Expertspeak: 'Turbulence in the insolvency process of Jet Airways'

-By Satvik Varma



The insolvency proceedings against Jet airways in India and the Netherlands they highlight the gaps in the Bankruptcy and Bankruptcy Code (IBC) of 2016 to address cross-border insolvencies.



Cross-border insolvency involves handling debtors in difficulties who have assets and/or creditors in several countries and are subject to insolvency proceedings in multiple jurisdictions. If these companies falter, and insolvency proceedings are initiated, it is imperative that these variously located assets be protected and that the claims of the creditors of the different jurisdictions be collected and resolved.

In the Netherlands, an administrator was appointed by a Dutch court to take charge of the assets of Jet airways which confiscated a Boeing 777, which the administrator had undertaken before the National Company Law Tribunal not to dispose of.

Due to the lack of cooperation of the Indian resolution professional and the Creditors Committee, the administrator attempted to withdraw his commitment and proceed independently of the Indian procedures. One reason for this withdrawal was the payment of fees to the Dutch administrator by the Indian RP. The administrator has now filed an appeal with the National Court of Corporate Law Appeals.

At a time when India is a preferred destination for foreign investment, it is surprising that the IBC, promulgated only a few years ago, chose to fail the United Nations Commission on International Commercial Law, Model Law on Cross-Border Insolvency (Model Law) that many jurisdictions such as the United States, the United Kingdom, Singapore and Japan adopted in their national laws.

The IBC has only two provisions, Section 234, which refers to agreements with foreign countries, and Section 235, concerning the letter of application to a country outside India, which provides for cases of cross-border insolvency. In November 2017, an Insolvency Law Committee was appointed to suggest amendments to the IBC, which submitted its reports in 2018 and opined that the existing provisions in the Code do not provide a comprehensive framework for cross-border insolvency matters.

The committee attempted a comprehensive framework based on the Model Law and contemplated inserting a separate chapter in the IBC. The committee also noted that the cross-border insolvency network needed immediate attention and suggested that the IBC harmonize with the Model Law.

The committee identified four principles on which the Model Law is based that must be incorporated into our national framework, that is (i) Access, to allow foreign insolvency professionals and foreign creditors to have direct access to national courts and allow them Participate and start in the country. insolvency proceedings; (ii) Recognition of foreign procedures and provision of resources by national courts based on such recognition.

Further, granting relief on the basis of whether the foreign proceeding is a main or a non-main proceeding on the basis of the concept of ‘centre of main interests’; (iii) Cooperation, between domestic and foreign courts, and; (iv) Coordination, when multiple proceedings have been initiated in several jurisdictions. These would have allowed a greater degree of streamlining and efficacy in complex cross-border insolvencies like in the case of Jet airways .

Unfortunately, nothing came out of these reports. Independently, the Supreme Court ruled in 2017 that foreign creditors will remain on an equal footing with national creditors to initiate the corporate resolution insolvency process.

The IBC establishes a moratorium that operates after the admission of corporate insolvency and restricts new cases or the continuation of existing lawsuits against the debtor. It also prohibits taxing or transferring the debtor's assets. However, the moratorium operates only in India and is only applicable to the debtor's assets in India. Indian creditors do not have access to the debtor's foreign assets. Because of this, the NCLAT noted at its last hearing that the CoC can only advise the PR on claims at sea and otherwise has no role to play.

The appeal before NCLAT by the Dutch administrator highlights how immediate attention is required to decide on the priority of claims of foreign creditors and foreign insolvency proceedings. This harmonisation will have to be done in a manner that it protects alienation of assets belonging to the domestic entity, located in a foreign jurisdiction, to the detriment of domestic creditors, whilst also balancing the claims of foreign creditors and administrators. Jet airways may be a test case, but many others could follow. After all, it’s only fair that if one is eating in a group with others, the bill is split by going Dutch!

(The writer is a litigation lawyer and corporate lawyer based in Delhi. Graduated from Harvard Law School, he is licensed to practice both in India and New York)

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