CS Professional · Insolvency and Bankruptcy - Law and Practice

Cross Border Insolvency (Elective 7.5): formula sheet

Full chapter guide

Key formulas

Meaning of cross border insolvency: Debtor + assets/creditors/operations in more than one country = cross border insolvency; Use this as your opening line in any answer.
Territorial approach: Each country controls only assets within its borders; separate local proceedings; Risk: multiple proceedings, unequal treatment of creditors, lower recoveries.
Universal approach: One main proceeding governs the debtor's assets worldwide; other countries recognise and assist; Risk: countries may not accept foreign control over local assets and local creditors.
Section 235(1) IBC: RP / liquidator / bankruptcy trustee believes assets of the corporate debtor or debtor (including a personal guarantor of a corporate debtor) are in a country with reciprocal arrangements under Section 234 → applies to Adjudicating Authority that evidence or action relating to such assets is required; The application is made to the Adjudicating Authority, not directly to the foreign court.
Section 235(2) IBC: Adjudicating Authority satisfied that evidence or action is required → may issue a letter of request to a court or authority of that country competent to deal with it; The word is 'may': issue is discretionary, and only after the Authority is satisfied.
Section 234(1): agreements: Central Government + Government of a foreign country → agreement for enforcing the Code; The power sits with the Central Government, not with the NCLT or the resolution professional.
Section 234(2): reciprocal arrangements: Notification in Official Gazette → application of the Code to assets abroad is subject to specified conditions; Covers assets of a corporate debtor or debtor, including a personal guarantor of a corporate debtor, in a country with reciprocal arrangements.
Section 235(1): who applies and why: RP / liquidator / bankruptcy trustee → application to Adjudicating Authority; Requires the applicant's opinion that assets are in a country with reciprocal arrangements under section 234, and that evidence or action about them is required.
Section 235(2): the letter of request: Adjudicating Authority satisfied → may issue letter of request to a competent foreign court or authority; Discretionary. The tribunal must be satisfied that evidence or action is required in the process or proceeding.
Section 18(f)(i): foreign assets of the debtor: IRP takes control and custody of assets owned by the corporate debtor, including those located in a foreign country; Assets of any Indian or foreign subsidiary are excluded by the Explanation.
Foreign main proceeding: Foreign main proceeding = foreign proceeding pending in the state where the debtor has its COMI; Registered office is presumed to be the COMI in the absence of proof to the contrary.
Foreign non-main proceeding: Foreign non-main proceeding = foreign proceeding (other than main) pending in a state where the debtor has an establishment; Establishment means a place of non-transitory economic activity with human means and goods or services.
Effect of recognition as main: Recognition as main → automatic stay on individual actions and execution, and suspension of the debtor's right to transfer or encumber assets; These are the Model Law's automatic effects; they are subject to the exceptions in the adopting state's law. Non-main recognition gives only discretionary relief.
Four themes: Access + Recognition + Cooperation + Coordination; Use this as the skeleton for any descriptive answer.
Nature: Model Law = template for national legislation, not a treaty; Each country adopts it with modifications.
Foreign main proceeding: Foreign main proceeding = proceeding in the State where the debtor's COMI is located; The registered office is presumed to be the COMI, in the absence of proof to the contrary.
Foreign non-main proceeding: Foreign non-main proceeding = proceeding in a State where the debtor has an establishment (not COMI); Relief is discretionary only. The relief must relate to assets that should be administered in that proceeding.
Effects of recognising a main proceeding: Recognition of main proceeding → stay of actions and execution + suspension of right to transfer assets; These effects are automatic. They are subject to the exceptions and limits of local law. Further relief is discretionary.
Order of steps: Access → Application → Recognition → Relief → Cooperation; Use this as a skeleton for any answer.
Indian provision today: IBC s.235: application by RP, liquidator or trustee → AA satisfied → letter of request to foreign court; It works only for countries with reciprocal arrangements under s.234. It is outbound and does not cover recognition of foreign proceedings in India.
Existing statutory provisions: Section 234 = agreements with foreign countries; Section 235 = letter of request to a country outside India; These are the only cross border provisions in the Code now. Part Z is a proposal.
Source of the proposal: Insolvency Law Committee (2018 report) → adopt UNCITRAL Model Law, 1997 → new Part Z in the IBC; Use this chain as the opening line of your answer.
Four pillars of the Model Law: Access + Recognition + Relief + Cooperation and coordination; Add the main and non-main proceeding distinction under recognition.
Scope recommended by the Committee: Phase 1: corporate debtors only; individuals and firms left out for now; Also mention exclusions of specially regulated entities and the public policy exception.
Section 234(1): Central Government may enter into an agreement with a foreign government for enforcing the Code; This is the base for reciprocal arrangements.
Section 234(2): Notification: Code applies to assets abroad in a reciprocal country, subject to specified conditions; Applies to assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor.
Section 235(1): RP / liquidator / bankruptcy trustee believes assets are in a country with Section 234 arrangements → applies to Adjudicating Authority; The application says evidence or action relating to such assets is required in the process or proceeding.
Section 235(2): Adjudicating Authority satisfied → may issue letter of request to competent foreign court or authority; The word is 'may'. It is discretionary, not automatic.
Concurrent proceedings: Same debtor or group + insolvency cases in 2 or more countries at the same time; Needs coordination to avoid conflict and unequal treatment of creditors.

Quick revision

Cross border insolvency arises when assets, creditors or proceedings are 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, application of the Code to assets abroad in a country with reciprocal arrangements is subject to specified conditions.
Section 235 needs a reciprocal arrangement under Section 234 with the country concerned.
Under Section 235, the resolution professional, liquidator or bankruptcy trustee applies to the Adjudicating Authority.
The application says evidence or action relating to assets abroad is required for the process or proceeding.
The Adjudicating Authority must be satisfied, and then may issue a letter of request to a competent foreign court or authority.
The words are 'may', so issuing the letter is discretionary, not automatic.
The Model Law is a template for countries to adopt, not a treaty that binds India automatically.
Model Law themes: access, recognition, relief and cooperation between courts and representatives.
Committee recommendations are proposals for a framework; do not describe them as enacted law.
Always write answers as provision, analysis of facts, conclusion.

Common mistakes

Saying the RP sends the letter of request directly to the foreign court. Fix: Write that the RP, liquidator or bankruptcy trustee applies to the Adjudicating Authority, which may then issue the letter.
Ignoring the reciprocal arrangement condition. Fix: Always state that the country must be one with which reciprocal arrangements have been made under Section 234.
Saying section 235 applies to any foreign country. Fix: Always write that the country must have reciprocal arrangements made under section 234.
Saying the Adjudicating Authority or the creditors enter the agreement with a foreign country. Fix: Section 234 power belongs to the Central Government. Section 235 is the tribunal's power on application.
Calling the Model Law a treaty or convention that India has signed. Fix: Write that it is a model law: states adopt it through their own legislation, with modifications.
Treating the registered office as always the COMI. Fix: Say the registered office is presumed to be the COMI unless the facts show otherwise.
Saying that India has adopted the Model Law and that foreign proceedings are recognised under the IBC. Fix: State that the IBC has only sections 234 and 235 and that the Model Law is the proposed approach.
Treating the registered office as the conclusive COMI. Fix: Say it is a presumption, and test it against the facts of where the debtor actually runs its business.
Writing that Part Z is already part of the IBC. Fix: Always call it a proposed or draft framework, and say it has not been enacted.
Confusing the Insolvency Law Committee with the Bankruptcy Law Reforms Committee. Fix: Link the 2018 cross border report and Part Z to the Insolvency Law Committee.

Exam tips

Open with a one-line definition, then the two core problems. Examiners reward structure.
For territorial versus universal, give one line of meaning and one line of drawback for each.
Whenever the facts mention foreign assets, cite Section 235 and Section 234 together and state the reciprocal condition.
Use the exact verbs: the RP 'applies', the Adjudicating Authority 'may issue' a letter of request.
In case-based questions, write provision, facts, analysis and conclusion in that order.
Quote the conditions exactly: reciprocal arrangements under section 234, evidence or action required, tribunal satisfied.
Name the three applicants and the three proceedings, as questions often test them.
In case-based answers, use the order provision, facts, conclusion, and say whether the country condition is met.