacting State; The word manifestly narrows the exception. It is not a general power to refuse.
Four pillars of the Model Law: Access + Recognition + Cooperation + Coordination of concurrent proceedings; Use as a skeleton for any descriptive answer on features.
Core recommendation: UNCITRAL Model Law, 1997 (with modifications) → new Part Z in the IBC; The ILC chose adoption of the Model Law over relying only on sections 234 and 235.
Four pillars of the Model Law: Access + Recognition + Relief + Cooperation and coordination; Use these as headings when you describe the draft Part Z.
Main proceeding: Foreign proceeding in the State of the debtor's COMI; Registered office is presumed to be the COMI in the absence of proof to the contrary.
Non-main proceeding: Foreign proceeding in a State where the debtor has only an establishment; Gets recognition, but the relief available differs from that for a main proceeding.
Scope in the ILC proposal: Corporate debtors (including corporate guarantors) first; others later; Do not say the draft covers individuals or corporate groups at the start.
Safeguard: Public policy exception; An Indian forum may decline an action that is manifestly contrary to India's public policy.
Functions of an IP (Section 208(1)): IP takes necessary actions in: fresh start; individual insolvency resolution; CIRP; pre-packaged insolvency resolution process; individual bankruptcy; liquidation of a corporate debtor; Applies where the relevant process has been initiated. Section 208(1A) covers pre-initiation duties of the proposed resolution professional in a pre-pack.
Code of conduct (Section 208(2)): (a) reasonable care and diligence; (b) comply with IPA bye-laws; (c) allow IPA to inspect records; (d) submit copy of records of every proceeding before the Adjudicating Authority to the Board and the IPA; (e) perform functions as specified; Five duties. Clause (d) is often missed: records go to both the Board and the IPA.
Principles for registering an IPA (Section 200): Promote: (a) professional development and regulation of IPs; (b) competent IP services for debtors, creditors and others; (c) good professional and ethical conduct; (d) protect interests of debtors, creditors and others; (e) growth of IPAs for effective resolution; The Board must have regard to these five principles when registering IPAs.
Governing board of an IPA (Section 203): Board may make regulations on: (a) setting up the governing board; (b) minimum number of independent members; (c) number of IP members on it; The Board sets the structure by regulations. Do not quote fixed numbers.
Functions of an IPA (Section 204): Grant membership; lay down conduct standards; monitor members; safeguard members' interests; suspend or cancel membership per bye-laws; redress grievances against members; publish information; Seven functions in clauses (a) to (g).
Registration of IPA (Sections 199 and 201): No IPA without a Board certificate; application acknowledged within 7 days; rejection order only after hearing, communicated within 15 days; Board may suspend or cancel for false statement, non-compliance with regulations or bye-laws, or contravention of the Code, after a reasonable hearing and only by whole-time members.
Section 235(1) trigger: RP / liquidator / bankruptcy trustee believes assets are in a country with a Section 234 reciprocal arrangement → applies to the Adjudicating Authority; The applicant must show evidence or action relating to those assets is required in the process or proceeding.
Section 235(2) order: Adjudicating Authority satisfied → may issue a letter of request to a court or authority of that country; The word is 'may'. It is not compulsory. The request goes to a court or authority competent to deal with it.
Who can apply under Section 235: Resolution professional (CIRP), liquidator (liquidation) or bankruptcy trustee (bankruptcy); The assets can be those of a corporate debtor or debtor, including a personal guarantor of a corporate debtor.
Section 234 link: Section 235 works only for countries with reciprocal arrangements under Section 234; No arrangement with the country means Section 235 cannot be used.
Model Law concepts: Foreign main proceeding = centre of main interests; foreign non-main proceeding = establishment; These are UNCITRAL Model Law ideas, not part of the Code.
Protocol: Protocol = agreed, court-approved working plan between proceedings in different countries; A practical coordination tool. It does not replace the law of either country.

Quick revision

Cross border insolvency arises when a debtor has assets or creditors in more than one country.
Section 234(1): the Central Government may enter into an agreement with a foreign government to enforce the Code.
Section 234(2): by notification, the Central Government may make application of the Code to assets abroad subject to specified conditions, for countries with reciprocal arrangements.
Section 235 applies during the insolvency resolution process, liquidation or bankruptcy proceedings.
Under Section 235(1), the resolution professional, liquidator or bankruptcy trustee applies to the Adjudicating Authority.
The application says that evidence or action relating to assets abroad is required.
The foreign country must be one with which reciprocal arrangements have been made under Section 234.
Under Section 235(2), the Adjudicating Authority, if satisfied, may issue a letter of request to a court or authority of that country.
The letter of request goes to a court or authority competent to deal with it. The Adjudicating Authority decides, not the professional.
The UNCITRAL Model Law is a model for countries to adopt. It is not binding until a country enacts it.
The Model Law themes are access, recognition, relief and cooperation.
India's proposed framework is based on the Model Law. Treat it as a proposal, not as law in force.

Common mistakes

Saying section 235 lets an Indian resolution professional directly seize foreign assets. Fix: State that he can only apply to the Adjudicating Authority, which may issue a letter of request to a foreign court or authority.
Ignoring the condition of reciprocal arrangements. Fix: Always say the country must be one with which reciprocal arrangements have been made under section 234.
Saying the resolution professional directly sends a letter of request to the foreign court. Fix: The IP applies to the Adjudicating Authority. Only the Adjudicating Authority issues the letter.
Ignoring the requirement of reciprocal arrangements. Fix: Always state that section 235 works only for a country with which reciprocal arrangements have been made under section 234.
Calling the Model Law a treaty or a binding international law. Fix: Write that it is a model text that becomes law only when a country enacts it.
Saying the Model Law creates a single worldwide insolvency proceeding or decides creditor priorities. Fix: State that it is procedural. It deals with access, recognition, relief and cooperation, and leaves substantive law to each country.
Saying the Model Law was adopted as it is, with no changes. Fix: Write that the ILC recommended adoption with suitable modifications, such as the choice of forum and the initial scope.
Saying Part Z applies to all debtors, including individuals and corporate groups, from the start. Fix: State that the ILC proposed corporate debtors first (including corporate guarantors) and left other categories and group insolvency for later.
Claiming that Section 208 has special duties for cross border cases. Fix: Say that the Section 208 functions and code of conduct apply equally, whatever foreign elements exist.
Saying records go only to the IPA. Fix: Section 208(2)(d) requires a copy of records of every proceeding before the Adjudicating Authority to go to both the Board and the IPA.

Exam tips

Write the definition first, then the two approaches, then the Indian provisions. This gives a clean structure.
Quote section 235 conditions exactly: reciprocal arrangement, opinion of the professional, application to the Adjudicating Authority, letter of request.
In case questions, name the countries and say which approach is at work before concluding.
Do not claim India has a full cross border regime in the IBC. Say it has limited provisions and that a fuller framework is proposed.
Use short bullet comparisons for territorial vs universal to save time.
Write the section numbers 234 and 235 with their one-line function. It shows precision.
In case questions, name the applicant, the authority and the foreign court in sequence. The chain is the answer.
Always state the reciprocal arrangement condition and the Adjudicating Authority's satisfaction. Examiners reward these two conditions.