Businesses often have assets, debts, and operations in more than one country because of the globalised economy we live in now. Resolving the insolvency of such multinational corporations is a difficult legal problem when they are in financial trouble. The term for this is "cross-border insolvency." There are legal proceedings going on about a bankrupt debtor whose assets or creditors are spread out across more than one country. In order to ensure fair treatment of creditors, minimise asset loss, and maintain business value, effective management of such insolvency cases is crucial.
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What is Cross Border Insolvency?
Cross-border insolvency refers to a situation where an insolvent debtor has financial interests or obligations in more than one jurisdiction. This typically arises when
A company is incorporated in one country but operates or owns assets in another.
Creditors are located in different jurisdictions.
Legal claims or court proceedings span multiple legal systems.
This type of insolvency introduces unique complications. For instance, the laws governing bankruptcy differ between countries, leading to conflict over which jurisdiction’s rules should apply and how assets should be distributed.
Legal Challenges in Cross-Border Insolvency
Several issues arise in cross border insolvency proceedings
Jurisdiction Conflicts: Determining which country’s courts have the authority to manage the case is often contested.
Recognition of Foreign Proceedings: Courts in one country may not automatically recognize or enforce judgments from another, complicating asset recovery and creditor claims.
Coordination Among Courts: There is often little or no formal cooperation between judicial systems, leading to inconsistent or duplicative rulings.
Unequal Treatment of Creditors: Creditors located in different countries may be treated differently depending on the local laws, which contradicts the principle of fair and equal treatment.
UNCITRAL Model Law
The UN Commission on International Trade Law (UNCITRAL) made the Model Law on Cross-Border Insolvency in 1997 to deal with these problems. To ensure uniform treatment of international insolvency cases, it serves as a framework for countries to incorporate into their own legal systems.
Key Features of the Model Law
Following are the key features of the UNCITRAL Model Law:
Access: Allows foreign insolvency representatives to participate in local proceedings.
Recognition: Provides a mechanism to recognize foreign insolvency proceedings (main or non-main).
Relief: Enables domestic courts to grant provisional and permanent relief to protect the debtor’s assets.
Cooperation: Encourages direct cooperation between courts and insolvency professionals across jurisdictions.
Coordination: Supports coordination between simultaneous proceedings in multiple countries.
Adoption Status
The Model Law has been adopted by more than 50 countries, such as the US, UK, Australia, and Singapore. Each country changes the Model Law to fit the way things work in their own country. Even though not everyone agrees with it, it is a big step towards harmonisation.
India and Cross-Border Insolvency
India, a major emerging economy, has not yet fully incorporated the UNCITRAL Model Law into its domestic framework, though there are proposals to do so.
Currently, cross border insolvency matters in India are handled under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly under Sections 234 and 235. These sections allow the Central Government to enter into bilateral agreements with other countries and empower Indian courts to seek cooperation from foreign courts. However, this mechanism is limited and lacks the comprehensive features of the Model Law.
Recent Developments
In 2018, the Insolvency Law Committee said that the UNCITRAL Model Law should be adopted with some changes. There are safeguards in the proposal to protect the public interest and national sovereignty of India. There are still changes being made to the law about this recommendation as of 2025 but putting it into action would make India much better at dealing with cross-border insolvency.
Case Study: Jet Airways
Insolvency proceedings were started in both India and the Netherlands in the Jet Airways case, which is a well-known example. Dutch administrators tried to get back assets that were in other countries, but at first, Indian courts did not recognise the Dutch case. The Indian National Company Law Tribunal (NCLT) later agreed to work with the Dutch court, which was a big deal. It set a standard for future cross-border cooperation even when there isn't formal law.
This case showed both the good and bad things about India's current approach to cross-border insolvency. It also made the point that the country needs to use a structured system like the Model Law.
Importance of a Unified Framework
A globally recognized and harmonized system for cross-border insolvency benefits all stakeholders:
Creditors: Ensures equitable treatment regardless of geography.
Debtors: Offers a predictable and coordinated restructuring or liquidation process.
Judicial Systems: Reduces duplication and legal conflict.
Global Economy: Increases investor confidence and promotes stable financial markets.
Summing Up
Cross border insolvency is an inevitable consequence of globalization. As businesses become increasingly interconnected across jurisdictions, resolving insolvency in a fragmented legal landscape poses risks to creditors, debtors, and economies at large.
The UNCITRAL Model Law offers a tested and widely supported solution. For countries like India, adopting such a framework will not only align their insolvency laws with international best practices but also enhance their attractiveness as investment destinations. As the world continues to shrink through trade and technology, cross-border cooperation in insolvency is no longer optional—it is essential.
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Cross-Border Insolvency: FAQs
Q1. What is cross border insolvency?
Cross border insolvency refers to situations where a financially distressed entity has assets, creditors, or operations in more than one country, requiring legal coordination across jurisdictions.
Q2. Why is cross border insolvency important?
It ensures that insolvency proceedings are fair and efficient across countries, preventing asset loss, legal conflicts, and unequal treatment of creditors.
Q3. What is the UNCITRAL Model Law?
The UNCITRAL Model Law on Cross Border Insolvency is an internationally recognized legal framework that promotes cooperation and coordination in multinational insolvency cases.
Q4. Has India adopted the UNCITRAL Model Law?
Not yet. While India's Insolvency and Bankruptcy Code includes limited provisions, a formal adoption of the Model Law is under consideration.
Q5. Can Indian courts cooperate with foreign insolvency proceedings?
Yes, but currently only through bilateral agreements or court directions, which limits flexibility and consistency in handling such cases.
