Corporate Restructuring, Valuation and Insolvency · Cross Border Insolvency

Introduction to Cross Border Insolvency: Meaning and Approaches

Updated 11 October 2026 · Fact-checked

Cross border insolvency arises when a debtor has assets, creditors or operations in more than one country. The key question is which court controls the process and which law applies. Two approaches exist: territorial (each country handles its own assets) and universal (one main proceeding covers all assets). Answer by stating the facts, the approach and its problems.

Understand Introduction to Cross Border Insolvency

Cross border insolvency means an insolvency where the debtor's assets, creditors, or business operations are spread over more than one country. An Indian company may own a plant in Vietnam, borrow from a bank in Singapore, and sell to buyers in Germany. If it fails, several countries may have a claim to deal with it.

It arises because business is global. Without common rules, each country's court applies its own law. Creditors race to seize assets. Claims may be decided differently in different countries. The debtor's assets may be sold off piecemeal, which reduces value for everyone.

There are two classic approaches. Under the territorial approach, each country deals only with the debtor's assets located within its borders, under its own law. Foreign proceedings are not recognised. It is simple and protects local creditors, but it leads to multiple proceedings, higher cost, conflicting orders and unequal treatment of creditors.

Under the universal approach, one main proceeding, usually in the country of the debtor's centre of main interests, deals with all assets worldwide. Other countries recognise and assist it. It gives equal treatment, saves cost and helps keep the business as a going concern. The difficulty is that it needs trust and cooperation between courts, and countries are reluctant to give up control over local assets. A middle path, often called modified universalism, accepts one main proceeding while allowing cooperation and some local protection.

India's IBC, 2016 has only two provisions on this: section 234 (agreements with foreign countries) and section 235 (letter of request). Section 235 applies when a resolution professional, liquidator or bankruptcy trustee believes the debtor's assets are in a country with which reciprocal arrangements have been made under section 234. He may apply to the Adjudicating Authority, which may issue a letter of request to a court or authority of that country. This is limited, which is why a fuller framework is discussed for India.

Key rules to remember

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.

How to solve Introduction to Cross Border Insolvency questions

Use this order for any written question on cross border insolvency.

1Identify the cross border element: where the debtor's assets, creditors and business are located.
2Define cross border insolvency in one or two lines.
3State the problem: conflicting laws, multiple proceedings, asset grab by creditors, loss of value.
4Explain the territorial approach and its drawbacks, then the universal approach and its drawbacks.
5Mention modified universalism as the practical middle path where relevant.
6Apply the Indian position: sections 234 and 235 of the IBC and their limits.
7Conclude with the need for a fuller framework, linked to the facts given.

Quickest way: Define, compare, apply

When to use it: Use when time is short and the question asks for meaning, approaches or need for a framework.

Write the definition in one sentence.
Draw two columns in your answer: territorial and universal, each with meaning, merit and demerit.
Add one line on India: section 235 letter of request, only with reciprocal arrangement countries.
Close with one line on why a framework is needed: equal treatment, value maximisation, cooperation.

Common mistakes in Introduction to Cross Border Insolvency

Saying section 235 lets an Indian resolution professional directly seize foreign assets.
Students read it as a general cross border power.
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.
The condition is easy to skip when memorising.
Fix: Always say the country must be one with which reciprocal arrangements have been made under section 234.
Mixing up territorial and universal approaches.
The names are similar in sound and students memorise without logic.
Fix: Link territorial to territory: assets inside the border only. Universal means one process for all assets worldwide.
Presenting universalism as having no drawbacks.
Students treat it as the ideal model.
Fix: Mention lack of trust, sovereignty concerns and the need for court cooperation.
Writing only theory with no application to the facts.
The paper is case-based but students write notes.
Fix: Name the countries in the facts, say which approach applies and reach a conclusion.

Worked examples

Example 1

Sundaram Textiles Ltd, an Indian company, owns a factory in Sri Lanka and has lenders in Dubai. It defaults and a CIRP starts in India. Explain the problem that arises and the Indian provision available.

Show the solution

The company has assets and creditors in more than one country, so this is a cross border insolvency situation.
Under a territorial approach, Sri Lanka could deal with the factory under its own law and ignore the Indian process. Dubai lenders could pursue separate action.
This causes multiple proceedings, higher cost, possible conflicting orders and loss of value.
Under the IBC, section 235 helps if the resolution professional believes assets are in a country with which reciprocal arrangements exist under section 234.
He may apply to the Adjudicating Authority stating that evidence or action relating to those assets is required. The Adjudicating Authority, if satisfied, may issue a letter of request to the competent foreign court or authority.
If no reciprocal arrangement exists with that country, section 235 cannot be used.

Answer: The facts raise multiple-proceeding and coordination risks. The resolution professional can seek a letter of request through the Adjudicating Authority under section 235, but only if reciprocal arrangements exist under section 234 with the country concerned.

Example 2

Distinguish the territorial approach from the universal approach to cross border insolvency.

Show the solution

Define territorial: each country deals only with assets within its borders under its own law, and does not recognise foreign proceedings.
Define universal: a single main proceeding, usually where the debtor's centre of main interests lies, deals with all assets worldwide and other countries recognise it.
Territorial merits: simple, protects local creditors. Demerits: multiple proceedings, cost, conflict, unequal treatment.
Universal merits: equal treatment, lower cost, better chance of rescuing the business. Demerits: needs trust and cooperation, sovereignty concerns.
Note modified universalism as a compromise combining one main proceeding with cooperation and local safeguards.

Answer: Territorial treats each country's assets separately under local law. Universal runs one main proceeding for all assets worldwide with foreign recognition. Modified universalism is the practical middle path.

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.

Practice questions from Cross Border Insolvency

Introduction to Cross Border Insolvency in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Introduction to Cross Border Insolvency: frequently asked questions

What is cross border insolvency?

It is an insolvency where the debtor has assets, creditors or business in more than one country. It raises questions of which court and which law should apply. It needs coordination between countries.

What is the difference between territorial and universal approaches?

Under the territorial approach each country handles only the assets within its borders. Under the universal approach one main proceeding covers all assets worldwide and other countries recognise it.

Why does India need a cross border insolvency framework?

Indian companies increasingly hold assets and owe debts abroad, and foreign creditors lend to Indian debtors. The IBC has only limited provisions in sections 234 and 235. A fuller framework would support recognition, cooperation and better value for creditors.

What does section 235 of the IBC say?

It lets a resolution professional, liquidator or bankruptcy trustee apply to the Adjudicating Authority when assets are in a country with which reciprocal arrangements exist under section 234. The Adjudicating Authority may then issue a letter of request to a court or authority of that country.