Cross Border Insolvency - Key Issues

1. Cross Border Insolvency Key Issues Ran Chakrabarti | 25 March 2018 11th NLSIR Symposium

3. The Sinking Ship 3 Insolvency Event Secured Creditors Unsecured Creditors Shareholders Employees

4. Group Compartmentalization 4 Cross Guarantees? Ring fenced Group Companies

5. Potential Scenarios Indian Parent | Foreign Subsidiaries 5 INDIAN PARENT Indian Subsidiary Foreign Subsidiary Foreign Subsidiary Foreign Group Company Joint Venture Partner Assets Assets Assets Assets Assets Creditors Creditors Creditors Creditors Creditors Assets

6. Potential Scenarios Foreign Parent | Indian Subsidiaries 6 FOREIGN PARENT Indian Subsidiary Indian Subsidiary Foreign Subsidiary Indian Group Company Joint Venture Partner Assets Assets Assets Assets Assets Creditors Creditors Creditors Creditors Creditors Assets

7. Insolvency Events Indian Parent | Foreign Subsidiaries 7 INDIAN PARENT Indian Subsidiary Foreign Subsidiary Foreign Subsidiary Foreign Group Company Joint Venture Partner Assets Assets Assets Assets Assets Creditors Creditors Creditors Creditors Creditors Assets Insolvency

13. Insolvency Events Foreign Parent | Indian Subsidiaries 13 FOREIGN PARENT Indian Subsidiary Indian Subsidiary Foreign Subsidiary Indian Group Company Joint Venture Partner Assets Assets Assets Assets Assets Creditors Creditors Creditors Creditors Creditors Assets Insolvency

14. Insolvency Events Foreign Parent | Indian Subsidiaries 14 FOREIGN PARENT Indian Subsidiary Indian Subsidiary Foreign Subsidiary Indian Group Company Joint Venture Partner Assets Assets Assets Assets Assets Creditors Creditors Creditors Creditors Creditors Assets Insolvency Insolvency Insolvency Insolvency Insolvency

15. Consequences | The Problem - How to protect creditor’s interests in assets located overseas? - Insolvent entities dispose or otherwise transfer assets to third parties? - Multiple proceedings in different jurisdictions – The UNCITRAL Model Law - Center of Main Interests (COMI)? - Cross guarantees and the materialization of contingent liabilities bring down the Group? | What types of scenarios are we talking about? - Indian creditors seek control over an Indian debtor’s foreign assets – Section 234 of the Insolvency & Bankruptcy Code? - Foreign creditors to an Indian debtor seeks to attach the Indian debtor’s foreign assets - Parent company insolvency impacting group companies and cross default - Group company insolvency, triggering parent company guarantees and cross guarantees 15

16. Consequences | What types of assets are we talking about? - Property located overseas - Money in foreign bank accounts - Shares in foreign subsidiaries or other foreign companies | Logical position? - Foreign proceedings freezing or attaching assets located in a foreign jurisdiction generally aren’t recognised in that foreign jurisdiction (except within the EU) - Foreign adminstrators should be able to exercise voting rights in foreign subsidiaries? - Disposals subject to existing creditors’ rights in relation to that foreign subsidiary’s assets 16

17. Consequences | The UK - Section 426 of the Insolvency Act  The UK courts must assist insolvency courts of relevant countries that ask for assistance  India, does not fall within the definition of a relevant country - UK Cross Border Insolvency Regulations 2006  Confers rights to foreign representative to apply to a British court for recognition of a foreign proceeding in which it has been appointed  Confers direct access to the British courts, commencing UK insolvency proceedings  Participate in any debtor’s British insolvency proceedings 17

18. Consequences | The UK - UK Cross Border Insolvency Regulations 2006  If the foreign proceeding is a foreign main proceeding, then the foreign representative gets the benefit of a liquidation type injunction  The English courts have discretion to grant a more extensive stay, call for information relating to the debtor’s assets and even, challenge fraudulent and prefential transactions  A foreign proceeding is a collective judicial or administrative proceeding in a foreign state pursuant to a law which relates to insolvency, in which proceeding the assets and the affairs of the debtor are subject to control of supervision by a foreign court for the purpose of reorganisation or liquidation  An insolvency process under the Indian Insolvency & Bankruptcy Code, is carried out by an insolvency professional, and therefore, will it qualify as a foreign representative? 18

19. Consequences | The UK - UK Cross Border Insolvency Regulations 2006  A foreign representative is a person or body authorised in a foreign proceeding to administer the reorganisation or the liquidation of a debtor’s assets or affairs  Does a foreign representative need to be formally appointed by a court order, in order to qualify?  Will an English court look at the collective nature of the role of the Indian insolvency professional, acting in the interests of all classes of creditor in general?  Stanford International Bank (2011) - The English High Court considered the question as to whether a US receiver appointed by a court constituted a foreign proceeding? - The court considered determined that the appointment did not demonstrate a collective proceeding 19

20. Consequences | The UK - UK Cross Border Insolvency Regulations 2006  Stanford Intenational Bank (2011) - The role of the receiver was purely to prevent the dissipation of assets, and not provide for their liquidation - The receiver was appointed by investors, and not the creditors as a whole - The receiver did not have the power to distribute assets, and needed a further court order to do that - The receiver was not appointed under any insolvency law 20

21. Consequences | The UK - The Common Law  Is there sufficent connection between the foreign court and the debtor (incorporated in the country in which the receiver is apppointed)?  Recognition is not contrary to public policy  There is no fraud or unfairness in relation to the appointment of the receiver  If the foreign representative is seeking civil remedies to recover proceeds of a fraud in order to enhance the pool of assets to be distributed to creditors, then likely to recognize the foreign representative 21

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