Concurrent Proceedings

ResolutionBazaar

Administrator
Coordination of concurrent proceedings
  1. The Model Law permits multiple proceedings in various jurisdictions to take place simultaneously by enabling coordination and cooperation of such proceedings. It also provides the conditions for commencement of domestic proceedings after recognition of a foreign main proceeding and enables modification of relief to maintain consistency in multiple proceedings.
  2. Articles 28 and 29 of the Model Law permit initiation of domestic insolvency proceedings after recognition of a foreign main proceeding, as long as the debtor has assets in the enacting country. For example, if a foreign main proceeding taking place in another country in respect of a corporate debtor is recognized in India, an insolvency resolution process may also be commenced against such a corporate debtor in India, if it has assets in India. This threshold is lower than having an establishment and hence provides enacting country with a low threshold to maintain domestic insolvency proceedings.
  3. According to Article 28 of the Model Law, the effect of a domestic insolvency proceeding in such a scenario will be limited to the assets in the enacting country. However, in some cases it may affect assets of the debtor abroad, for example, an operating plant of the corporate debtor in a foreign jurisdiction may be affected on sale of the corporate debtor as a “going concern” in domestic insolvency proceedings.
  4. Article 29 of the Model Law provides the manner in which relief may be modified when a foreign proceeding and a local insolvency proceeding are taking place concurrently. This only relates to relief under Articles 19, 20 and 21 in the Model Law. However, UK and Singapore have also enabled review of ongoing proceedings under Article 23 (Actions to avoid acts detrimental to creditors). Other than this, Articles 28 and 29 have largely been reflected as it is in the cross-border insolvency laws of various jurisdictions. The Committee therefore concluded that Articles 28 and 29 of the Model Law may be reflected in the draft Part Z. Further, similar to UK and Singapore, review of proceedings under the corresponding clause to Article 23 may be adopted. However, references to interim relief may be deleted as such relief has not been adopted in the draft Part Z.
  5. Similarly, Article 30 of the Model Law provides modification of relief given under Article 19 or 21 for coordinating multiple foreign proceedings. Unlike Article 29 however, Article 30 gives preference to foreign main proceedings instead of local insolvency proceedings. It provides that any relief in relation to a foreign non-main proceeding, shall be consistent with the foreign main proceeding. The Committee deliberated that this provision may be reflected in the Part Z without any substantial deviations. However, references to interim relief may be deleted as such relief has not been adopted in the draft Part Z.
 

ResolutionBazaar

Administrator
Payment in concurrent proceedings
  1. As discussed above, the Model Law contemplates that multiple insolvency proceedings in separate jurisdictions may run concurrently. However, there may be instances where a creditor may have a common claim in more than one jurisdiction. In this scenario, such a creditor may receive payment from multiple insolvency proceedings in relation to the same claim. To counter the possibility of unjust enrichment of creditors due to concurrent insolvency proceedings, Article 32 of the Model Law provides the hotch pot rule.
  2. This means that if a creditor has received part payment for a claim in an insolvency proceeding, she may not receive a payment for the same claim in another insolvency proceeding in relation to the same debtor. The only exception to this rule is in case payment to other creditors of the same class is proportionately more than the payment the creditor has already received. This exception ensures that if a subsequent insolvency proceeding guarantees more
  3. in repayment, then a creditor is not denied such benefit because she has received a part of the repayment of lower value in a prior insolvency proceeding regarding the same debtor.
  4. The Committee discussed the significance of this provision and agreed that it may be adopted in the draft Part Z. However, two modifications may be made:
    1. In case of an insolvency resolution process under the Code, the payment to creditors will be in accordance with the resolution plan. Therefore, the threshold for comparison of payment to the creditor may be the payment according to the resolution plan to creditors of the same standing.
    2. In case of liquidation under the Code, the threshold for comparison may be creditors of the same class and ranking.
 

ResolutionBazaar

Administrator
Presumption of insolvency
  1. Article 31 of the Model Law provides that on recognition of a foreign main proceeding, the debtor shall be presumed to be insolvent for the purposes of commencement of a domestic insolvency proceeding. The intent of this provision is to enable a simple trigger for commencing insolvency proceedings in jurisdictions which have to establish a state of insolvency of the debtor to initiate insolvency proceedings. Since the test of insolvency is subjective and a criterion which may be time-consuming to satisfy, this provision is of special significance in jurisdictions which have such a test of insolvency. In India, the test for commencing CIRP does not involve satisfying the Adjudicating Authority that the corporate debtor is insolvent. Rather, the Code provides an objective criterion which allows initiation of a CIRP on default of INR 1 lakh.
  2. The Committee agreed that a presumption relating to a test of insolvency may not be of practical significance since the Code does not contemplate the satisfaction of a test of insolvency for the purposes of commencement of a proceeding. However, the Committee discussed that it may be beneficial for creditors if initiating insolvency resolution proceedings in India is made simpler when an insolvency proceeding in the corporate debtor’s COMI has been recognized in India. Therefore, Part Z may provide that, instead of test of insolvency, recognition of a foreign main proceeding may be presumed to be proof of default by the corporate debtor for the purposes of commencement of CIRP.
  3. The Committee also discussed that some jurisdictions have recognised foreign proceedings even though they do not strictly relate to insolvency, even though the definition of a “foreign proceeding” mentions the words “pursuant to a law relating to insolvency”. For example, in the case of Stanford International Bank Ltd. an English court concluded that the liquidation of an Antiguan company ordered by a court in Antigua on the basis that it was just and equitable to do so, fit within the definition of a “foreign proceeding”. Though the UNCITRAL Guide to Enactment warns that the Model Law is meant solely for proceedings related to insolvency, the English court here took into consideration that one of the ground for concluding that it was just and equitable to order liquidation was that the Antiguan company was unable to pay its debts. The Committee therefore recommended that a proviso may be added to the proposed clause, discussed in paragraph 19.2 above, to provide that for a default to be deemed to have occurred under Part II of the Code based on recognition of a foreign main proceeding, the foreign main proceeding recognised in India should be initiated based on an inability to pay debts or pursuant to a state of insolvency.
 

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