Singapore High Court delivers first decision on the recognition of foreign insolvency proceedings under the newly adopted UNCITRAL Model Law on Cross-Border Insolvency

Zetta Jet Pte Ltd [2018] SGHC 16

This is the first reported decision following Singapore’s adoption of the UNCITRAL Model Law on Cross-Border Insolvency, in which the High Court of Singapore considered an application for recognition of insolvency proceedings commenced in the United States of America.

The High Court of Singapore declined to accord full recognition and only accorded the foreign representative limited recognition to the extent necessary to set aside or appeal an injunction granted earlier in the High Court of Singapore, or make related applications, and granted leave for parties to revisit the issue of wider recognition if the foreign representative succeeded in setting aside the injunction.

Mr N. Sreenivasan SC, Mr Muralli Rajaram, Ms Jerrie Tan Qiu Lin and Mr Kyle Gabriel Peters acted for the Intervener in this application, Asia Aviation Holdings Pte Ltd, who successfully opposed full recognition. The Intervener is a shareholder of Zetta Jet Pte Ltd, which was one of the Applicants.

 

I.   INTRODUCTION

Singapore adopted the UNCITRAL Model Law on Cross-Border Insolvency (the “UN Model Law”) through amendments made to the Companies Act (Cap 50), when Section 354B was introduced. The UN Model Law, as adopted in Singapore, is set out in the Tenth Schedule of the Companies Act (the “Singapore Model Law”).

Under Article 15 of the Singapore Model Law, an application may be made to the High Court of Singapore for recognition of foreign insolvency proceedings. Under Article 17 of the Singapore Model Law, the Court must grant recognition if certain requirements are met unless the public policy exception in Article 6 of the Singapore Model Law is triggered.

It is pertinent to note that Article 6 of the Singapore Model Law differs from the Article 6 of the UN Model Law. Article 6 of the UN Model Law states that recognition may be refused if it would be “manifestly contrary” to public policy, while Article 6 of the Singapore Model Law states only that recognition may be refused if it would be “contrary” to public policy. The consequence of the omission of the word “manifestly” in Article 6 of the Singapore Model Law was examined by the High Court in this decision.

This decision has set out some guidance on what would trigger the public policy bar in Singapore.

 

II.   BRIEF FACTS OF THE CASE

Zetta Jet Pte Ltd (“Zetta Jet Singapore”) is a company incorporated in Singapore. Zetta Jet USA, Inc (“Zetta Jet USA”) is a company organized under the laws of the State of California, United States of America (“US”), and is wholly owned by Zetta Jet Singapore.

The shareholders of Zetta Jet Singapore are Asia Aviation Holdings Pte Ltd (“AAH”), Truly Great Global Limited, Stephen Matthew Walter (“Walter”), and James Noel Halstead Seagrim (“Seagrim”). The relationship between the shareholders is governed by the terms of the Subscription incorporating Shareholders’ Agreement dated 26 February 2016 (the “SHA”).

On 15 September 2017, Zetta Jet Singapore and Zetta Jet USA (collectively, the “Zetta Entities”) filed voluntary Chapter 11 bankruptcy proceedings in the US Bankruptcy Court in the Central District of California – Los Angeles Division. Shortly after, on 18 September 2017, AAH and TGGL commenced Suit No. 864 of 2017 in the High Court of Singapore against Seagrim, Walter and Zetta Jet Singapore for commencing the Chapter 11 bankruptcy proceedings in alleged breach of the SHA.

On 19 September 2017, AAH and TGGL obtained an injunction order from the High Court of Singapore (the “Singapore Injunction”) which enjoined Seagrim, Walter and Zetta Jet Singapore from carrying out any further steps in and relating to the bankruptcy filings relating to the Zetta Entities in the US Bankruptcy Court until trial or further order. On 1 November 2017, TGGL discontinued its action, leaving AAH as the sole Plaintiff in Suit No. 864 of 2017.

Subsequent to the issuance of the Singapore Injunction, proceedings in the US Bankruptcy Court continued. This was in breach of the Singapore Injunction. On 5 October 2017, Jonathan D. King was appointed the Chapter 11 Trustee of the Zetta Entities in the Chapter 11 bankruptcy proceedings. On 4 December 2017, the Chapter 11 bankruptcy proceedings were converted to Chapter 7 bankruptcy proceedings. Jonathan D. King was appointed the Chapter 7 Trustee in the Chapter 7 bankruptcy proceedings on 5 December 2017.

On 13 December 2017, the Zetta Entities and Jonathan D. King applied for recognition of the Chapter 7 bankruptcy proceedings in Singapore, and for Jonathan D. King to be recognised as a foreign representative under the Singapore Model Law.

 

III.   DECISION

The application was heard in the High Court of Singapore by the Honourable Justice Aedit Abdullah (the “Judge”), who delivered his grounds of decision on 26 January 2018. While a number of issues were raised by both the Applicant and the Intervener, two main issues were considered, namely the determination of the centre of main interests (“COMI”) and the issue of whether recognition would be contrary to public policy.

          A.   Determination of COMI

Under Article 17 of the Singapore Model Law, a foreign proceeding is recognised as a foreign main proceeding if the foreign proceeding takes place where the debtor has its COMI, or as a foreign non-main proceeding if the debtor only has an “establishment” there, as defined in Article 2(d) of the Singapore Model Law.

The determination of the COMI was hence relevant to the question of whether recognition can be given to the Chapter 7 Trustee as a foreign representative in foreign main proceedings.

Under Article 16(3) of the Singapore Model Law, in the absence of proof to the contrary, the presumption is that the debtor’s COMI is its place of registration. In these proceedings, the COMI for Zetta Jet Singapore, a Singapore-incorporated company, was in issue. There was no issue in relation to Zetta Jet USA, which is incorporated in the US.

Both the Applicant and the Intervener adduced evidence to argue that the COMI of Zetta Jet Singapore was in the US and Singapore respectively.[1] Notably, the Applicant treated the Zetta Entities as a single whole in considering the COMI.[2] In this regard, the Judge noted that it is “essential to observe the separate corporate personalities, unless there is sufficient reason shown to deal with them as one”. While the Applicant did provide examples why the Zetta Entities were treated as one in practice, the Judge was of the view that this was not enough to pierce the corporate veil. Nevertheless, the Judge was satisfied on the evidence that Zetta Jet Singapore had an “establishment”, as defined under Article 2(d) of the Singapore Model Law, in the US.[3] This would qualify the Chapter 7 bankruptcy proceedings in relation to Zetta Jet Singapore for recognition as foreign non-main proceedings.

Given his order in the application and in order not to hold up resolution of the main question of the public policy exception under Article 6 of the Singapore Model Law, the Judge held that the question of the proper approach to COMI and the appropriateness of treating the Zetta Entities as one could be revisited at a later stage.[4]

          B.   Public policy exception

Under Article 17 of the Singapore Model Law, if the Zetta Entities’ COMI is in the US, or if the Zetta Entities have an establishment in the US, recognition must be granted unless recognition would be contrary to public policy, pursuant to Article 6 of the Singapore Model Law.

Noting that the formulation of Article 6 of the Singapore Model Law differs from that of the UN Model Law, and that the omission of the word ‘manifestly’ was deliberate and conscious, the Judge observed that “the standard of exclusion on public policy grounds in Singapore is lower than that in jurisdictions where the Model Law has been enacted unmodified”.[5] While the Judge refrained from setting out specifically what would trigger the public policy bar in Singapore, he held that it, at the very least, required “denial of an application for recognition by foreign insolvency representatives appointed under proceedings enjoined by a Singapore court”, given that it undermines the administration of justice.[6] In this regard, the Judge noted that the same result would seem to follow even under Article 6 of the UN Model Law, and referred to the US decision of In re Gold and Honey Ltd 410 BR 357 (2009), where the US Bankruptcy Court of the Eastern District of New York denied recognition of an Israeli receiver appointed in the face of a Chapter 11 automatic stay in the US.[7]

In striking a balance between protecting the administration of justice in Singapore and fairness to the interim Chapter 7 Trustee, the Judge held that this balance could be achieved by granting limited recognition to the interim Chapter 7 Trustee only for the purposes of applying to set aside or appeal the Singapore Injunction, or matters directly related to such applications, such as extension of time.[8] The Judge also held that it was only if the interim Chapter 7 Trustee succeeded that far, would the question of general recognition be resurfaced.[9]

 

IV.   CONCLUSION

While there is a need to have regard to the international basis of the UN Model Law, the promotion of uniformity under the UN Model Law, and the philosophy and objective of the statute and the Singapore Model Law, balance must be struck with the need to protect the integrity of the administration of justice in Singapore.

The question of what specifically would trigger the public policy bar in Singapore remains to be determined. However, it is clear that those who do not comply with orders issued by a Singapore court will not generally be able to seek the assistance of the Singapore courts.

If you have any queries pertaining to this article, please feel free to contact Mr N. Sreeivasan, SC at sreeni@straitslaw.com.sg or Mr Muralli Rajaram at muralli@straitslaw.com.sg or Ms Jerrie Tan at jerrietan@straitslaw.com.sg or Mr Kyle Gabriel Peters at kylegabriel@straitslaw.com.sg or the Straits Law Director who usually attends to your matters.

 


 

[1] Paragraphs 17 – 18 of Re: Zetta Jet Pte Ltd [2018] SGHC 16 (the “Judgment”)

[2] Paragraph 19 of the Judgment

[3] Paragraph 20 of the Judgment

[4] Paragraph 20 of the Judgment

[5] Paragraphs 22 – 23 of the Judgment

[6] Paragraph 25 of the Judgment

[7] Paragraph 26 of the Judgment

[8] Paragraph 34 of the Judgment

[9] Paragraph 34 of the Judgment