Insolvency Not Required: Recognition of Foreign Liquidations in Singapore

On 18 October 2023, the Singapore Court of Appeal handed down a landmark decision in Ascentra Holdings, Inc. and Others v SPGK Pte Ltd [2023] SGCA 32 (“Re Ascentra”), in which it confirmed that solvent official liquidations can be recognised as foreign main proceedings under Singapore’s adaptation of the UNCITRAL Model Law on Cross-Border Insolvency (the “SG Model Law”). In so deciding, the Court of Appeal overturned an earlier decision of the Singapore High Court, declined to follow a decision of the English High Court which had held that a company’s insolvency was a prerequisite for recognition under the UNCITRAL Model Law on Cross-Border Insolvency (the “Model Law”), and considered that the Cayman Islands Companies Act is “a law relating to insolvency or adjustment of debt”.

Article 17(1) of the SG Model Law stipulates circumstances in which a foreign proceeding must be recognised in Singapore, including if the proceeding is “a foreign proceeding within the meaning of Article 2(h)”. Article 2(h) of the Third Schedule of the SG Model Law in turn defines “foreign proceeding” as “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 reorganization or liquidation”.

Consequently, the elements which need to be present under Singapore law for foreign liquidation proceedings to be recognised are that:

In a lengthy and carefully considered judgment (the “Judgment”), the Singapore Court of Appeal concluded as follows.

Firstly, that it is evident from the Model Law as well as the SG Model Law that there is no express requirement for a company to be insolvent or in severe financial distress for a proceeding concerning that company to be recognised as a foreign proceeding.

Secondly, the Court of Appeal was satisfied that the words “or adjustment of debt” were included in Article 2(h) of the SG Model Law to enable the Singapore courts to recognise (i) proceedings akin to schemes of arrangement and/or reorganisations commenced under Chapter 11 of the US Bankruptcy Code; and (ii) proceedings recognisable under Chapter 15 of the US Bankruptcy Code (which sets out the US’ adaptation of the Model Law).

Thirdly, the Court was not satisfied that the drafters of the Model Law intended to exclude solvent companies from the scope of the Model Law for the purposes of recognition. In particular, it was not clear to the Court of Appeal how extending the scope of Art 2(h) to cover proceedings involving solvent companies would undermine the purpose of the SG Model Law.

Fourthly, the Court of Appeal conducted a thorough analysis of the Model Law, along with numerous authorities dealing with the recognition of solvent companies in the United States, the United Kingdom and elsewhere. The Court was satisfied that Article 2(h) of the Model Law should be interpreted in a way that is broadly harmonious with the approaches adopted in other jurisdictions. It is notable that the Court of Appeal followed the approach taken by the US Bankruptcy Court, whereby the requirement that a “foreign proceeding” commenced under a law relating to insolvency or the adjustment of debts does not require the company to be either insolvent or contemplating the adjustment of debt (as reflected in Re Betcorp Limited (in liquidation) 400 BR 266), and respectfully disagreed with the contrary approach that was taken by the English High Court in Re Sturgeon Central Asia Balanced Fund Ltd (in liquidation) [2020] EWHC 123 (Ch).

Lastly, the Court of Appeal considered and dismissed other objections raised by SPGK regarding the nature and purpose of Ascentra’s liquidation, concluding that it was a collective proceeding and was being conducted for the purpose of reorganisation or liquidation.

The Court of Appeal found that, insofar as there could be concerns about recognising solvent liquidations, any practical concerns could be easily dealt with in the recognition order.

The decision in Re Ascentrais significant. It confirms that Cayman official liquidators (and, presumably, Cayman restructuring officers) are entitled to seek recognition of their appointment in Singapore, and avail themselves of the powers and protections that comes with such recognition, without having to worry about whether the company’s actual, or potential, solvency alone will prevent recognition from being granted. Liquidators, administrators and trustees of solvent companies in other jurisdictions (such as Chapter 11 trustees) are also likely to benefit from the Court of Appeal’s decision. When considering a recognition application, the Singapore Court will not be required to conduct a de novodetermination of a foreign company’s solvency position (which would involve complex questions of exactly how that company’s solvency should be assessed by the Singapore Court).

The Court of Appeal’s decision also offers a pragmatic solution in circumstances where Cayman official liquidators are under a continuing duty to keep their solvency determination under review, and where the financial position of many Cayman liquidations is fluid. Had a company’s solvency status been found to be determinative, it would have meant that the recognition of any liquidation proceedings granted in Singapore after a certificate of insolvency had been filed could be challenged if and when the liquidator determined that the company had in fact become solvent (for example, following the conclusion of a successful lawsuit). Conversely, a liquidation ineligible for recognition due to a determination of solvency might suddenly become eligible for recognition if it were to become insolvent (for example, if a significant creditor were to come out of the woodwork). Such an outcome would have been practically unworkable.

The judgment provides welcome clarification by Singapore’s highest court of the correct interpretation and application of the SG Model Law, and in particular the meaning of “law relating to insolvency and adjustment of debt”.

Campbells LLP acts as Cayman Islands counsel for the Joint Official Liquidators of Ascentra, Graham Robinson and Ivy Chua Suk Lin.

Nothing in this article is intended to provide, or should be construed as giving, Singapore legal advice. Readers should seek advice from Singapore counsel in relation to any matters of Singapore law discussed herein.