International Legislative Update
Proposed Swiss International Insolvency Law Reforms
In October 2015, the Swiss Federal Department of Justice and Police (Eidgenössisches Justiz- und Polizeidepartement) published a preliminary draft of reforms to title 11 of the Swiss Private International Law Act (“SPILA”), which governs insolvency proceedings and compensation proceedings (Articles 166–175 rev-SPILA), together with an explanatory report. The consultation procedure for the proposed reforms culminated on February 5, 2016.
The preliminary draft is intended to improve existing rules, including procedures governing recognition by Swiss courts of foreign bankruptcy and insolvency cases along the lines of the procedures set forth in the 1997 UNCITRAL Model Law on Cross-Border Insolvency (the “Model Law”). Although the Model Law has now been enacted by 42 nations or territories, Switzerland has not adopted the legislation. The proposed reforms would, among other things:
- Abandon the existing requirement of reciprocity in connection with a Swiss court’s recognition of foreign bankruptcy proceedings.
- Expand the scope of recognition of foreign bankruptcy proceedings to encompass proceedings commenced in the jurisdiction containing a foreign debtor’s center of main interests as well as a debtor’s domicile.
- Authorize a Swiss court, upon recognition of a foreign bankruptcy proceeding, to waive the existing requirement that secondary bankruptcy proceedings be commenced in Switzerland, unless the initiation of such proceedings is necessary to protect secured and preferred Swiss creditors; and in the event of a waiver, grant the foreign debtor’s bankruptcy administrator the power to collect and dispose of the debtor’s Swiss assets.
- Create procedures to promote coordination between Swiss and foreign authorities and institutions with respect to cross-border bankruptcy cases.
- Provide for the recognition and enforcement of foreign judgments with respect to avoidance and insolvency-related claims, subject to certain conditions.
After the Federal Department of Justice and Police prepares a report on the results of the recently completed consultation procedure, the Swiss Federal Council (Bundesrat) will determine the next steps in moving the proposals, which may be amended, toward legislative enactment.
Proposed Indian Bankruptcy Reforms
In December 2015, the Indian government introduced a long-awaited bill—the Insolvency and Bankruptcy Bill 2015—to overhaul India’s outdated and burdensome bankruptcy process. According to recent World Bank data, India ranks 136th out of the 189 countries surveyed in terms of fast and efficient resolution of insolvencies, with creditors having limited power in the event of a debtor’s default. The proposed bill aims to expedite decisions on whether to rehabilitate or liquidate ailing companies, in a move to curb asset stripping and ensure higher recovery rates for creditors, both of which are key to fostering a modern credit market and increased investment in India.
If adopted, the proposed legislation would:
- Establish a formal insolvency resolution process for businesses by, among other things, appointing an Insolvency and Bankruptcy Board of India as the regulatory authority and creating specialized bankruptcy courts as part of the National Company Law Tribunal.
- Permit corporate debtors that have defaulted on debts, financial creditors (banks and bondholders), and trade creditors to initiate the corporate insolvency resolution process (“IRP”).
- Establish a 180-day deadline for the completion of an IRP, during which time the company must present restructuring proposals to creditors for approval. If the requisite majority of creditors do not agree on a restructuring plan within the 180-day period, the company will automatically be placed into liquidation. The 180-day period may be extended by 90 days if at least 75 percent of the creditors decide that the case is too complex to be resolved within the 180-day period and the court grants the extension.
- In the event a company is placed into liquidation, establish a hierarchy of claim priorities, including, in descending order, administrative costs of any preceding IRP and the liquidation proceeding, secured claims, certain employee claims, and unsecured claims.
- Create a “fast-track” IRP for smaller companies, to be completed within 90 days (unless the period is extended with the consent of creditors).
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