The resolution processes for Videocon Oil Ventures (VOVL) and Sterling Biotech will likely benefit from the introduction of cross-border insolvency norms under the Insolvency and Bankruptcy Code (IBC), according to bankers FE spoke to. In her Budget speech for 2022-23, finance minister Nirmala Sitharaman said that necessary amendments to the code will be made to enhance the efficacy of the resolution process and facilitate cross-border insolvency resolution.

While lenders had earlier identified Vedanta Group’s Twin Star as the buyer for 13 entities of the Videocon Group, clubbed together under the corporate insolvency resolution process (CIRP), VOVL was segregated because it owns oil and gas assets in Brazil and Indonesia. The 13 entities of Videocon Industries are now undergoing a fresh process of invitation of bids on court orders. VOVL is reported to be among the 15 assets which banks plan to transfer to the National Asset Reconstruction Company (NARCL) in the current financial year. In the past few years, banks’ repeated attempts to sell the overseas energy assets of VOVL have failed.

In the case of Sterling Biotech, while the domestic entity has already been sent into liquidation, there is still some scope for recovery from its oil and gas assets overseas, said a senior banker. “The domestic companies are either operating at a very low scale or are closed down. The money which can be recovered is from the group’s Nigeria outfit,” he said.

The cross-border insolvency framework in India is expected to be based on the United Nations Commission on International Trade Law (UNCITRAL) model law, executives from the stressed assets industry said. Nirmal Gangwal, managing partner, Brescon & Allied Partners LLP, said that the proposal on expediting the necessary regulatory changes and incorporations under IBC, beyond Sections 234 and 235, on cross-border insolvency, is a welcome move and it had been recognised by the Bankruptcy Law Reforms Committee in 2015. “The experience gained so far and the necessity to address the uncertainty, risk and financial implications for outbound domestic and inbound cross border creditors is imperative in the globalised economy,” Gangwal said.

An Insolvency and Bankruptcy Board of India (IBBI) committee report on cross-border insolvency has recommended applying the framework to companies incorporated with limited liability under the laws of a foreign country and those having an establishment in India. It also proposed that foreign representatives must be given access to the insolvency system and infrastructure in India for the purpose of cross-border insolvency proceedings.

Pallav Mohapatra, MD & CEO, Asset Reconstruction Company (India) (Arcil), said that financial institutions will now find it easier to recover their money from companies with assets across countries. “Cross-border insolvency rules, once built into the law, will allow lenders to recover dues from defaulting borrowers disposing of foreign assets as well promoters’ personal assets that are parked in offshore locations,” Mohapatra said.

Banks may also be saved from charges on their standby letters of credit (SBLCs) arising out of companies defaulting to foreign banks. SBLCs are issued by Indian banks to companies who wish to borrow from banks in foreign jurisdictions to finance their businesses in those geographies. “When the business activity there fails, the bank there invokes SBLCs issued by the Indian bank and that leaves the Indian bank high and dry. Such situations can be tackled better with cross-border insolvency norms,” said the senior banker quoted above.