INTRODUCTION
One of the major reasons behind forum shopping is the intent of legislature of the insolvency law jurisdiction. Even nation has its own policies and gives primacy to their interests with respect to enactment of laws. There are jurisdictions where insolvency law is more creditors-centric i.e., where the liquidation is only answer to any insolvency matter, while there also exist some jurisdictions that give primacy to restructuring of debtor's assets i.e., where saving the entity is the primary motive of insolvency laws. Apart from the said circumstances, there are other reasons such as less litigation cost, fast disposal of case, etc. that also woo the creditors and corporate debtors to take the assistance of forum shopping. In India, legislation gives primacy to the restructuring of Corporate Debtor however the principle of contracts that 'time is of essence' is not given that due consideration despite having time-bound insolvency framework. As a result of this, India that can be a major venue for forum shopping is unable to attract the stakeholders.
Forum Shopping in various judgments is also considered as nothing prejudicial or pejorative as it is based upon the reason that wherever the corporate debtor finds his interests being given primacy and adequate remedy, s/he institutes the proceeding then why is it considered an infamous act. The distinction between 'tax avoidance' and 'tax evasion' can be considered in this place to draw an analogy as the latter one is unlawful while the former one is not.1In similar manner, we can put 'forum shopping' in a category of 'tax avoidance' as the plaintiff is merely avoiding such a jurisdiction where his interests might not receive appropriate remedy as per him. In the case of Atlantic Star, Lord Wilberforce commented – "...it was natural and inevitable that a plaintiff will choose a place where his legitimate interests would be best advanced."2He also suggested that if one country's law is more favourable to the plaintiff then he should not be criticised for opting that jurisdiction. Moreover, Lord Simon in a case stated that forum shopping shall not be looked with surprise or indignation.3
FORUM SHOPPING IN THE US
The Chapter 11 of the US Bankruptcy Code provides for the restructuring provisions while Chapter 7 of the said Code provides for the Liquidation proceedings.4The US Supreme Court describes the objectives of Chapter 11 as: "In proceedings under the reorganization provisions of the Bankruptcy Code, a troubled enterprise may be restructured to enable it to operate successfully in the future... By permitting reorganisation, Congress anticipated that the business would continue to provide jobs, to satisfy creditors' claims, and to produce a return for its owners... Congress presumed that the assets of the debtor would be more valuable if used in a rehabilitated business than if sold for scrap."5
For at least five reasons, foreign forum shoppers find US bankruptcy law, and particularly Chapter 11, particularly appealing: "(a) the automatic global stay; (b) the debtor-in-possession norm; (c) the provisions for super-priority new financing; (d) the statutory "cramdown possibilities"; and (d) the procedural consolidation opportunities."6
A. The Automatic Global Stay:
Initially, the filing for bankruptcy results in an automatic worldwide stay on enforcement actions taken against the debtor or its assets. The text of the Bankruptcy Code provisions has led US courts to infer extraterritorial impact.7They have also concluded that the debtor's property, wherever it may be located in the globe, is included in the bankruptcy estate.8
B. The Debtor-In-Possession Norm:
Second, Chapter 11 procedures are typically started by a voluntary petition submitted by the corporate debtor; control of the firm is not automatically replaced under Chapter 11 in favour of an outside trustee or administrator. Because Chapter 11 is predicated on debtor in possession, the current corporate governance framework is preserved even when the restructuring process has just recently begun.9Although it is possible, in practise, management displacement in favour of an outside trustee is limited to extreme circumstances like fraud.10An examiner's halfway house appointment is another possibility, albeit it happens less frequently. Nonetheless, managers' or executives' identities could alter in reaction to pressure from creditors.11
C. The Provisions For Super-Priority New Financing:
Third, Chapter 11 offers super-priority new funding options that can help a struggling company turn a profit. These clauses have shown to be a double-edged sword for both shareholders and the current management. By including clauses in agreements that allow for new financing, a financier may actually be able to exert significant control over the Chapter 11 process. Commentators have also discussed a new "Chapter 11" that places more of an emphasis on sales of the debtor's company as a going concern than on traditional reorganisations.12In order to survive, all creditors require fresh funding, and the lender supplying that funding has the power to dictate the conditions of the restructuring. In the instance of the automakers, GM and Chrysler, this was carried out by selling the debtors' operations to newly formed operational entities, referred to as "new" GM and "new" Chrysler. Due to its new credit provider position, the US government, which was the new lender in the Chrysler and GM cases, was allowed to control the Chapter 11 case's result.13
D. The Statutory "Cramdown Possibilities":
Fourth, Chapter 11 offers the ability to force creditors—including secured creditors—to agree to a reorganisation plan by packing them in. Holdouts among creditors can be defeated and the majoritarian principle applies if specific legal requirements are met.14
E. The Procedural Consolidation Opportunities:
Lastly, Chapter 11 permits the coordinated group rescue of multinational corporations whose operations are scattered across many countries by allowing the procedural consolidation of bankruptcy procedures involving multiple linked entities.
CONCLUSION: SUGGESTIONS TO MAKE INDIA A FAVOURITE FORUM SHOPPING DESTINATION
The Insolvency law in India is mostly in tandem with the US however a push to it or buttressing of it by enacting Cross Border Insovency Regime would certainly make India a favourable destination for forum shopping, thereby boosting our business and economy. "Government halts plan to adopt cross-border insolvency rules." The statement comes as a setback in 2023 as the Central Government decides not to adopt the Cross-Border Insolvency regime in India without citing any specific reason. The Draft Part Z entailing the provisions for Cross Border Insolvency incorporation in India shall be enacted.
Footnotes
1. Tax Evasion and Tax Avoidance: Key Differences, Creative Zone (Aug. 04, 2023), https://www.cztaxaccounting.ae/tax-evasion-vs-tax-avoidance-key-differences/.
2. Owners of the Atlantic Star v Owners of the Bona Spes (The Atlantic Star and The Bona Spes) [1974] AC 436 at 461.
3. id.at 471.
4. Bank of America v 203 North LaSalle Street Partnership (1999) 526 US 434.
5. US v Whiting Pools Inc (1983) 462 US 198 at 203; HR Rep No 595, 95th Congress, 1st Sess 220 (1977).
6. E Warren and JL Westbrook, The Success of Chapter 11: A Challenge to the Critics, 107 Mich L Rev 603, 304 (2009).
7. In re Nortel Networks Inc (2011) 669 F 3d 128.
8. Nakash v Zur (1996) 190 BR 763.
9. Hong Kong & Sanghai Banking Corp. v. Simon (1998) 153 F 3d 991 at 996.
10. D Hahn, Concentrated Ownership and Control of Corporate Reorganisations 4 JCLS 117 (2004); G McCormack, Control and Corporate Rescue: An Anglo-American Evaluation, 56 ICLO 515 (2007).
11. The US Bankruptcy Code § 1104.
12. K Ayotte and E Morrison, Creditor Control and Conflict in Chapter 11, 1 J Legal Anal 511 (2009).
13. K Ayotte and DA Skeel, Bankruptcy or Bailouts, 35 J Corp L 469, 477 (2010).
14. The US Bankruptcy Code, § 1129.
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