To Be Or Not To Be (Solvent) - A Comparative Analysis Of Singapore, UK, US, And Australia On Recognising Foreign Proceedings Under The UNCITRAL Model Law

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The recent case of Ascentra Holdings, Inc v. SPGK Pte Ltd [2023] SGCA 32 (Ascentra) has drawn a line in the sand in the Singapore court's interpretation...
Worldwide Insolvency/Bankruptcy/Re-Structuring
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The recent case of Ascentra Holdings, Inc v. SPGK Pte Ltd [2023] SGCA 32 (Ascentra) has drawn a line in the sand in the Singapore court's interpretation of the UNCITRAL Model Law on Cross-Border Insolvency (UNCITRAL Model Law), as incorporated in the Third Schedule of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) to create the Singapore Model Law.

Following Ascentra, Singapore has taken the definitive position that the reference to "a law relating to insolvency or adjustment of debt", as used in Article 2(h) of the Singapore Model Law, should be widely construed, and that insolvency of the foreign debtor is not required for recognition of a foreign proceeding within the meaning of Article 2(h).

While the Ascentra decision provides new and welcome clarity in Singapore, the question of whether a proceeding is brought pursuant to "a law relating to insolvency" (and thereby falling within the meaning of 'foreign proceeding' capable of being recognised under the UNCITRAL Model Law) is not new. This has been discussed at length in multiple jurisdictions, where there are differing views.

In Ascentra, the Singapore Court of Appeal (SGCA) considered the issue to a different conclusion from the initial judgment of the Singapore High Court (SGHC), the latter hewing more closely with the prevailing view in the United Kingdom, where a solvent entity could not claim recognition of its overseas proceeding as a foreign proceeding.

The SGCA decision in Ascentra brings implementation of the Singapore Model Law in line with other popular UNCITRAL Model Law jurisdictions like the United States. From a jurisprudential perspective, this case is particularly helpful because it gave the SGCA opportunity to consider the issue and contrary view taken by the SGHC at first instance.

In reaching its decision, the SGCA considered that "a light threshold should be imposed for recognition". This is a clear directional marker that will assist applicants seeking recognition of their foreign proceedings in Singapore.

The opposite is also true; in that the Ascentra case suggests that resisting the recognition of 'foreign proceedings' in Singapore will likely be challenging in the face of clear jurisprudential and public policy considerations in favour of recognition.

In this Legal Update, we examine Singapore's newly settled position on what constitutes a 'foreign proceeding' in light of Ascentra – and compare this with equivalent provisions in the UK, US and Australia.

SUMMARY: ASCENTRA HOLDINGS, INC V. SPGK PTE LTD [2023] SGCA 32

PARTIES

  • The first appellant, Ascentra Holdings, Inc was in the business of selling health and beauty products, as well as computer communications software, in Hong Kong, Taiwan and Singapore
  • The second and third appellants were liquidators appointed by the Cayman court.
  • The respondent was SPGK Pte Ltd (SPGK).

BRIEF FACTS

  • Ascentra maintained it had potential claims against SPGK in Singapore.
  • Ascentra was in liquidation in the Cayman Islands, with its voluntary solvent liquidation process deemed to have commenced on 2 June 2021.
  • Ascentra's official liquidators certified to the Cayman court on 23 September 2021 that the company "should be treated as solvent" for the purposes of liquidation proceedings in the Cayman Islands.
  • On 6 January 2022, Ascentra filed for recognition of the Cayman Islands voluntary solvent liquidation process in Singapore as a 'foreign proceeding' pursuant to Article 15 of the Singapore Model Law (Application for recognition of a foreign proceeding).
  • This application was rejected by the SGHC in the first instance on the grounds that Ascentra's solvency and the voluntary nature of the Cayman Island process precluded the Cayman Islands proceeding from being considered a 'foreign proceeding' under Article 2(h) of the Singapore Model Law. Ultimately, the SGHC held that the UNCITRAL Model Law and Singapore Model Law were never intended to apply to solvent companies or proceedings that are not insolvency proceedings.1

ISSUES ON APPEAL

  • The SGCA considered whether voluntary solvent liquidation has a basis in a law "relating to insolvency or adjustment of debt" within the meaning of Article 2(h) of the Singapore Model Law; whether Ascentra's voluntary solvent liquidation in the Cayman Islands had such basis; and whether Article 2(h) applies to solvent companies.
  • Article 2(h) is below, for reference:
    "foreign proceeding" means 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;" (emphasis added)

SGCA DECISION

  • The SGCA disagreed with the SGHC and ruled that Ascentra's voluntary solvent liquidation in the Cayman Islands falls within the definition of a 'foreign proceeding' pursuant to Article 2(h). Ascentra's solvency (and lack of severe financial distress) was not a bar to recognising the Cayman Islands proceedings as a foreign proceeding. 
  • The SGCA reasoned that it is not the intention of the UNCITRAL Model Law and Singapore Model Law that they should apply only to insolvent companies. There is nothing in either legislation that expressly defines the recognition regime by reference to the solvency status of the company in question.
  • When determining whether a proceeding is pursuant to a "law relating to insolvency", courts are to take a "Broad Approach" and consider the relevant law as a whole, and not limit consideration of the law to only specific provisions under which the proceeding is founded, and whether these provisions apply for a company that is justified in severe financial distress.
  • The SGCA also found that, in considering Article 2(h), the SGHC was too focused on the "law relating to insolvency" language and did not sufficiently consider the "adjustment of debt" limb in its analysis.
  • The language "or adjustment of debt" after "a law relating to insolvency" is not in the UNCITRAL Model Law, but was an intentional addition by the Singapore Parliament in its drafting of the Singapore Model Law; and deliberately adopted from the definition of 'foreign proceeding' appearing in s 101(23) of the US Bankruptcy Code, Title 11, Chapter 1. This led the SGCA to conclude that, in its judgment, "it may also be inferred from Parliament's deliberate modification of Art 2(h) of the UNCITRAL Model Law in accordance with s 101(23) of the US Bankruptcy Code that Parliament intended to bring within the ambit of the [Singapore Model Law] proceedings that are recognisable under the provisions of US law that correspond to the [Singapore Model Law], specifically Chapter 15 of the US Bankruptcy Code".
  • As such, it was determined that on a purposive reading of Article 2(h) in full, and with knowledge of this context, it is Parliament's intention to empower the Singapore courts to recognise foreign proceedings under the Singapore Model Law that would be recognisable under Chapter 15 of the US Bankruptcy Code, and to also recognise proceedings commenced under Chapter 11 of the US Bankruptcy Code or proceedings that are similar to schemes of arrangement under Singapore law
  • The SGCA also noted that none of the categories of recognisable or comparable proceedings referenced above "requires the subject company to be insolvent or in severe financial distress as a prerequisite for commencement".
  • The SGCA considered a number of other factors in support of its decision. Whilst relevant, these factors in our view are secondary drivers of the decision and are therefore not presented in this article.2

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Footnotes

1. Re Ascentra Holdings, Inc (in official liquidation) and others (SPGK Pte Ltd, non-party) [2023] SGHC 82, [3].

2. The secondary grounds in support of the decision of the SGCA include:

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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