The Jet Airways’ Cross Border Insolvency Protocol: A Success Story 

By Gausia Shaikh (REDD Intelligence)

Introduction

India’s Insolvency and Bankruptcy Code (IBC) was intended to bring about a complete overhaul of the insolvency law framework in the country. Since its introduction in 2016, the IBC has been a useful restructuring tool for corporate entities. 

However, some important elements of the insolvency law framework remain pending introduction. A framework for cross-border insolvency is one such element. With multinational companies and an almost-borderless corporate world growing each day, companies, their assets as well as their creditors are spread across the globe. 

Insolvency proceedings in such cases cannot be efficiently conducted without cooperation and coordination among the concerned jurisdictions. Indian, lawmakers had partially dealt with such circumstances through two IBC provisions – one, providing for bilateral agreements for enforcement of IBC provisions in other jurisdictions, and the other promoting inter-court and tribunal cooperation.

Four years down the line, these two provisions have still not seen the light of day. However, even if they had, this would just be a small step in establishing a hint of a cross-border insolvency law regime in India. 
The above scenario is, of course, despite cases involving a cross-border element being dealt with under the law as it stands today. The insolvency tribunals, on their part, have played an important role in following international practices and applying them to such cases to ensure maximum realization of value of such stressed entities. 

For instance, the insolvency of Jet Airways (India) Limited saw insolvency tribunals pave the way for cross-border cooperation by directing the insolvency professionals from both jurisdictions to enter into a ‘cross-border insolvency protocol’. Jet Airways will soon see its resolution completed and local reports suggest that it may even resume flight operations by the summer of 2021.

In this post, I look at the Cross-Border Insolvency Protocol agreed upon in the Jet Airways insolvency as a unique success story of cross-border cooperation in insolvency proceedings. 

Jet sets a precedent

India’s once beloved airline, Jet Airways showed apparent signs of turbulence roughly from 2018, with the company unable to pay employee salaries as well as aircraft leasing charges. Thereafter, following several attempts to obtain funding and amid scrutiny of financial irregularities at the company, on 17 April 2019 the company was forced to halt flight operations. 

Eventually, an insolvency application was filed against it before the Mumbai Bench of the National Company Law Tribunal (NCLT), and the insolvency resolution process was initiated by the NCLT by its order dated 20 June 2019.

While this was the situation in India, a month prior to the initiation of IBC proceedings, Jet Airways had been pushed into bankruptcy in the Netherlands on 21 May 2019. 

The bankruptcy trustee appointed by the Noord-Holland District Court, Trade, Sub-district and Insolvency had, upon hearing of the Indian insolvency application, approached the NCLT describing the potential uncertainties surrounding two parallel proceedings against the company.

However, the NCLT in its June 2019 order had declared the Dutch proceedings as a nullity in law, emphasizing the absence of cross-border insolvency laws in India and paying no heed to the existence of prior bankruptcy proceedings against the company. 

An appeal to the National Company Law Appellate Tribunal (NCLAT) led to a unique direction given by the appellate tribunal. The NCLAT sought an agreement between the Indian resolution professional and the Dutch trustee to ensure cooperation and coordination of the two proceedings to achieve value maximisation of the insolvent company while the proceedings continued in parallel. This led to the emergence of a cross-border insolvency protocol between the two court appointed officials, which was subsequently approved by the NCLAT through its order dated 26 September 2019.

The Jet Protocol

A 2001 paper published by the International Insolvency Institute describes a ‘cross-border insolvency protocol’ as the term used for agreements that are approved by relevant courts to deal with matters that assist with the harmonization and coordination of parallel proceedings to facilitate cross-border restructurings. The first such protocol dates back more than a century to 1908, and coincidentally involved the involuntary liquidation of a company in then British-ruled India.

While there is no set template for cross-border insolvency protocols, the International Insolvency Institute’s paper clarifies that such protocols are generally used to fill legislative lacunae to harmonize procedural rather than substantive issues emanating from parallel insolvency proceedings across jurisdictions. 
The Cross-Border Insolvency Protocol in the case of Jet Airways (The Jet Protocol) is no different. The protocol is stated as representing the intentions of the two officials with the aim to reduce costs and maximize value of the company as well as of creditor recoveries, through information sharing and related activities to be performed by them. 

The language of the protocol is crafted in a way that does not impose any set obligations on either party but merely records their intentions and provides some guidance on their future activities in the context of the proceedings. 

Professor Bob Wessels, an expert in the field, observes that the clause defining the purpose of the Jet Protocol in such manner is a verbatim copy of insolvency history’s other major cross-border insolvency protocol, the one in the case of the Lehman Brothers.

Other key features of the protocol include:

a)    Centre of Main Interest (COMI): The protocol identifies India as the centre of main interest—the jurisdiction of the primary proceedings, typically established by bankruptcy courts as one where the registered office of the company is located—since Jet Airways is a company incorporated in India. Arguably, receiving the NCLAT and the Dutch court’s approval for the Jet Protocol, which includes such stipulation, may add an element of judicial sanctity to the classification of the concurrent proceedings into main and non-main proceedings.

b)    Guidelines for the Dutch trustee: The protocol, among other things: 

• records the aim of the Dutch trustee to not take decisions that would adversely affect value maximization of the company and to notify the Indian resolution professional if the latter is compelled to take any such decision;
• calls upon the Dutch trustee to facilitate the submission of a reorganization plan consistent with a bid approved in the IBC proceedings; and 
• expects the Dutch trustee to be mindful of the course of the Indian proceedings before taking any material decisions in the Dutch proceedings. 

A perusal of the protocol shows that the language used in clauses relating to guidelines for the Dutch trustee display a non-binding tenor. They do not impose any binding obligations on the Dutch Trustee but rely on a mutual sense of acceptance to the need for cooperation and coordination in the two proceedings.

c)    Preserving company assets: The protocol specifically enlists the assets of the company located in the Netherlands and calls for their preservation on a best effort basis. It also records that if the Dutch trustee were to sell any of these assets, the proceeds would be deposited in a bankruptcy account and the distribution of such sale proceeds would be conducted in consultation with the Indian resolution professional. 

d)    Right to appear in and attend proceedings: The protocol gives both officials the right to attend proceedings in the two jurisdictions without being legally bound by the laws of any jurisdiction apart from their own. 

e)    Information sharing and communication: The protocol requires both officials keep the other informed of significant developments and information in which the other may have a material interest. They are also expected to liaise with each other and share public and non-public information, subject to appropriate non-disclosure requirements.  

Conclusion

Access, recognition, cooperation and coordination can be considered as the main principles underlying the Model Law on Cross-border Insolvency issued by the United Nations Commission on International Trade Law (UNCITRAL). The Jet Protocol largely covers each of these aspects. However, a key element contributing to the success of the Jet Protocol was the willingness of the courts and officials of both jurisdictions to coordinate and cooperate with one another. Arguably, this willingness may have stemmed from the asset-starved condition of the ailing airline, with both jurisdictions having some assets located in their territory, which made it imperative to place value maximization of the company above everything else. This may not be the case in other insolvencies involving concurrent cross-border insolvency/bankruptcy proceedings. Until a legal framework governing cross-border insolvency is introduced in India, it seems like the matter rests in the hands of the Indian insolvency tribunals and resolution professionals for future insolvency cases involving a cross-border element.

(*) A modified version of this post was published on the REDD Intelligence website.