Foreign creditors may soon be in charge of Indian corporate asset failure
NEW DELHI : Foreign creditors’ representatives could be tasked with distributing the local assets of failed Indian companies in cases where an Indian court recognizes overseas bankruptcy proceedings under New Delhi’s proposed cross-border insolvency regime.
New rules to be defined in a proposed section of the Insolvency and Bankruptcy Code (IBC) would allow local courts to entrust representatives of foreign creditors with the distribution of these assets once they are satisfied that the interests of creditors in India are properly protected. This would be one of the advantages granted to foreign creditors under the cross-border insolvency regime, said a person familiar with the matter.
Foreign creditors would benefit from this right, whether the foreign proceeding is recognized as the main bankruptcy proceeding or as a ânon-mainâ proceeding. If the overseas lawsuit is recognized as the main proceeding, there would also be a moratorium on other debt collection actions in India by creditors.
The new section will also apply to Indian lenders requiring assistance in another country for their IBC proceedings against Indian companies and guarantors of companies with assets abroad. It would be a big blow to lenders who are battling promoters who transfer funds out of business by manipulating books. One of the main corporate governance challenges for regulators and lenders is the diversion of funds from a public utility to one closely owned by large shareholders.
Whenever a notice is due to be issued to the creditors of a defaulter, foreign creditors will also be kept informed. The government is holding a public consultation until December 15 before a bill amending the IBC is submitted to parliament.
The Indian Insolvency and Bankruptcy Board (IBBI), the regulator, would set regulations under the new regime for a lean, principled code of conduct for representatives of foreign creditors. It will also provide for investigations and disciplinary measures in cases of misconduct by foreign representatives.
The proposed new part of the IBC to address the failure of companies with assets and liabilities in multiple markets marks a major improvement in the reach of the IBC. This is a long-awaited requirement that will strengthen India’s insolvency resolution regime, experts said.
âAs part of the global economy and trade, it is only justifiable that we adopt the international framework widely used by more than 50 countries with the appropriate amendments. It is proposed to cover corporate borrowers and personal guarantors, which will aid in the search and recovery of global assets for Indian creditors, âsaid Ashish Chhawchharia, resolution professional and partner at Grant Thornton Bharat.
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