Singapore’s highest court has definitively held that foreign insolvency, restructuring or liquidation proceedings concerning solvent companies should be recognised in Singapore (Re Ascentra Holdings, Inc (in official liquidation) v SPGK Pte Ltd  SGCA 32), overturning a first instance decision taking the contrary view.
The Singapore Court of Appeal accepted the first appellant’s (“Ascentra“) submission that voluntary liquidation is a “foreign proceeding” under the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law“) adopted by Singapore through the Third Schedule of the Insolvency, Restructuring and Dissolution Act 2018 (“Act“).
In doing so, the Court followed developed consensus also reflected in recent US Bankruptcy Court (Southern District of New York) authorities, and recognised that in the context of liquidations, there is value to a co-ordinated approach to the liquidation of companies with transnational operations irrespective of the solvency of the company in question.
The decision by the High Court
Ascentra was in the business of selling health and beauty products as well as computer communications software in Hong Kong, Taiwan and Singapore. It was placed in court-supervised voluntary liquidation in the Cayman Islands by its shareholders after a falling out in July 2021.
As part of their duties, Ascentra’s joint and several liquidators filed a certificate in the Cayman Grand Court that certified that Ascentra should be treated as solvent. It was not disputed that for the purposes of the appeal, Ascentra was and remains at all material times solvent a solvent undertaking.
In early January 2022, Ascentra and their liquidators filed an application under Article 15 of the Model Law seeking, among other things, recognition of Ascentra’s liquidation as a “foreign main proceeding”, and the grant of powers to the liquidators as would be available to a Singapore insolvency officeholder.
Under Singapore law, “foreign proceedings” of Model Law signatory States can be recognised in Singapore as long as they satisfy the definition at Article 2(h) of the Model Law, which is that of “a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, 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 reorganisation or liquidation“.
Upon recognition of foreign proceedings, foreign officeholders would typically be granted access to the powers available to local officeholders. This would have included the full suite of investigative powers available to liquidators in Singapore. The application would have facilitated (and was clearly intended to empower) the pursuit, by Ascentra and its liquidators, of claims against inter alia a company incorporated in Singapore.
However, the Judge declined to grant the recognition sought. The Judge was of the view that the phrase “under a law relating to insolvency” in Article 2(h) of the Model Law must refer to a body of rules which governs a company that is insolvent. Because Ascentra was an indisputably solvent liquidation, it did not fall within the definition of “foreign proceeding” under Article 2(h) of the Model Law and recognition could therefore not be granted.
The Court of Appeal’s decision – the Model Law extends to solvent companies in liquidation
The Court of Appeal disagreed with the Judge’s view. The Court of Appeal’s decision can be briefly summarised as below:
- The key issue is whether the phrase “law relating to insolvency” in Article 2(h) of the Model Law was intended by the Singapore Parliament to be limited to laws that are applicable only to companies in insolvency or severe financial distress.
- The Model Law was undeniably intended to be focused primarily on companies that are either insolvent or in severe financial distress.
- However, the preparatory material to the enaction of the Model law does not go so far as to suggest that the Model Law was intended to exclude liquidations of solvent companies.
- The primary purpose of the Model Law, and Singapore’s adoption of the Model Law, in the context of liquidations, is to provide a co-ordinated approach to the liquidation of companies with transnational operations. Where the recognition would secure an orderly dissolution and/or successful rehabilitation of a company, the rationale for according recognition to the foreign proceedings would be engaged regardless of the solvency of the company in question.
- A light threshold should be imposed for recognition, which can then be tempered by granting recognition or relief subject to the imposition of appropriate conditions.
The Court of Appeal allowed the appeal and granted recognition and the relief sought by the appellants.
The Court of Appeal decision establishes and clarifies the position re: the recognition of foreign solvent company liquidations in Singapore.
This decision appears in line with recent judicial commentary on the very same provision of the Model Law. In the 2022 case of a Chapter 15 application In re: Global Cord Blood Corporation, the US Bankruptcy Court (SDNY) stated the term “under a law relating to insolvency or adjustment of debt” is to be “broadly construed“, and endorsed the conclusion in In re Betcorp 400 B.R. that for law to be “related to” insolvency, a company need not be insolvent or contemplating a debt adjustment. The US Bankruptcy Court counselled against an unduly grudging application of this flexibly worded test.
The risk of abuse of the recognition regime remains low. Proving that a foreign proceeding falls within the scope of a “law relating to insolvency or adjustment of debt” is but one of the qualifying conditions under Article 2(h). As an illustration, in In re: Global Cord Blood Corporation, the US Bankruptcy Court denied recognition on the basis that the application was not a “collective” proceeding (as it did not involve the rights of creditors, but rather was purely the substitution of fiduciaries to prevent further wrong-doing against the company), and further that the proceedings there were not “for the purposes of reorganisation or liquidation“.
These other safeguards would act to prevent recognition and relief being granted for unmeritorious cases, like the concerns raised in Re China Bozza Development Holdings Ltd  HKLRD 977 in respect of offshore soft-touch provisional liquidations, albeit in a non-Model Law context.
The imposition of a light threshold for recognition, with the possible imposition of appropriate conditions, is also welcomed. This is reminiscent of the approach taken towards recognition by Justice Abdullah in Re Genesis Asia Pacific Pte Ltd  SGHC 240 – while recognition can and should be granted in appropriate qualifying situations, safeguards such as reporting requirements may be imposed to manage the risk of conflicting interests.
Our lawyers at Herbert Smith Freehills Prolegis LLC regularly act for both debtors in contentious and non-contentious restructuring proceedings, and creditors seeking to protect their rights in insolvency situations. We provide the full spectrum of services in the restructuring, turnaround and insolvency context, including applications for recognition under the Model Law.
If you have any queries on these practice areas, please contact the undersigned, or your local HSF contact.