In a move that facilitates the seamless integration of cross-border insolvency proceedings between Singapore and Indonesia, Singapore’s International Commercial Court has for the first time granted recognition of Indonesian PKPU proceedings in Re PT Garuda Indonesia (Persero) Tbk [2024] SGHC(I) 1.
Given the regional proximity between Singapore and Indonesia, there are a multitude of businesses and sectors that operate in both jurisdictions. Insolvency professionals, creditors and debtors involved in insolvency proceedings in Indonesia, who wish to extend the PKPU protections to assets or claims located in Singapore, will benefit. The grant of protective relief in Singapore will assist in the implementation of a restructuring plan globally, ensuring that the debtor company is protected from adverse actions in both Singapore and Indonesia while pursuing its eventual restructuring.
Indonesia has a vibrant and lively restructuring scene. The PKPU process is well utilised as a more efficient legal option if compared to the more time-consuming informal restructuring process. There is now precedent for cross-border protections in both Singapore and Indonesia being “recognised” in the other. In the PT Pan Brothers Tbk judgment, the Indonesian court had effectively extended the stay under Singapore’s moratorium over an action commenced in Indonesia.
The statutory framework for recognition
Singapore adopted of the UNICTRAL Model Law on Cross-Border Insolvency (the “Model Law“) through the Third Schedule of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA“).
This established a statutory procedure through which foreign insolvency proceedings can be “recognised” in Singapore. As long as the foreign insolvency proceeding satisfies the entry criteria, the insolvency practitioner (in most cases, the administrator or its equivalent) can apply for relief in Singapore to further the aims of the domestic insolvency proceedings.
The relief that can be granted is wide-in-scope and can be tailored on a case-by-case basis. Common “baseline” reliefs include the extension of an in personam moratorium on claims against the debtor company (to prevent competing claims being brought in Singapore), or the grant of express powers to the administrator to collect and distribute assets located in Singapore.
Background to Garuda Indonesia’s restructuring proceedings in Indonesia
Garuda Indonesia is the Indonesian national airline. It had been registered in Singapore as a foreign company since 1952 and has operated flights in and out of Singapore since 1966. It held assets in Singapore such as aircraft, physically located in Singapore, as well as cash.
Garuda Indonesia commenced restructuring proceedings in Indonesia in or around December 2021. This took the form of a “Penundaan Kewajiban Pembayaran Utang” or “PKPU” proceedings under Indonesian law.
Garuda Indonesia’s PKPU proceedings
PKPU is the only formal restructuring process in Indonesia. It is a debtor-in-possession restructuring process (like the US Chapter 11 process, or Singapore’s scheme of arrangement process) whereby the debtor company retains control over the management of the debtor’s property and assets.
Under a PKPU process, a stay of proceedings is granted to suspend all of the debtor’s payment obligations for a stipulated period. In Garuda Indonesia’s case, the PKPU order was granted for a total of 196 days (the maximum period, by comparison, is 270 days). This stay was granted to allow Garuda Indonesia to come up with a restructuring, or Composition Plan for presentation to, and negotiation with, its creditors.
The final version of Garuda Indonesia’s Composition Plan sought to distribute a total of US$825 million to its creditors. At a final vote in Indonesia in June 2022, Garuda Indonesia’s creditors voted in favour of the Composition Plan. The Composition Plan was subsequently homologated by the Jakarta Commercial Court.
Garuda Indonesia’s restructuring was a global affair. The PKPU proceedings were one of four (at the time) on-going insolvency proceedings commenced by or against Garuda Indonesia. The other proceedings were Chapter 15 proceedings in New York, winding-up applications in New South Wales, and two proceedings in France.
Challenges by dissatisfied creditors
There were creditors (the Greylag entities) that were dissatisfied with the decision by the Jakarta Commercial Court to homologate Garuda Indonesia’s Composition Plan. The Greylag entities are the lessors of two Airbus aircraft.
In February 2023, the Greylag entities filed an application to nullify the Composition Plan based on an alleged breach of the Composition Plan by Garuda Indonesia. The application was dismissed on 31 August 2023 and the Greylag entities’ appeal against that decision (the “Nullification Appeal”). was filed on 20 December 2023.
The Singapore court proceedings
The officers of Garuda Indonesia subsequently applied to the SICC for recognition in Singapore of its PKPU proceedings, and an order recognising and enforcing the Composition Plan as a foreign order and granting appropriate relief to assist the administrators to do so in Singapore.
The Greylag entities objected to the recognition on two grounds. First, the recognition application was filed prematurely in light of the Nullification Appeal which is pending. Second, that the recognition of the PKPU proceedings would be contrary to the public policy of Singapore.
No basis for finding that the recognition application was filed prematurely
The SICC found that there was no legal basis in the Third Schedule of the IRDA in support of the objection. A recognition application can and is often brought soon after the foreign proceeding is commenced. There is no requirement in the IRDA all avenues of appeal and review be finally exhausted before an application for recognition is brought.
Further, an order granting recognition is subject to review or recission. A recognition application granted by the Singapore courts can always be terminated if the basis for granting that order no longer exists – i.e. if the Nullification Appeal is successful and the homologation order is subsequently reversed.
The public policy objection was unsustainable
The SICC considered that a high threshold is required before the Singapore courts should find that the recognition of a foreign proceeding is in breach of Singapore public policy under Article 6 of the Model Law.
Any successful challenge against recognition under Article 6 of the Third Schedule must be narrow in scope, and will succeed only if the recognition and grant of relief is contrary to the fundamental public policy of Singapore. Such situations are likely to be rare, involving wilful breaches of moratoria, criminal activity, or fraud.
The Greylag entities’ objections did not satisfy this high bar.
Their first objection was that they were classed wrongly in the PKPU proceedings. The SICC however found that this objection was based on Singapore’s own jurisprudence and rules on classification of creditors, as contained in Section 210 of the Companies Act 1967 and relevant case law. There was no requirement under Indonesian law for creditors to be classified in the manner required under Singapore law. The Greylag entities objection was at its heart a criticism of Indonesian law’s classification regime, instead of a valid objection against the grant of recognition.
The Greylag entities’ second objection – that there was inadequate disclosure of financial information – was also rejected by the SICC. There was evidence that, at all material times, sufficient information was provided to Garuda Indonesia’s creditors in the PKPU process. Further, and factually, financial information relating to Garuda France was not withheld – instead, the Greylag entities had failed to request for such information and accordingly, there were no grounds for them to claim that access to such information was denied.
For the above reasons, the SICC granted recognition of the PKPU order as a foreign main proceeding under the Third Schedule of the IRA.
“Any appropriate relief” can be granted by the Singapore court
In the previous decision of Re Tantleff, Alan [2022] SGHC 147, Justice Abdullah had considered that the appropriate relief that may be granted to foreign officeholders any relief that “may be available to a Singapore insolvency officeholder“.
The SICC went further. In its view, the Singapore courts instead have the power under Article 21(1) of the Third Schedule to grant “any appropriate relief“.
The SICC therefore proceeded to grant the recognition application and the reliefs sought, with specific carve outs to take into account ongoing arbitration or litigation proceedings, and claims that were not admitted by Garuda Indonesia’s administrators during the PKPU proceedings.
Key takeaways for cross-border restructuring in Singapore
Over the last decade, Singapore has been aggressively positioning itself as a debtor-friendly restructuring hub to rival established jurisdictions like the US (through its Chapter 11 process). This is an initiative which is shared across all spectrums of the restructuring industry in Singapore, from legislation (the introduction and adoption of the IRDA), insolvency professionals, and legal practitioners.
Indonesia has a vibrant and lively restructuring scene. The PKPU process is well utilised as a more efficient legal option if compared to the more time-consuming informal restructuring process.
With the Garuda Indonesia judgment, there is now precedent for cross-border protections in both Singapore and Indonesia being “recognised” in the other. Garuda Indonesia is the roadmap for recognition of PKPU proceedings in Singapore.
On the flip side of the coin, in the PT. Pan Brothers Tbk judgment, the Indonesian court decided that because the debtor company had obtained moratorium relief in Singapore, the debt owed did not satisfy the requirement that the debt be a “simple case” which is the pre-requisite for the commencement of PKPU proceedings in Indonesia, effectively extending the stay under Singapore’s moratorium over an action commenced in Indonesia.
The Garuda Indonesia judgment will especially help distressed debtors in Indonesia where the rehabilitation and restructuring process involves creditors and/or assets based in Singapore. The grant of protective relief in Singapore through invoking the Third Schedule of the IRDA will assist in the implementation of a restructuring plan globally, ensuring that the debtor company is protected from adverse actions in both Singapore and Indonesia while pursuing its eventual restructuring.
Capabilities Statement
In Singapore, Prolegis LLC acts for debtor companies, creditors and insolvency professionals in various court-supervised restructuring and contentious insolvency proceedings. Prolegis LLC has successfully acted for applicant debtors seeking to recognise foreign proceedings in Singapore under the Third Schedule of the IRDA.
HBT’s restructuring, turnaround and insolvency (RTI) is one of the most experienced and successful in Indonesia and is highly recognised for its work with domestic and international clients in the most complex and significant informal financial restructurings and work-outs, court-supervised debt restructuring, bankruptcy and insolvency. Our RTI team consists of banking & finance and dispute resolution specialists, offering complete and commercially relevant solutions to the client.
Key Contacts
If you have any queries on these practice areas, please contact one of our Singapore (through Prolegis) or Indonesian (through HBT) partners, or your local HSF contact.
For further information, please contact:
Daniel Waldek, Partner, Herbert Smith Freehills
daniel.waldek@hsf.com
