Cross border insolvency inevitably boils down to a scramble for assets, leaving creditors confused about the options available to them. We were delighted to have been invited by the National Law School in Bangalore to speak on the subject over the weekend
5. Potential Scenarios
Indian Parent | Foreign Subsidiaries
5
INDIAN
PARENT
Indian
Subsidiary
Foreign
Subsidiary
Foreign
Subsidiary
Foreign
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
6. Potential Scenarios
Foreign Parent | Indian Subsidiaries
6
FOREIGN
PARENT
Indian
Subsidiary
Indian
Subsidiary
Foreign
Subsidiary
Indian
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
7. Insolvency Events
Indian Parent | Foreign Subsidiaries
7
INDIAN
PARENT
Indian
Subsidiary
Foreign
Subsidiary
Foreign
Subsidiary
Foreign
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
Insolvency
8. Insolvency Events
Indian Parent | Foreign Subsidiaries
8
INDIAN
PARENT
Indian
Subsidiary
Foreign
Subsidiary
Foreign
Subsidiary
Foreign
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
Insolvency
9. Insolvency Events
Indian Parent | Foreign Subsidiaries
9
INDIAN
PARENT
Indian
Subsidiary
Foreign
Subsidiary
Foreign
Subsidiary
Foreign
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
Insolvency
10. Insolvency Events
Indian Parent | Foreign Subsidiaries
10
INDIAN
PARENT
Indian
Subsidiary
Foreign
Subsidiary
Foreign
Subsidiary
Foreign
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
Insolvency
11. Insolvency Events
Indian Parent | Foreign Subsidiaries
11
INDIAN
PARENT
Indian
Subsidiary
Foreign
Subsidiary
Foreign
Subsidiary
Foreign
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
Insolvency
12. Insolvency Events
Indian Parent | Foreign Subsidiaries
12
INDIAN
PARENT
Indian
Subsidiary
Foreign
Subsidiary
Foreign
Subsidiary
Foreign
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
Insolvency
13. Insolvency Events
Foreign Parent | Indian Subsidiaries
13
FOREIGN
PARENT
Indian
Subsidiary
Indian
Subsidiary
Foreign
Subsidiary
Indian
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
Insolvency
14. Insolvency Events
Foreign Parent | Indian Subsidiaries
14
FOREIGN
PARENT
Indian
Subsidiary
Indian
Subsidiary
Foreign
Subsidiary
Indian
Group
Company
Joint
Venture
Partner
Assets Assets Assets
Assets
Assets
Creditors Creditors Creditors
Creditors
Creditors
Assets
Insolvency
Insolvency
Insolvency
Insolvency
Insolvency
15. Consequences
| The Problem
- How to protect creditor’s interests in assets located overseas?
- Insolvent entities dispose or otherwise transfer assets to third parties?
- Multiple proceedings in different jurisdictions – The UNCITRAL Model Law
- Center of Main Interests (COMI)?
- Cross guarantees and the materialization of contingent liabilities bring down the Group?
| What types of scenarios are we talking about?
- Indian creditors seek control over an Indian debtor’s foreign assets – Section 234 of the
Insolvency & Bankruptcy Code?
- Foreign creditors to an Indian debtor seeks to attach the Indian debtor’s foreign assets
- Parent company insolvency impacting group companies and cross default
- Group company insolvency, triggering parent company guarantees and cross guarantees
15
16. Consequences
| What types of assets are we talking about?
- Property located overseas
- Money in foreign bank accounts
- Shares in foreign subsidiaries or other foreign companies
| Logical position?
- Foreign proceedings freezing or attaching assets located in a foreign jurisdiction generally
aren’t recognised in that foreign jurisdiction (except within the EU)
- Foreign adminstrators should be able to exercise voting rights in foreign subsidiaries?
- Disposals subject to existing creditors’ rights in relation to that foreign subsidiary’s assets
16
17. Consequences
| The UK
- Section 426 of the Insolvency Act
The UK courts must assist insolvency courts of relevant countries that ask for
assistance
India, does not fall within the definition of a relevant country
- UK Cross Border Insolvency Regulations 2006
Confers rights to foreign representative to apply to a British court for recognition of a
foreign proceeding in which it has been appointed
Confers direct access to the British courts, commencing UK insolvency proceedings
Participate in any debtor’s British insolvency proceedings
17
18. Consequences
| The UK
- UK Cross Border Insolvency Regulations 2006
If the foreign proceeding is a foreign main proceeding, then the foreign representative
gets the benefit of a liquidation type injunction
The English courts have discretion to grant a more extensive stay, call for information
relating to the debtor’s assets and even, challenge fraudulent and prefential
transactions
A foreign proceeding is a collective judicial or administrative proceeding in a foreign
state pursuant to a law which relates to insolvency, in which proceeding the assets
and the affairs of the debtor are subject to control of supervision by a foreign court for
the purpose of reorganisation or liquidation
An insolvency process under the Indian Insolvency & Bankruptcy Code, is
carried out by an insolvency professional, and therefore, will it qualify as a
foreign representative?
18
19. Consequences
| The UK
- UK Cross Border Insolvency Regulations 2006
A foreign representative is a person or body authorised in a foreign proceeding to
administer the reorganisation or the liquidation of a debtor’s assets or affairs
Does a foreign representative need to be formally appointed by a court order, in order
to qualify?
Will an English court look at the collective nature of the role of the Indian insolvency
professional, acting in the interests of all classes of creditor in general?
Stanford International Bank (2011)
- The English High Court considered the question as to whether a US receiver
appointed by a court constituted a foreign proceeding?
- The court considered determined that the appointment did not demonstrate a
collective proceeding
19
20. Consequences
| The UK
- UK Cross Border Insolvency Regulations 2006
Stanford Intenational Bank (2011)
- The role of the receiver was purely to prevent the dissipation of assets, and not
provide for their liquidation
- The receiver was appointed by investors, and not the creditors as a whole
- The receiver did not have the power to distribute assets, and needed a further
court order to do that
- The receiver was not appointed under any insolvency law
20
21. Consequences
| The UK
- The Common Law
Is there sufficent connection between the foreign court and the debtor (incorporated in
the country in which the receiver is apppointed)?
Recognition is not contrary to public policy
There is no fraud or unfairness in relation to the appointment of the receiver
If the foreign representative is seeking civil remedies to recover proceeds of a fraud in
order to enhance the pool of assets to be distributed to creditors, then likely to
recognize the foreign representative
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