31 October, 2016
High Court held that neither section 210(10) Companies Act, nor the inherent jurisdiction of the court, conferred extra-territorial jurisdiction on creditors subject to the court’s jurisdiction
Pacific Andes Resources Development Ltd & Other Matters [2016] SGHC 210 (Singapore, High Court, 27 September 2016)
The applicants in Pacific Andes Resources Development Ltd & Other Matters (the “Applicants”) were part of a cluster of companies known as the Pacific Andes Group (the “Group”). The Applicants had successfully applied under section 210(10) of the Companies Act (the “Act”) for moratoria against proceedings brought or to be brought against them by their creditors in Singapore and elsewhere. On application to further extend the moratoria, certain of their creditors, who were all financial institutions, applied to set aside the moratorium orders granted.
The interim orders granted to the Applicants provided that the moratoria were as regards “actions or proceedings in Singapore or elsewhere”. This raised the question of whether the Court could restrain the commencement or continuation of proceedings elsewhere by creditors subject to its jurisdiction. The Applicants argued that the Court had the jurisdiction by virtue of both section 210(10) of the Act and its inherent jurisdiction. The High Court disagreed and held that section 210(10) of the Act could not be construed as conferring extra-territorial jurisdiction, nor should the Court’s inherent jurisdiction generally be exercised to restrain proceedings elsewhere, as to do so would be to interfere with the jurisdiction of another court. The moratorium on the relevant orders was accordingly limited to proceedings in Singapore.
WongPartnership acted for Cooperatieve Rabobank U.A., Hong Kong Branch (“Rabobank”), Standard Chartered Bank (Hong Kong) Limited (“SCB”) and DBS Bank Ltd (“DBS”).
Our Comments/Analysis
The Court decisively held that it had no jurisdiction, whether under section 210(10) or under its inherent jurisdiction, to restrain creditors subject to its jurisdiction from commencing or continuing proceedings elsewhere. However, the Court did offer the preliminary view that its jurisdiction as aforesaid may exist where the Court has sanctioned a scheme, and perhaps even after there has been a successful vote at the scheme meeting. In the present case, matters were at a far more preliminary stage as the Applicants had yet to even apply for leave to convene a meeting pursuant to section 210(1) of the Act.
In deciding whether the Applicants had sufficient locus standi, the Court considered whether the Applicants had sufficient nexus to Singapore. Upon reviewing various authorities, the Court held that the issue of sufficient nexus was not determinative of whether the Court’s jurisdiction existed in the matter, but rather spoke to whether the discretion ought to be exercised. To establish sufficient nexus, the Subsidiaries of PARD (defined below), inter alia, argued that they had sufficient nexus by reason of being wholly owned by PARD, which had sufficient nexus to Singapore. The Court held that this was not a relevant factor. It emphasised that the Subsidiaries were independent legal entities and the Subsidiaries’ claim that they intended to present a group restructuring plan did not warrant lifting the corporate veil.
The Court was also not receptive to the submissions of creditors that the moratorium should not be extended as any scheme that the Applicants were to propose would not procure the requisite creditor support to be duly sanctioned.
This was despite creditors holding over 30% of PARD’s debt having taken the position that they would not approve any scheme that may eventually be proposed by the Applicants. The Court opined that taking a straw poll of creditors was not appropriate at the stage at which matters were.
Several creditors objected to the extension of the moratorium on the basis that the proposed scheme lacked sufficient particularity. Rabobank and SCB submitted that the lack of particularity showed a lack of bona fides. However, the Court was of the view that there was sufficient particularity to extend the moratorium, bearing in mind that the shortness of the plan was attributable to the absence of an outcome in the overseas restructuring proceedings on which the plan was contingent.
This Update takes a closer look at the High Court’s decision.
Background
Companies incorporated in various jurisdictions other than Singapore Insolvency proceedings commenced
Moratoria granted on an interim basis
The companies in the Group, including the Applicant companies, were incorporated in various jurisdictions including the British Virgin Islands, Bermuda, Peru and Hong Kong. None of the Applicant companies were incorporated in Singapore, although Pacific Andes Resources Development Ltd (“PARD”) was listed on the Singapore Exchange and carried out business activity in Singapore. The remaining Applicants, Parkmond Group Limited (“PGL”), Pacific Andes Enterprises (BVI) Limited (“PAE”) and Pacific Andes Food (Hong Kong) Limited (“PAF”) (collectively, the “Subsidiaries”) did not have any business activity or assets of significance in Singapore.
The most commercially valuable part of the Group’s business was the production of fishmeal and fish oil (the “Peruvian Business”) and control over the Peruvian Business was the cause of the main discord between the Group and its creditors. Discussions between the Group and its financial institution creditors regarding the Group’s financial difficulties broke down and insolvency proceedings were commenced in various jurisdictions by various companies in the Group.
On 1 July 2016, PARD filed an application seeking a moratorium with regard to all the Applicants. The Court heard the application on an urgent basis and, despite expressing reservations as to whether the Court had jurisdiction to make the order in respect of the Subsidiaries in the absence of applications from each of them, the order was granted on an interim basis until 12 August 2016. The Subsidiaries subsequently filed their own applications, which were heard on an opposed ex parte basis. The Court expressed concerns about whether the Subsidiaries had locus standi to make an application under section 210 of the Act, but granted the moratoria on an interim basis pending an inter partes hearing on whether the orders should be sustained.
Malayan Banking Berhad (“Maybank”) applied to set aside the orders, save as regarded PAF, however the Applicants sought to extend the moratoria until 13 January 2017.
Maybank’s applications were supported by Bank of America, Rabobank and SCB, while other substantial creditors were either supportive of the Applicants or remained neutral. Rabobank and SCB objected to the extension of the moratorium on the basis that the proposed scheme lacked sufficient particularity and would not be approved by the creditors, the application constituted an abuse of the Court’s process and was not bona fide, and the Court’s inherent jurisdiction ought not to be invoked. In the alternative, the bank creditors submitted that the moratorium in respect of PARD should not have extra-territorial effect.
The High Court separated the case into three core issues:
Does the Court have power under section 210(10) of the Act or as a matter of inherent jurisdiction to restrain the commencement or continuation of proceedings elsewhere by creditors within and subject to the
jurisdiction of the Court (the “Jurisdiction Issue”).
Do the Applicants have locus standi to make applications under section 210 of the Act (the “Locus Standi Issue”).
Apart from locus standi, what are the pre-requisites for an order under section 210(10) of the Act (the “section
210(10) Issue”).
The Jurisdiction Issue
Section 210(10) did not confer extra- territorial jurisdiction
The key question before the Court was whether section 210(10) of the Act could be construed as conferring extra- territorial jurisdiction. After considering the arguments and authorities, the Court held that it was clear that the section could not be read in such a manner. The Court did not accept the Applicants’ submission that there was nothing in the text of section 210(10) that constrained the Court to read its powers as being territorial. The Court held that this argument ignored the presumption that statutes were intended to operate territorially in the absence of language to the contrary. The Court noted that a scheme of arrangement was territorial in nature and so the protective relief that section 210(10) offered to facilitate such a scheme must also be territorial.
The Court held that it had subject matter jurisdiction by reason of section 210 so long as the applicant was a “company” within the definition provided in section 210(10). In exercising subject matter jurisdiction over the scheme, creditors who were within the jurisdiction or participating in the scheme and whose debts were legitimately subject to the scheme would be subject to the in personam jurisdiction of the Court. In having subject matter jurisdiction over the scheme and in personam jurisdiction over those creditors, the Court would then be able to exercise its powers to restrain such creditors only within the limits of section 210(10). However, section 210(10) did not have the reach contended for by the Applicants.
Ultimately, the Court observed that the question of whether a stay of proceedings elsewhere ought to be granted to facilitate a restructuring under a scheme of arrangement here was a matter for consideration by the Court where those proceedings were being brought and would depend on the laws of that jurisdiction and the principles of comity and modified universalism.
With respect to the Applicants’ submission that the Court had inherent jurisdiction to restrain such creditors over whom it had in personam jurisdiction from commencing proceedings elsewhere, the Court held that this argument ignored the jurisprudential basis upon which the courts have recognised the jurisdiction in liquidation or administration, which was to assist the discharge of statutory obligations of an officer appointed by the Court. As the Court was compelled to assist its officer, either a liquidator or an administrator, in the discharge of his statutory obligations, it must therefore exercise its inherent jurisdiction to restrain creditors. In effect, the Court seeks to protect the integrity of its insolvency jurisdiction over the company and its assets with a view to ensuring that the statutory scheme is complied with. The Court noted that this key element was missing in a scheme of arrangement, which was essentially a debtor-in-possession regime. A scheme under section 210 of the Act was not predicated on insolvency unlike judicial management and most instances of liquidation.
The Court held that it could not accept the view that its inherent jurisdiction should generally be exercised to restrain proceedings elsewhere where the Court was faced with an application under section 210(10). However, the Court did make the observation that such jurisdiction may exist in circumstances where the Court has sanctioned the scheme.
Where a scheme was presented for sanction following a successful vote at a scheme meeting, there was certainly an argument for the exercise of equitable jurisdiction to restrain proceedings elsewhere. At that stage, a statutory compromise had been reached by the creditors, subject to sanction by the Court and in such a scenario, the Court observed that it could see no reason for the Court to undermine the application for sanction before it.
The Locus Standi Issue
Subsidiaries had no tangible nexus to Singapore
The main question was whether the Applicants had assets within sufficient nexus to the jurisdiction. If not, there would be no locus standi under section 210. The Court held that PARD was listed in Singapore and also conducted economic activity here, therefore the Court had jurisdiction to hear an application by PARD under section 210. The position with regard to the Subsidiaries, however, was quite different. The Applicants were unable to point to any assets within the jurisdiction, or any nexus that the Subsidiaries might have with Singapore. Accordingly, the Court held that the Subsidiaries did not have any tangible nexus to Singapore and therefore did not have locus standi to present applications under section 210(10).
The Section 210(10) Issue
Bona fide application important
The Court held that, what was important in determining an application under section 210(10), was whether the application was made bona fide and not in an attempt to game the system by procuring orders without any real intention of putting forward a serious proposal, and whether the proposal contained sufficient particularity for the Court to make a broad assessment that there was a reasonable prospect of the scheme working and being acceptable to creditors.
In the present case, the Court held that there was a bona fide attempt in the circumstances to propose a compromise or arrangement between the Applicants and their creditors. Various creditors argued that the plan put forward by the Applicants as to the proposed scheme lacked sufficient particularity. Rabobank and SCB submitted that the lack of particularity showed a lack of bona fides. While the Court accepted that a lack of particularity could indicate a lack of bona fides, it was of the view that the shortness of details in the Applicants’ plan was attributable to the absence of an outcome in the overseas restructuring proceedings on which the plan was contingent.
The Court also relied on the significant support from some creditors to the Applicants’ applications in finding that there was a reasonable prospect that the plan would be acceptable to the general run of creditors. Notably, creditors holding over 30% of PARD’s debt had taken the position that they would not approve any scheme that may eventually be proposed by the Applicants, and it was accordingly submitted that the moratorium should not be extended as any scheme that the Applicants were to propose would not procure the requisite creditor support to be duly sanctioned.
However, the Court opined that in view of the early stage at which matters were, the creditors’ objections were not sufficient to warrant denying an extension of the moratorium.
For further information, please contact:
Andre Maniam, WongPartnership
andre.maniam@wongpartnership.com
