bankruptcy, corporate insolvency, covid-19, India, foreign investment


Reminiscent of the warning signs of a tsunami, bankruptcy and insolvency courts across the globe have been eerily calm despite unprecedented conditions during the COVID-19 pandemic. The full extent of the pandemic’s effect, including a tidal wave of wide-spread corporate and financial sector harm and wide-spread economic distress, remains to be seen. Much like victims of natural disasters, unsuspecting and increasingly delayed courts will find themselves totally overwhelmed. The inconvenience felt by the courts is distinct, however, from potential harm to financial investors. Although investors could also be harmed by these judicial conditions, they knowingly assumed certain financial risk when they invested. As global economies continue to react to the aftermath of the pandemic, a tsunami of bankruptcy and insolvency cases is also approaching. This, too, sets the stage for potential mass harm if courts become plagued by delay.

Across the globe, governments have issued controversial initial responses to this impending tsunami of cases. For example, from March 2020 to March 2021, the Indian government suspended new corporate insolvency resolution proceedings under the country’s recently reformed bankruptcy regime. It is worth noting that such judicial delay can impose serious risks on insolvent entities and their stakeholders. Asset, going concern, and recovery values may rapidly and significantly decline while debtors and creditors await resolution, undermining opportunities to emerge from the process with something of worth intact. Of course, the situation is ripe to harm American domestic companies and creditors and U.S. investors in foreign markets are at substantial risk. Specifically, U.S. investors in companies subject to India’s suspension of new corporate insolvency resolution proceedings find themselves particularly at risk. This suspension of claims subjected investors to a year-long delay, in which a judicially-blessed resolution was largely unavailable. Making matters worse, their claims could be further delayed by the oncoming swell of insolvency cases or prohibited altogether.

This Note focuses on what recourse foreign investors in Indian companies may have against the controversial governmental measure under bilateral investment treaties. Primarily, it explores how foreign investors could challenge the relevant Ordinance by alleging the law treated them unfairly or inequitably as compared to domestic investors and creditors. A meritorious claim might demonstrate severely diminished recovery value while pointing to unique limitations on foreign investors’ ability to propose reorganization plans and out-of- court resolutions. However, notwithstanding the legitimacy of investors’ claims and demonstrable impairment of recovery value, the measure will likely be upheld as treating foreign and domestic investors fairly and equitably, especially in light of the government’s purposes for the suspension: to protect the economic health of the country, shield enterprises of all sizes from unnecessary liquidation, and preserve jobs provided by businesses of all varieties.



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