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21 September, 2016
In a landmark ruling in Re Opti-Medix Ltd (in liquidation) & Anor Matter [2016] SGHC 108, the Singapore High Court allowed an application for the appointment in Singapore of a foreign bankruptcy trustee pursuant to foreign insolvency proceedings. This was the first written decision by the Singapore courts on the recognition of foreign liquidators (or bankruptcy trustees) from jurisdictions other than the place of incorporation of the companies concerned.
WongPartnership acted for the successful Applicant.
Our Comments / Analysis
The decision recognizing the status of the Tokyo District Court-appointed bankruptcy trustee over the British Virgin Islands (the “BVI”) companies without requiring separate liquidation or recognition proceedings to be brought in the BVI marks an unprecedented significant development in the law. It affirms, for the first time, that bankruptcy proceedings in a company’s centre of main interests, but outside its place of incorporation, can be recognised in Singapore.
This decision also reflects Singapore’s growing acceptance of the universalist approach to cross-border insolvency and is expected to bring about a more cohesive approach to cross-border insolvency and restructuring efforts.
This Update takes a look at the decision.
Facts
Companies incorporated in British Virgin Islands but main business interests in Singapore and Japan Medical Trend Limited and Opti-Medix Limited (the “Companies”) were incorporated in the BVI. Their main area of business was factoring receivables from medical institutions in Japan, which was funded by non-recourse notes issued by the Companies. The notes were governed by Singapore law, with a Singapore address for service of notices, but were marketed in Japan by Japanese brokers. The proceeds were then transferred to Singapore bank accounts.
Bankruptcy proceedings commenced in Japan
In 2015, the Securities and Surveillance Commission of Japan suspended the issuing of new notes by the Companies as there was insufficient profit to meet payments under the notes. Bankruptcy proceedings were subsequently commenced against the Companies in Japan and bankruptcy orders were made by the Tokyo District Court in November 2015. The Applicant was appointed as Bankruptcy Trustee of the Companies.
Applicant sought to exercise his power to dispose of Companies’ assets
The Companies had primarily Japanese creditors, with only three Singapore creditors, and there was some balance monies held in some of the Companies’ Singapore bank accounts. The Applicant sought to exercise his powers under the Japanese bankruptcy orders to ascertain, administer and dispose of the Companies’ assets. As the Companies were possibly under an obligation to register as foreign companies conducting business in Singapore, it was understood that preferential debts and debts incurred in Singapore would have to be paid before remitting the surplus out of Singapore.
Applicant sought recognition in Singapore
The Applicant sought the recognition in Singapore of his appointment as the Bankruptcy Trustee of the Companies. He argued that since there were no competing claims by liquidators from different jurisdictions, the Singapore court should recognize his appointment. He submitted that no prejudice would be suffered as there were only three Singapore creditors, the notes were only sold in Japan, and any debts incurred in Singapore were only for administrative purposes. Further, notice of the liquidation had been advertised in Singapore and no one had contacted the Applicant’s solicitors.
Growing acceptance to idea of locating primary place of insolvency proceedings at COMI
Even though he was not a liquidator appointed in the place of incorporation of the Companies, the Applicant submitted that his appointment should be recognized because there was no likelihood of insolvency proceedings in the BVI. The Japanese court should be considered the principal court of liquidation as there was no liquidation elsewhere. The Applicant submitted that there was a growing acceptance of the idea of locating the primary place of insolvency proceedings at the centre of main interest (“COMI”) of the company concerned. In the present case, Japan was the only possible COMI for the Companies.
Finally, the Applicant emphasized that an undertaking had been given to pay all preferential debts and other debts in Singapore before remitting any funds out of Singapore.
Decision
High Court granted recognition of Japanese bankruptcy orders and appointment of Applicant as Bankruptcy Trustee
The Singapore High Court allowed the application and granted recognition of the bankruptcy orders of the Tokyo District Court and of the appointment of the Applicant as the Bankruptcy Trustee of the Companies. The Court ordered that all moveable assets and records be vested in the Applicant as Bankruptcy Trustee and that he be empowered to collect and recover those assets and records.
The key points of the Court’s reasoning were as follows:
In order to recognise foreign liquidation proceedings in Singapore, more must be shown than just the fact that the company is in liquidation in a particular country. In the present case, this was the fact that the jurisdiction in question (i.e., Japan) was where the bulk of the business and transactions
of the Companies occurred.
In cross-border insolvency, there has been a general movement away from the traditional, territorial focus on the interests of the local creditors towards recognition that universal cooperation between jurisdictions is conducive to the orderly conduct of business and resolution of business failures across jurisdictions.
A consequence of this universalist approach is a greater readiness to go beyond traditional bases for recognizing foreign insolvency proceedings. The approach of identifying the COMI has much to commend it in a practical sense since the COMI will likely be the place where most dealings occur, most money is paid in and out, and most decisions are made. It is the place where the bulk of the business occurs and therefore provides a strong connecting factor to the courts there.
The legislative regime in Singapore is presently silent on the recognition of foreign insolvency proceedings. In the present case, it was significant that Japan was essentially the sole place where actual business was carried out and Singapore was primarily a centre for managing funds received in the first instance in Japan.
Where the interests of the forum are not adversely affected by a foreign order, the courts should lean towards recognition on both the bases of comity and business practicality. The undertaking in the present case protected the Singapore creditors and there was no competing jurisdiction in the winding-up of the Companies. Accordingly, to hinder the orderly dissolution of the Companies in these circumstances would serve no purpose.
For further information, please contact:
Smitha Menon, Partner, Wong Partnership
smitha.menon@wongpartnership.com
