Introduction

With the increasing number of cross-border restructuring or insolvency proceedings of corporate groups, one key issue that requires systematic judicial guidance is whether a company must be insolvent in order to qualify as a “foreign proceeding” for the purpose of recognition. This matter is especially crucial under Singapore’s adapted enactment of the Model Law on Cross-Border Insolvency developed by the United Nations Commission on International Trade Law (the “UNCITRAL Model Law”). The Court of Appeal of Singapore in Ascentra Holdings, Inc (in official liquidation) and others v SPGK Pte Ltd [2023] SGCA 32 considered this issue and ruled that a voluntary liquidation concerning a solvent company qualifies as a “foreign proceeding” for the above purpose. Although this case is tried in a Singaporean court, the implication to Hong Kong is crucial as it concerns interpretation of the UNCITRAL Model Law, which is also applicable in Hong Kong.

Brief facts

This case concerns the liquidation of the first appellant, Ascentra, a company that sold health and beauty products and computer communications software in Hong Kong, Taiwan and Singapore prior to its liquidation. On 1 June 2021, Ascentra’s shareholders resolved to place it in voluntary liquidation. As no declaration of solvency was filed by Ascentra’s directors within the period prescribed by the Cayman law, the second appellant, one of the joint official liquidators presented a petition to the Cayman Grand Court on 2 July 2021 for the liquidation to proceed under court supervision, which was subsequently allowed. On 23 September 2021, the Joint Liquidators filed a certificate in the Cayman Grand Court stating their determination that Ascentra should be treated as solvent.

The key issue in this proceedings concern, among others, whether Ascentra’s Liquidation in the Cayman Islands in Singapore is a foreign main proceeding within the meaning of Articles 2(f) and 2(h) of the Insolvency, Restructuring and Dissolution Act 2018 (“SG Model Law”) (the “SG Model Law Requirement”), which defines “foreign proceeding” as “a collective judicial or administrative proceeding in a foreign State, …, under a law relating to insolvency or adjustment of debt in which proceeding the property and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation” (emphasis added).

The Court’s approach

The High Court’s decision

The lower court adopted a more narrow interpretation of the words “under a law relating to insolvency” to be governing insolvent companies only, and accordingly held that the present proceeding is not a “foreign proceeding” because the legislative “track” under which Ascentra’s liquidation was commenced does not and cannot apply to a company that is insolvent or in severe financial distress.

The Court of Appeal’s decision

The Court of Appeal took a much broader approach. The provisions in the Art 2(h) of the SG Model Law not only made reference to “insolvency” but also to “adjustment of debt”. In holding that the SG Model Law Requirement would be satisfied as long as the law or the relevant part of the law under which the relevant proceeding is conducted includes provisions dealing with the insolvency of a company or the adjustment of its debts, whether the company concerned in the relevant proceeding is not insolvent or in severe financial distress would generally be irrelevant. This means SG Model Law can be extended to apply to both solvent and insolvent companies.

In arriving at this view, the Court of Appeal not only took a purposive approach in interpreting the provisions of the SG Model Law, but also reviewed the legislative intent behind the drafting of the UNCITRAL Model Law and the preparatory materials. While the primary object of the SG Model law is to lay down a framework for the co-ordinated cross-border management of proceedings involving insolvent companies, there is no indication that the drafters of the UNCITRAL Model Law had intended to exclude solvent companies from the scope of the UNCITRAL Model Law for the purposes of recognition.

Uniformity is also a key consideration. Article 8 of the SG Model Law mandates that in the interpretation of the SG Model Law, it should take regard its international origin and the need to promote uniformity in its application and the observance of good faith. The SG Model Law should therefore be construed in a manner consistent with the cases in other jurisdictions such as the U.S., UK, Australia and New Zealand, which have held that that their respective equivalents of the UNCITRAL Model Law enable the recognition of proceedings to cover both insolvent and solvent companies as foreign main proceedings.

Key takeaways

It remains to be seen how the common law’s treatment of foreign solvent liquidations may be impacted by this decision and whether the more expansive approach adopted would be applied in other jurisdictions, especially in Hong Kong. So far, there have not been wide judicial discussion of this case in the Hong Kong court so the approach taken by the Hong Kong Courts remains unknown. That said, it is positive that this case will remain useful guidance for Hong Kong Courts as this decision puts emphasis on the need for global coordination to facilitate the administration of cross-border insolvencies or restructuring in the insolvency context, and also liquidation or restructuring proceedings involving solvent entities.