Introduction
To promote cooperation among stakeholders in different jurisdictions to facilitate coordinated insolvency proceedings, the United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on Cross-Border Insolvency (MLCBI) in 1997. The MLCBI harmonises certain procedural aspects of the cross-border insolvency process, though states may choose to make modifications when adopting the MLCBI in their own legal systems. This was completed in Singapore in 2017, and the Singapore Model Law (SML) can now be found in the Third Schedule to the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (IRDA 2018). One topic that has been the subject of much debate internationally is whether foreign solvent proceedings can be recognised under the MLCBI or the corresponding provisions in various jurisdictions: the Nevada Bankruptcy Court first answered this question in the affirmative,Footnote 1 but this was explicitly rejected by the High Court of England and Wales (EWHC) in Re Sturgeon Central Asia Balanced Fund Ltd (in liquidation) (No 2) Footnote 2 (Re Sturgeon). In Ascentra Holdings, Inc (in official liquidation) v SPGK Pte Ltd Footnote 3 (Ascentra), the Singapore Court of Appeal (SGCA) held that foreign proceedings concerning solvent companies may be recognised under the SML. This commentary addresses the salient points of the SGCA's judgment and highlights the positive impact of this gradual harmonisation of the approaches taken in different jurisdictions to the MLCBI. Through a comparative analysis of the conflicting Re Sturgeon decision, three additional justifications based on the preparatory documents pertaining to the MLCBI, relevant authorities in the UK and a purposive reading of the MLCBI are provided for the approach in Ascentra. It is contended in closing that these reasons support the argument for definitively overruling the Re Sturgeon decision in the UK.
Factual background
In Ascentra, the shareholders of a solvent company (Ascentra) resolved to place it in voluntary liquidation under Cayman Islands law in 2021, but this was later converted into a court-supervised liquidation due to the directors’ failure to satisfy certain procedural rules. As Ascentra allegedly had claims against several companies, including a Singapore-incorporated company, SPGK Pte Ltd (the respondent), Ascentra's liquidators sought recognition of the Cayman liquidation, and in turn their appointment as foreign representatives, in Singapore to obtain powers under the local insolvency law. The Singapore High Court (SGHC) initially held that recognition under the SML can only be granted in respect of proceedings involving insolvent or severely financially distressed companies.Footnote 4
Underlying this issue is the question of the appropriate interpretation of a ‘foreign proceeding’, which is a prerequisite to recognition under Article 17(1) of the SML, and is defined in Article 2(h) of the SML 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 reorganisation or liquidation. (emphasis added)
The SGHC held that the specific legislative provisions under which the Cayman liquidation was conducted had to relate to insolvency or adjustment of debt (the Narrow Approach), and this was not satisfied on the facts since Ascentra underwent a solvent liquidation. This can be contrasted with the ‘Broad Approach’ under which it is sufficient if the Cayman liquidation was conducted under a law which contains provisions relating to insolvency or adjustment of debt, even if those provisions were not actually applied in the relevant case. Evidently, the adoption of the Broad Approach is necessarily correlated to the recognition of foreign solvent proceedings.
The judgment
In overturning the SGHC's decision, the SGCA set out four reasons for allowing recognition of foreign proceedings involving solvent companies under the SML, and therefore adopting the Broad Approach to interpreting Article 2(h) of the SML.
First, unlike Article 2(a) of the MLCBI, which defines a foreign proceeding as having been conducted ‘pursuant to a law relating to insolvency’, Article 2(h) of the SML requires the relevant proceeding to have been conducted ‘under a law relating to insolvency or adjustment of debt’. The words ‘or adjustment of debt’ were adapted from section 101(23) of the US Bankruptcy Code, and the SGCA held that this was done deliberately to enable recognition of foreign proceedings akin to schemes of arrangement in Singapore, Chapter 11 reorganisations in the US, or proceedings recognisable under Chapter 15 of the US Bankruptcy Code (in which the US’s adaptation of the MLCBI is set out).Footnote 5 The fact that none of these situations is limited to insolvent or severely financially distressed companies was held to reveal the Singapore Parliament's intention to extend the SML to proceedings concerning solvent companies.Footnote 6
Secondly, although the MLCBI – even without the modifications inspired by the US Bankruptcy Code – was primarily intended to cater to insolvent or severely financially distressed companies, this is not necessarily exhaustive.Footnote 7 The SGCA also noted that solvent and insolvent regimes are ‘seldom mutually exclusive’, so a proceeding concerning a solvent company may ‘transition’ into one concerning an insolvent company.Footnote 8 Since the provisions governing the respective regimes will often fall under the same piece of legislation,Footnote 9 the Broad Approach allows the proceeding to be recognised under the SML regardless of changes in the company's solvency.
Thirdly, Article 8 of the SML states that in interpreting the SML, ‘regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith’. The SGCA therefore reviewed and approved cases from the US,Footnote 10 UK,Footnote 11 AustraliaFootnote 12 and New ZealandFootnote 13 that either confirmed that recognition is not limited to foreign insolvent proceedings or granted recognition without considering the solvency status of the relevant company, with the Broad Approach even being explicitly affirmed in some cases.
Finally, allowing recognition of proceedings involving solvent companies would avoid the need for the recognising court to re-assess the company's insolvency (based on the law of a foreign state), thus reducing complexity at this early stage.Footnote 14 The SGCA was of the view that a ‘light threshold’ should generally be imposed for recognition, since recognition or relief can be granted subject to ‘appropriate conditions’.Footnote 15 Moreover, concerns of the Broad Approach opening the floodgates for recognition applications are exaggerated given the four other requirements under Article 2(h) of the SML: the proceeding must be collective in nature; it must be a judicial or administrative proceeding in a foreign state; it must be for the purpose of reorganisation or liquidation; and the debtor's property and affairs must be subject to control or supervision by a foreign court in that proceeding.Footnote 16
Applying these principles in Ascentra, Part V of the Companies Act (2021 Rev) (Cayman Islands) includes provisions dealing with insolvency or adjustment of debt. Even though those specific provisions were not relied upon by Ascentra, other Part V provisions were – so applying the Broad Approach, the Cayman liquidation constituted a proceeding conducted ‘under a law relating to insolvency or adjustment of debt’.Footnote 17 As the remaining requirements in the definition of a ‘foreign proceeding’ under Article 2(h) of the SML and the other requirements for recognition under Article 17 of the SML were satisfied,Footnote 18 the SGCA was obliged to recognise Ascentra's Cayman liquidation as a foreign main proceeding in Singapore.Footnote 19
Commentary
The Ascentra decision aptly reinforces several authorities in other jurisdictions on this matter, offers crucial guidance to foreign debtors on the type of proceedings that may be recognised in Singapore, and emphasises the relegation of common law recognition in Singapore to foreign personal bankruptcy proceedings.Footnote 20 Even so, this decision also underscores the need for directors and legal advisers of Singapore-based companies to remain alive to the possibility of facing more enforcement actions or moratoria given the expanded range of foreign proceedings that may be recognised.
Nonetheless, this approach has not been accepted in all countries that have adopted the MLCBI. In Re Sturgeon, Briggs J (as he then was) rejected the possibility of recognising foreign solvent proceedings under the Cross-Border Insolvency Regulations 2006 (CBIR 2006) which give effect to the MLCBI in Great Britain, and the main grounds for this decision are analysed below. It is submitted that the following three reasons buttress the decision reached in Ascentra and justify rejecting Re Sturgeon in the UK.
First, although the MLCBI was interpreted purposively by the courts in both Re Sturgeon and Ascentra,Footnote 21 different conclusions were reached as to its purpose. According to Briggs J, the MLCBI was intended to protect creditors, employees and debtors, which is paradigmatic of an insolvent rescue.Footnote 22 However, as the SGCA has noted, another purpose of the MLCBI (which extends to solvent proceedings) is to facilitate cooperation and coordination among courts in different jurisdictions to ensure orderly dissolution or rehabilitation of companies.Footnote 23 There is little reason why companies should be forced to expend their assets opening fresh proceedings in a range of countries when avenues for recognition and assistance are available and subject to various safeguards, including the remaining definitional requirements of a ‘foreign proceeding’ and the public policy exception in Article 6 of the MLCBI. Concerns of creditors’ rights being unnecessarily restrained should not be overstated since any moratorium following recognition may be modified or terminated by the court under Article 20(6) of the SML or Article 20(6) of Schedule 1 to the CBIR 2006.Footnote 24 Indeed, given Ascentra's solvency and in the absence of a risk of Ascentra's creditors rushing to satisfy their claims, the respondent in Ascentra later successfully obtained a termination of the moratorium that arose automatically upon recognition of the foreign main proceeding.Footnote 25 This is reinforced by two additional sources: the former applies to the UK specifically while the latter is relevant to all jurisdictions which have implemented the MLCBI. First, several (though not all) policy justifications raised in the Explanatory Memorandum to the CBIR 2006 (which was not cited in Re Sturgeon) are equally applicable to solvent proceedings. This includes the need to avoid conflict among different national insolvency laws which ‘can result in the dissipation of assets … [which] can be a barrier to trade’, and the fact that implementing the MLCBI will serve ‘the cause of fairness towards creditors who may be located anywhere in the world’.Footnote 26 Moreover, in the 1995 report of the 18th session of the UNCITRAL Working Group V on Insolvency Law, the definition of foreign proceedings was explicitly shifted away from proceedings for the purpose of liquidating a debtor's assets specifically to proceedings conducted pursuant to a law relating to insolvency generally.Footnote 27 This wider focus on the ‘nature of the legal process’ rather than the facts of individual cases was a central reason for Falk J in the EWHC recognising a foreign solvent liquidation under the CBIR 2006,Footnote 28 in a decision that later led to a review by Briggs J in Re Sturgeon.
Secondly, the preparatory materials related to the MLCBI fail to reinforce the requirement for debtors’ insolvency or severe financial distress before recognition is granted. In upholding the need for this requirement in Re Sturgeon, Briggs J relied on a statement in the 2014 Guide to Enactment and Interpretation of the MLCBI (the 2014 Guide) that ‘[a] simple proceeding for a solvent legal entity that does not seek to restructure the financial affairs of the entity, but rather to dissolve its legal status’ is ‘likely’ not one pursuant to a law relating to insolvency.Footnote 29 However, this assertion is ambiguous for several reasons. First, as counsel before Falk J noted, only indeterminate and undefined phrases are used in the 2014 Guide (eg ‘simple’ proceedings, ‘likely’ not pursuant to a law relating to insolvency).Footnote 30 This is even though the 2014 Guide was prepared several years after the decisions in Re Betcorp and Stanford, suggesting that the drafters of the 2014 Guide could have but deliberately abstained from rejecting those cases. Further, the SGCA referred to striking a company off the register as an example of ‘simple proceedings’ excluded from the scope of the MLCBI, suggesting that not all foreign solvent proceedings were intended to be excluded by that phrase in the 2014 Guide.Footnote 31 Secondly, it is especially telling that in a section of the 2014 Guide introducing the MLCBI's ‘recognition’ element, the ‘specified requirements of Article 2 concerning the nature of the foreign proceeding’ are summarised as ‘a collective proceeding for the purposes of liquidation or reorganisation under the control or supervision of the court’.Footnote 32 That no reference was made to the need for the proceeding to be ‘pursuant to a law relating to insolvency’ does not negate that requirement altogether, but it supports the argument that this phrase was only intended to impose the formal, uncomplicated requirement of the foreign proceeding being conducted under a law in which insolvency provisions are included (that is, the Broad Approach). Finally, The Judicial Perspective (a UNCITRAL publication aimed at assisting judges with questions arising under the MLCBI) is inconclusive because, even after citing the conflicting decisions in Re Betcorp, Stanford and Re Sturgeon, it merely reiterates the 2014 Guide without providing any additional rationale for this position.Footnote 33
Thirdly, UK case law preceding Re Sturgeon provides firmer support for the approach in Re Betcorp and Ascentra than was previously assumed. Lewison J in Stanford recognised a foreign liquidation proceeding that was ordered not just because of the company's failure to comply with regulatory requirements, but also because it was just and equitable to do so – both grounds are provided for in Part IV of the Antigua and Barbuda International Business Corporations Act (Cap 222) (IBCA).Footnote 34 Although this appears to provide support for the recognition of a foreign solvent proceeding, Briggs J in Re Sturgeon emphasised that the company's insolvency was still a key factor in Lewison J's finding that the liquidation was pursuant to a law relating to insolvency.Footnote 35 With respect, there is no inherent materiality in the fact of the company's insolvency. The company's insolvency in Stanford was relevant only insofar as it produced an ‘international crisis’ and resulted in the company not being able to be reorganised, thus rendering it just and equitable to wind up the company.Footnote 36 This also accounts for why, on appeal, the EWCA focused not on the company's insolvency as a separate prerequisite for recognition, but rather on the fact that Part IV of the IBCA was a law ‘relating to insolvency’, because it provided for winding up on just and equitable grounds, ‘which [include] insolvency’.Footnote 37 The decision in Stanford therefore cannot be distinguished merely because of the company's insolvency in that case. Instead, UK courts in future cases will need to directly wrestle with the principles and authorities in support of recognising foreign solvent proceedings under the CBIR 2006.
Admittedly, it may be tempting to limit the Ascentra decision to the Singaporean context because of the deliberate inclusion of the phrase ‘or adjustment of debt’ in Article 2(h) of the SML to fit the language of the US’s adaptation of the MLCBI.Footnote 38 It is also incontrovertible that each country's insolvency law depends largely on ‘the balance of political power and the nature of the social arrangements in that jurisdiction’.Footnote 39 After all, the cost of harmonisation ‘without due regard to the idiosyncrasies’ of national legal systems will be a failure to alter the ‘undulating legal terrain that results from differences in [those] systems’.Footnote 40
However, the Broad Approach has been approved in Australia where, as in the UK, the MLCBI's original definition of a ‘foreign proceeding’ has been retained without including the words ‘or adjustment of debt’ that are in Singaporean and American legislation. Further, Briggs J's reasoning in Re Sturgeon was not ideological or policy-oriented in nature, instead reflecting a different legal interpretation of the MLCBI as adopted in the UK and the accompanying UNCITRAL documents. Given the recent Ascentra decision and the additional arguments suggested which provide further weight to several older EWHC decisions, the Re Sturgeon decision arguably deserves a reappraisal by an appellate court in the UK. Apart from being consonant with first principles outlined above, a decision in line with the approaches in the US, Australia, New Zealand and Singapore would not only have the added benefit of upholding the principle of comity by respecting foreign courts’ application of foreign insolvency laws,Footnote 41 but would also lead to cost and time savings for companies with assets in multiple jurisdictions.
In conclusion, the Ascentra decision constitutes a noteworthy addition to the debate on whether foreign solvent proceedings may be recognised, particularly since several of the SGCA's justifications are applicable to the MLCBI generally, not only the SML specifically. The Ascentra decision also demonstrates that, despite states being free to modify the MLCBI upon adoption, judicial consensus across various jurisdictions to gradually widen its scope remains within reach. Given the discussion above and in the absence of jurisdiction-specific policy considerations to the contrary, the time has arguably come for UK appellate courts to resolve the divergence between the Re Sturgeon and Stanford decisions in favour of the latter.
