Singapore court recognised US bankruptcy proceedings as foreign main proceedings despite company being registered in Singapore
Introduction
On 4 March 2019, the Singapore High Court (“Court”) in Re Zetta Jet Ptd Ltd and others
(Asia Aviation Holdings Ptd Ltd, intervener) [2019] SGHC 53 handed down its judgment and granted
full recognition of the US Bankruptcy Proceedings as a foreign main proceeding under
the Singapore Model Law.
Background
Voluntary
bankruptcy proceedings were filed against Zetta Group (including Zetta Jet USA,
Inc and Zetta Jet Ptd Ltd (“Zetta Singapore”)) in 2017
in the US Bankruptcy Court (“US
Bankruptcy Proceedings”). The intervener obtained an injunction in
Singapore on 19 September 2017
to
prevent Zetta Singapore and others from taking further steps in the US Bankruptcy
Proceedings (“Singapore Injunction”).
Nevertheless, the US Bankruptcy Proceedings continued.
On 13 December 2017, the trustee applied to the Court for
recognition of the US Bankruptcy Proceedings. In Re Zetta Jet Pte and
Others [2018] SGHC 16, the Court
allowed limited recognition only for the purposes of allowing the trustee to
apply to set aside the Singapore Injunction on 24 January 2018.
On 9 March 2018, an application to set aside
the Singapore Injunction was made and the Singapore Injunction was discharged
by consent of the parties on 12 July 2018.
Singapore
Model Law
UNCITRAL Model Law
on Cross-Border Insolvency (30 May 1997) (“Model
Law”) has been adopted and implemented in Singapore since 23 May 2017, set out
in the Tenth Schedule of the Companies Act (Cap 50, 2006 Rev Ed) (“Singapore Model Law”).
Under the
Singapore Model Law, a foreign representative can apply to the Court for
recognition of foreign insolvency proceedings. The Court must recognise such
proceedings if the stipulated conditions are met, provided that the Court is
satisfied that such recognition would not be contrary to the public policy of
Singapore (“Public Policy Exception”).
There is a
distinction between recognition of the foreign insolvency proceedings as either
a main proceeding or a non-main proceeding, with each engendering different
reliefs and consequences.
Foreign main
proceedings qualify for more extensive reliefs than foreign non-main proceedings: only foreign
main proceedings qualify for automatic reliefs under Article 20(1) of the
Singapore Model Law. A main proceeding is one taking place where the debtor had
its centre of main interests (“COMI”).
In this case, the
key issues before the Court include the determination of Zetta Singapore’s COMI
and whether the Public Policy Exception shall apply.
COMI
Regarding
Zetta Singapore’s COMI, the Court considered the date at which the assessment
of COMI is to be made, and the approach to be taken in such assessment.
Date of assessment
Regarding the relevant date to determine the COMI,
the Court considered the positions in other jurisdictions:
1.
The
English and European position and the position take in the UNCITRAL Guide to
Enactment and Interpretation of the Model Law (2013): the date of the
commencement of the foreign insolvency proceedings.
2.
The
Australian position: the date of the hearing of the recognition application.
3.
The US
position: the date of the application for recognition is filed.
The Court decided
to adopt the US position and held that this position provides greater certainty
and better accords with commercial realities and the language of the provisions
of the Model Law.
The Court commented
that it was not objectionable to grant companies the discretion to shift COMI
to another jurisdiction after the commencement
of the foreign insolvency proceedings, save for evasion of criminal or similar laws. The
latter jurisdiction may offer the best prospects for achieving an effective
restructuring solution.
Relevant factors
The term COMI is
not defined in the Model Law or the Singapore Model Law. According to Article 16(3) of the Singapore
Model Law, there is a presumption that the place of the debtor’s registered
office is its COMI (“Presumption”).
The Court held that the Presumption is not a rebuttable presumption of law, instead, it operates as
a starting point subject to displacement by other factors depending on
circumstances of the specific case.
Besides the Presumption, there is no actual
statutory guidance as to what
constitutes a debtor’s COMI. The Court considered the guidance issued by
UNCITRAL and case law from English, European, Australia and US.
The
Court followed the positions in English,
European and Australia and held that the factors should be those that
are objectively ascertainable by third parties generally, with a focus on
creditors and potential creditors in particular. The Court’s focus should be on
actual facts on the ground and the inquiry would be broad-ranging, looking at
the company’s activities in and connections to a particular locale. In
considering these, there was no need to maintain strictly the distinctions
between different entities within Zetta
Group, as
COMI determination does not require the concept of separate corporate identity.
The Court
considered the following factors:
1.
The
location from which control and direction was administered – the
Court would only consider the actual control of the company, and would not
consider the underlying dispute(s);
2.
The
location of clients – the relevance of this factor arisen
primarily through its connection with other factors, such as whether the
clients were creditors;
3.
The
location of creditors – at least half of the primary unsecured
creditors were located in the US but the Court commented that the fact by
itself would not be sufficient to lean the conclusion regarding the COMI
towards the US;
4.
The
location of employees – the Court considered that there was
insufficient evidence as to the level or responsibility of the employees
stationed in Singapore;
5.
The
location of operations – given the international nature of the
company’s business, this factor was considered to be of less relevance;
6.
Dealings
with third parties – third parties (especially the
creditors) considered Zetta Group as being located in the US;
7.
The
governing law – this factor was considered to be of less relevance;
and
8.
Location
that the foreign representative was operating from – the Court
considered that the foreign representative’s actions were not relevant in the
ascertainment of the COMI.
Based
on the above, the Court held that the Presumption was displaced because (1)
central management and direction of Zetta Singapore were conducted from the US
at all relevant time; (2) corporate representations indicated it operated from
the US; and (3) a substantial portion of its creditors were located in the US.
Therefore, Zetta Singapore’s COMI was determined to be in the US.
Public
Policy Exception
The
Court held that paramount public policy of upholding the administration of
justice in Singapore shall override all others, including the protection of the
general interests of creditors.
The
Court agreed that the breach of the Singapore Injunction undermined the administration
of justice in Singapore. However, when the order was discharged and the court
issuing the order was content to let the order be discharged, recognition of
the US Bankruptcy Proceedings would no
longer undermine the administration of justice in Singapore. Therefore, the Public
Policy Exception should not apply in this case.
Conclusion
This case is the
first time that the Court found the COMI of a Singapore incorporated company to
be outside Singapore. Practitioners are reminded that the Presumption under the
Singapore Model Law, namely the
debtor’s registered office being its COMI, is not an irrebuttable presumption.
It is only a starting point subject to displacement by other factors. In
considering whether to grant the recognition of foreign insolvency proceedings,
the Court will also take into consideration the public policy of upholding the
administration of justice in Singapore.
For enquiries, please contact our Litigation
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Important: The law and
procedure on this subject are very specialised and complicated. This article is just a very general outline for
reference and cannot be relied upon as legal advice in any individual case.
If any advice or assistance is needed, please contact our solicitors. |
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Published by ONC Lawyers © 2019 |
