1. Introduction
Globalisation has fundamentally transformed the structure of commerce, enabling corporations to operate seamlessly across multiple jurisdictions. Multinational enterprises now hold assets, conduct operations, and maintain creditor relationships in different countries simultaneously. While this expansion enhances economic growth, it also creates legal complexities, particularly in situations of insolvency.
Insolvency with foreign elements commonly referred to as cross-border insolvency raises intricate legal questions concerning jurisdiction, recognition, enforcement, and most importantly, the determination of applicable law. When a company becomes insolvent, creditors from different countries compete for limited assets, and each jurisdiction may assert its own legal authority over the proceedings.
The central issue whose law should prevail is not merely technical but deeply rooted in principles of sovereignty, fairness, and economic efficiency. The absence of a uniform global insolvency regime often leads to inconsistent outcomes, duplication of proceedings, and erosion of asset value.
In modern legal discourse, the focus has shifted from rigid national approaches to cooperative international frameworks, particularly influenced by instruments like the United Nations Commission on International Trade Law Model Law. This blog provides a detailed exploration of the competing theories, legal principles, and evolving frameworks governing cross-border insolvency.
2. Meaning And Nature Of Cross-Border Insolvency
Cross-border insolvency arises when an insolvent debtor has legal or economic connections with more than one jurisdiction. These connections may take various forms, including:
- Assets located in multiple countries
- Creditors domiciled in different jurisdictions
- Subsidiaries or branches operating internationally
- Cross-border financing arrangements
Unlike domestic insolvency, cross-border insolvency involves the interaction of multiple legal systems, each with distinct rules governing:
- Priority of claims
- Secured versus unsecured creditors
- Insolvency procedures
- Distribution mechanisms
The complexity is further aggravated by the absence of a centralized global authority. Instead, insolvency is governed by national laws, which may conflict with each other.
For example, a company incorporated in India may have:
- Manufacturing units in Germany
- Bank loans from UK creditors
- Intellectual property registered in the US
In such a case, insolvency proceedings may be initiated in multiple jurisdictions simultaneously, creating legal fragmentation. This leads to inefficiencies such as:
- Duplication of legal costs
- Delay in asset realization
- Inconsistent treatment of creditors
Thus, cross-border insolvency is not merely a procedural issue but a substantive challenge involving coordination, cooperation, and legal harmonisation.
3. The Core Legal Problem: Conflict Of Laws
The doctrine of conflict of laws (private international law) plays a central role in cross-border insolvency. It seeks to determine:
- Which court has jurisdiction
- Which law should be applied
- Whether foreign judgments should be recognised
In insolvency cases, conflict of laws becomes particularly complex because:
- Multiple jurisdictions may claim authority simultaneously
- Each jurisdiction may apply its own insolvency law
- There may be conflicting priorities among creditors
3.1. Key Connecting Factors
Courts rely on several connecting factors to determine applicable law:
- Place of incorporation
- Location of assets (lex situs)
- Residence of creditors
- Place of business operations
However, these factors often point to different jurisdictions, leading to overlapping claims.
3.2. Consequences Of Conflict
| Issue | Description |
|---|---|
| Parallel Proceedings | Multiple insolvency proceedings in different countries |
| Forum Shopping | Creditors choose jurisdictions favourable to their interests |
| Inconsistent Judgments | Different courts may issue contradictory decisions |
| Asset Dissipation | Delay reduces the value of assets |
For instance, a secured creditor may prefer a jurisdiction that prioritises secured claims, while unsecured creditors may favour jurisdictions with equitable distribution systems.
Thus, the conflict of laws problem lies at the heart of the question: whose law should prevail?
4. Competing Theories: Territoriality Vs Universalism
A. Territoriality Principle
Under the territorial approach:
- Each country exercises jurisdiction over assets within its territory
- Insolvency proceedings are limited to domestic assets
Detailed Features
- No automatic recognition of foreign proceedings
- Independent proceedings in each jurisdiction
- Local creditors often receive preferential treatment
Advantages
- Protects national sovereignty
- Safeguards domestic economic interests
- Ensures control over local assets
Disadvantages
- Leads to fragmentation of insolvency proceedings
- Reduces efficiency in asset distribution
- Increases costs and delays
- Encourages creditor competition rather than cooperation
B. Universalism Principle
Universalism advocates:
- A single global insolvency proceeding
- Centralised control over all assets
Detailed Features
- Recognition of foreign proceedings
- Uniform distribution of assets
- Equal treatment of creditors
Advantages
- Promotes efficiency and predictability
- Reduces duplication of proceedings
- Maximises value of the debtor’s estate
Disadvantages
- Difficult to implement due to differences in national laws
- Requires high level of international cooperation
- May conflict with domestic public policy
C. Modified Universalism (Modern Approach)
Modern legal systems adopt modified universalism, which balances:
- Centralised proceedings (main jurisdiction)
- Limited territorial control (local jurisdictions)
This approach is reflected in the UNCITRAL Model Law on Cross-Border Insolvency, which allows:
- Recognition of foreign main proceedings
- Cooperation between courts
- Protection of local interests where necessary
5. The Uncitral Model Law Framework
The UNCITRAL Model Law on Cross-Border Insolvency (1997) is a landmark international instrument designed to address cross-border insolvency challenges.
Objectives
- Facilitate cooperation between courts
- Promote legal certainty
- Protect creditor interests
- Ensure fair and efficient administration
Key Features
| Feature | Description |
|---|---|
| Flexible Adoption | Countries can incorporate the Model Law into domestic legislation without compromising sovereignty. |
| Procedural Framework | It does not unify substantive insolvency laws but provides procedural mechanisms for cooperation. |
| Global Acceptance | Adopted by major jurisdictions such as United States, United Kingdom, and Australia, enhancing predictability in international insolvency cases. |
6. Key Principles Governing Cross-Border Insolvency
1. Access
Foreign insolvency representatives are granted direct access to domestic courts. This eliminates the need for diplomatic channels and promotes efficiency.
2. Recognition
Courts recognise foreign proceedings as:
- Main proceedings (based on COMI)
- Non-main proceedings
Recognition is crucial for granting relief and coordinating proceedings.
3. Centre Of Main Interests (Comi)
The concept of COMI determines the primary jurisdiction for insolvency proceedings.
Characteristics Of Comi:
- Place where the debtor conducts main business activities
- Location visible to third parties
- Presumed to be the registered office (unless proven otherwise)
Comi Ensures:
- Predictability
- Consistency in jurisdiction
4. Relief And Assistance
Courts may grant interim and permanent relief, including:
- Stay of legal proceedings
- Protection of assets
- Suspension of enforcement actions
5. Cooperation And Coordination
Courts and insolvency professionals are encouraged to cooperate through:
- Information sharing
- Joint hearings
- Coordination of proceedings
This principle is central to resolving conflicts between jurisdictions.
7. Judicial Approaches and Case Examples
A. Jet Airways (India–Netherlands)
- Parallel proceedings were initiated in India and the Netherlands
- Courts entered into a cross-border insolvency protocol
- Demonstrated practical application of cooperation
B. Kingfisher Airlines Case
- Indian banks faced difficulty in recovering foreign assets
- Highlighted the absence of a robust cross-border framework
C. Global Trends
Courts in jurisdictions such as the US and UK increasingly:
- Recognise foreign proceedings
- Promote judicial cooperation
- Apply modified universalism
These developments indicate a shift toward harmonisation.
8. The Indian Position and Emerging Developments
Existing Legal Framework
India’s Insolvency and Bankruptcy Code, 2016 provides limited provisions:
| Section | Provision |
|---|---|
| Section 234 | Agreements with foreign countries |
| Section 235 | Letter of request |
However, these provisions are:
- Inadequate
- Rarely implemented
Judicial Innovation
Indian courts have adopted:
- Ad hoc cooperation mechanisms
- Case-specific solutions
Proposed Adoption of Model Law
India is considering adoption of the UNCITRAL Model Law to:
- Introduce COMI-based jurisdiction
- Facilitate recognition of foreign proceedings
- Enhance investor confidence
9. Challenges in Determining Applicable Law
- Sovereignty Concerns Countries hesitate to allow foreign courts to control domestic assets.
- Legal Diversity Differences in insolvency laws create inconsistencies.
- Forum Shopping Creditors manipulate jurisdictional rules for advantage.
- Public Policy Exception Courts may refuse recognition if foreign law violates domestic principles.
- Practical Barriers
- Language differences
- Procedural delays
- Lack of infrastructure
10. The Way Forward: Harmonisation and Reform
A. Adoption of International Frameworks
Countries should adopt the UNCITRAL Model Law.
B. Judicial Cooperation
Courts must actively collaborate.
C. Institutional Mechanisms
Creation of specialised insolvency courts.
D. Regional Agreements
Regional frameworks can enhance coordination.
E. Technological Integration
Digital platforms for cross-border case management.
11. Conclusion
The question of whose law should prevail in cross-border insolvency cannot be answered through rigid legal doctrines alone. While territoriality emphasises sovereignty, universalism promotes efficiency. The modern approach modified universalism strikes a balance between these competing interests.
The COMI principle provides a practical solution by identifying a central jurisdiction, while international frameworks like the UNCITRAL Model Law ensure cooperation among states.
For countries like India, adopting a comprehensive cross-border insolvency regime is essential for:
- Protecting creditor interests
- Enhancing economic stability
- Integrating into the global financial system
Ultimately, the future of cross-border insolvency lies not in choosing one legal system over another, but in fostering cooperation, coordination, and harmonisation across jurisdictions.
References:
- Arora, D. (2021). Cross border insolvency in India and the adoption of UNCITRAL model law. Indian Journal of Law and Legal Research, 2(2), 1–10.
- Khurana & Khurana. (2024). Cross-border insolvency and India’s approach.
- Legal 500. (2025). Cross-border insolvency frameworks and reforms.
- Mishra, K. N. (2025). India’s expected adoption of UNCITRAL Model Law.
- UNCITRAL. (1997). Model Law on Cross-Border Insolvency.
- SCC Online. (2024). Need for harmonisation in cross-border insolvency laws.
- Global Restructuring Review. (2025). Asia-Pacific restructuring developments.
