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.

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This article was originally published on ONC Lawyers.

This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.