Singapore’s Cross-Border Insolvency Law

The Scope of Singapore’s Cross-Border Insolvency Law: The Ascentra case

In Ascentra Holdings, Inc (in official liquidation) and Ord v SPGK Pte Ltd [2023] 2 SLR 421, Singapore’s Court of Appeal (‘CA’) clarified the scope of Singapore’s cross-border insolvency law. It held that Singapore’s adapted version of UNCITRAL’s Model Law on Cross-Border Insolvency (the “SG Model Law”) applies to foreign insolvency or liquidation proceedings concerning solvent companies and not just to insolvent companies.

The SG Model law is set out at Schedule 3 to Singapore’s Insolvency, Restructuring and Distribution Act 2018.

The CA’s clarification aligns Singapore’s approach with that of the US, UK, Australia and New Zealand in facilitating office holders in restructurings or liquidations appointed by courts in one jurisdiction carrying out their duties in other jurisdictions where the distressed company has assets.

Ascentra’s liquidators were approved by a Cayman Islands court and had certified the company as being solvent. They wished to investigate claims Ascentra might have against the respondent SPGK, in Singapore. In order to do so, they wanted their powers as office holders in Ascentra’s liquidation to be recognised by Singapore’s courts. SPGK opposed such recognition.

Ascentra failed at first instance because the Singapore High Court held that Cayman Islands proceedings concerning the voluntary liquidation of a solvent company did not qualify as a “foreign main proceeding” under Article 17 of the SG Model Law. The High Court construed the SG Model Law as excluding solvent wind-ups and empowering Singapore’s courts to recognize foreign proceedings concerning insolvent companies only.

The CA disagreed, highlighting several factors supporting a broader application of the law:

• Article 2(h) of the SG Model Law defines a “foreign proceeding” for which recognition may be sought. The CA noted that nothing in this definition requires the company to be insolvent. Instead Article 2(h) refers broadly to laws relating to “insolvency or adjustment of debt.” Bolstering the CA’s interpretation was the fact that Article 31 of the SG Model Law provides that recognition of a foreign main proceeding constitutes proof that the company is unable to pay its debts. The CA reasoned that if insolvency were the sole pre-condition for recognition, Article 31 would be redundant.
• Second, the court noted that when enacting the SG Model Law, Parliament deliberately added the phrase “or adjustment of debt” to the definition of “foreign proceeding.” The CA opined that this modification, adopted from US bankruptcy law, was clearly intended to enable proceedings such as debt restructurings and schemes of arrangement involving solvent companies, to obtain recognition.
• Third, the CA reviewed the UNCITRAL’s Model Law preparatory materials and found nothing to suggest that recognition of proceedings concerning solvent companies was meant to be excluded from the cross-border insolvency framework. Instead, the CA noted that extending that framework to solvent entities would uphold the Model Law’s purpose of facilitating the coordination of cross-border insolvencies and restructurings. And in so doing, reduce uncertainty arising from divergent approaches to the recognition of such proceedings and align with the more expansive global approach taken by the Model Law.
• Finally, the court considered the prevailing international approach to interpreting and implementing UNCITRAL’s Model Law. It observed that in most jurisdictions, including the US and UK, foreign proceedings concerning solvent companies can and have been recognised under their versions of the Model Law. The CA found the SG Model Law to be aligned this global position.

The CA stressed that Ascentra does not imply automatic recognition for every foreign proceeding involving a solvent company since other requirements in Article 2(h) still need to be met. These include that the foreign proceeding must be collective in nature and subject to court supervision. The CA also noted that appropriate conditions can also be imposed when granting recognition. Such conditions can be expected to be reasonable and proportionate, in keeping with the idea of facilitating rather than hindering foreign insolvency or liquidation proceedings.

Ascentra confirms that Singapore’s cross-border insolvency regime applies to foreign proceedings concerning solvent companies, not just insolvent ones. While it concerns cross-border cases, the CA’s expansive interpretation of the SG Model Law potentially benefit domestic insolvency processes like schemes of arrangement and debt restructurings. These could gain more traction by being seen as part of a commercially-oriented framework that simplifies dealing with company assets situated abroad.

Singapore is fast developing as an insolvency and restricting hub in Asia and the Ascentra decision further enhances its credentials in that respect.