[By Philip John]
The author is a student of the National University of Advanced Legal Studies, Kochi
Introduction
The evaluation of the Insolvency and Bankruptcy Code (IBC) in India necessitates an insightful comparative analysis with insolvency laws in international jurisdictions. This article places a magnifying glass on the United Kingdom’s (UK) Insolvency Act of 1986, a legislation in the realm of insolvency, and juxtaposes it with India’s own Insolvency and Bankruptcy Code 2016. Moreover, the context is enriched through references to the Recast Insolvency Regulation and the Cross Border Insolvency Regulations of 2006.
Historical Shift and Comparative Approach
The historical evolution of insolvency laws in the UK has manifested a leaning towards safeguarding debt holders’ interests at the expense of debtors. However, the transformative Cork Report marked a pivotal juncture by catalysing an increased recognition of the imperative of corporate rescue and the survival of companies as growing concerns. This paradigm shift underscores the pivotal significance of rescuing distressed entities to preserve competitiveness and ultimately benefit creditors, employees, and business owners. This paradigm shift is encapsulated in the enactment of the Insolvency Act of 1986, which concretized provisions for rescuing and rejuvenating viable segments of companies undergoing financial turmoil.
Influence of EU Membership and Brexit
The regulatory framework of the UK was profoundly influenced by its membership in the European Union (EU). This phase saw the ascendancy of the Recast Insolvency Regulation, which assumed a commanding role post-June 26 2017, governing insolvency proceedings initiated during this period. This regulation superseded the Insolvency Regulation Act and exemplified the influence of EU membership. However, the formal departure of the UK from the EU necessitated a recalibration, contingent on potential future agreements.
Post-Brexit, the Insolvency (Amendment) (EU Exit) Regulations of 2019 upheld the applicability of the Recast Insolvency Regulation for insolvencies where primary proceedings were instigated prior to December 31 2020, thus ensuring continuity within the EU. Regulation 1346/2000, a landmark introduction, facilitated streamlined cross-border insolvency processes within the EU framework. It delineated three categories: main proceedings, secondary proceedings, and territorial insolvency proceedings. Substantial reformulation of this framework was witnessed through the Recast Insolvency Regulation, embellishing its efficacy and scope.
Evolution and Enhanced Dynamics: Recast Bankruptcy Regulation
The contours of insolvency proceedings were further refined through the introduction of the Recast Bankruptcy Regulation, activated from June 26, 2017, with applicability to new insolvency cases. Retaining the tripartite structure of the Recast Insolvency Regulation, this new iteration integrated substantial amendments. The crux of this evolution was the elevation of the “centre of main interests” (emphasis supplied) as the locus of consistent administration of a debtor’s interests, discernible to external stakeholders. It’s notable that the presumption of the registered office as the centre of interests could be rebutted by compelling evidence.
Cross Border Insolvency Regulations
The aftermath of Brexit ushered in the Cross Border Insolvency Regulations of 2006, designed to recognize foreign insolvency proceedings post-Brexit, regardless of their occurrence within or outside the EU. These regulations encompass foreign proceedings as collective judicial or administrative processes in foreign states, emphasising reorganisation or liquidation. The crux of determining foreign main proceedings hinges on their location within the territorial ambit where the debtor’s primary interests are established. Correspondingly, foreign non-main proceedings occur in the state where the debtor’s core interests find residence.
Comparative Insights and Potential Assimilation
The potential refinements identified below have the capacity to bolster the effectiveness, efficiency, and accessibility of the IBC, ultimately contributing to a more robust and equitable insolvency regime.
I. Bridging Jurisdictional Insights
In elucidating the juxtaposition of the United Kingdom’s insolvency law with the Indian Insolvency and Bankruptcy Code (IBC), this discourse discerns salient provisions that could potentially enrich the latter. A particular focus is directed toward the UK’s diligent approach in disseminating information regarding the existence of a moratorium, accompanied by a comprehensive explication of its ramifications for creditors. This accentuation of transparency and awareness highlights a distinct avenue where the IBC could potentially refine its operational framework.
Furthermore, the United Kingdom’s intricate and refined mechanisms governing voluntary arrangements and winding-up proceedings furnish proactive strategies for addressing instances of financial distress. The integration of these strategies into the IBC could serve as a formidable deterrent against the accumulation of unsustainable debt burdens.
Aligned with the United Kingdom’s legal framework, the proposition of permitting operational creditors to collectively initiate the Corporate Insolvency Resolution Process (CIRP) is proffered as a means to alleviate the administrative complexities currently associated with the IBC. This suggested modification holds the potential to expedite the insolvency resolution process and render it more efficient.
Additionally, the United Kingdom’s practice of allowing creditors to institute CIRP proceedings on the grounds of uncontested non-payment of debts is evaluated. This practice, if incorporated into the IBC, has the potential to uphold the principle of equitable access to insolvency proceedings, thereby fostering a more inclusive and accessible legal framework for resolving insolvency matters.
II. The UK’s Specialized Court System, A Model for Efficiency
The Indian insolvency and bankruptcy landscape is marred by prolonged litigation due to inadequate judicial infrastructure and delayed appointments of Adjudicating Authority (AA) members. The UK’s approach to insolvency cases through specialised courts offers a blueprint for India. Judges with a profound understanding of insolvency law streamline intricate cases. Complex cases are directed to designated courts that possess in-depth insolvency knowledge, expediting resolutions. Referring cases from lower to higher courts when necessary ensures expertise alignment. The High Court intervenes in complex or high-value cases, showcasing the UK’s commitment to streamlined insolvency adjudication.
NCLT and NCLAT, being generalist forums, adjudicate diverse corporate law issues encompassing insolvency matters. This broad jurisdiction may result in procedural delays and inefficacies, given that adjudicators may lack the specialized expertise requisite for addressing intricate insolvency cases. Meanwhile, the UK’s High Court employs specialised lists for bankruptcy cases, presided over by Insolvency and Companies Court (ICC) judges. These judges possess extensive insolvency law knowledge, technical expertise, and commercial understanding. This focus enhances the efficiency and accuracy of insolvency resolutions, utilising a specialised pool of judges. India can enhance its insolvency landscape by adopting the UK’s specialised court model. Establishing dedicated benches and appointing judges with comprehensive insolvency law knowledge can overcome delays and complexities. Such an approach will accelerate resolutions, boosting investor confidence and economic growth.
III. Asset Seizure, Contextual Considerations, and Global Integration
The discourse of asset seizure in insolvency proceedings surfaces analogously in both jurisdictions. The UK’s provision for trustees to seize exempt property, considering cost-effectiveness, necessitates mindful adaptation to the Indian context, given unique nuances in personal insolvency. Similar to the frameworks in Canada and the US, the UK’s comprehensive cross-border insolvency structure underscores the imperative for India to devise a commensurate framework within the IBC. Equitable voting rights for creditors, mirroring the UK’s framework, could inject fairness and inclusivity into the IBC’s insolvency processes.
Culmination and Forward Trajectory
The infusion of best practices distilled from foreign insolvency laws, particularly from the UK’s jurisprudence, could amplify the IBC’s effectiveness. As India’s economic expansion continues, coupled with heightened global integration, this assimilation of international legal benchmarks into the IBC can not only heighten its operational efficacy but also instil confidence in its capacity to adeptly navigate complex insolvency scenarios. Drawing inspiration from the UK’s experiences, India can chart a course toward a refined and comprehensive insolvency framework, bolstering its footing in the global arena.