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Singapore – High Court Determines Landmark Cross-Border Bankruptcy Case.

19 June, 2014

 

Legal News & Analysis – Asia Pacific – Singapore – Dispute Resolution

 

Introduction

 
In an increasingly globalised world, it is common for a company or an individual’s economic footprint to go beyond geographical boundaries. However, in the event of insolvency, uncertainties regarding the interplay of proceedings in separate jurisdictions may arise. In the landmark case of Tang Yong Kiat Rickie v Sinesinga Sdn Bhd [2014] SGHCR 06, the Singapore High Court had the opportunity to consider the validity of a local bankruptcy in light of a concurrent foreign bankruptcy.

 
The case involved concurrent bankruptcy proceedings in Singapore and Malaysia, where bankruptcy orders against the Plaintiff had first been obtained in Malaysia and then in Singapore. The Plaintiff sought to annul the Singapore bankruptcy order, submitting that the Defendants had not obtained leave from the Malaysian Courts to commence proceedings against the Plaintiff in Singapore, and that distribution ought to take place in Malaysia under Malaysian bankruptcy law.

 
The High Court upheld the Singapore bankruptcy order, finding that it was not unjust in the circumstances for the Plaintiff to be subjected to bankruptcy in both jurisdictions. The Singapore order was well-founded, and the Plaintiff’s creditors and assets were situated across both Singapore and Malaysia, thus justifying the concurrent distribution.

 
Brief Facts

 
The Plaintiff was a Singapore citizen who carried on business activities in Malaysia. On the basis of certain judgments issued against him by the Malaysian Court due to unsatisfied personal guarantees, the 1st Defendant successfully applied for the Plaintiff to be adjudged a bankrupt in Malaysia.

 
While the Malaysian bankruptcy proceedings were ongoing, the 1st Defendant applied to register one of the Malaysian judgments in Singapore. The 1st Defendant succeeded in doing so and commenced bankruptcy proceedings in Singapore, eventually obtaining a Singapore bankruptcy order against the Plaintiff as well. The 1st Defendant subsequently applied to appoint the 2nd to 4th Defendants as trustees of the Plaintiff’s estate in bankruptcy in Singapore.

 

Almost one year and nine months after the Singapore bankruptcy order was made, the Plaintiff filed an application to annul the Singapore bankruptcy order.

 
Issues

 
The Plaintiff sought to annul the Singapore order on three grounds:

 
(i) The Defendants had not obtained leave from the Malaysian Courts to institute bankruptcy proceedings in Singapore;

 
(ii) Distribution ought to take place in Malaysia as proceedings were pending there for the distribution of the Plaintiff’s estate and effects under Malaysian law; and

 
(iii) Distribution ought to take place under the bankruptcy laws of Malaysia as the majority of the creditors were resident there and as the Plaintiff’s assets had vested in the Malaysian Official Assignee pursuant to the making of the Malaysian bankruptcy order.

 
Holding Of The High Court

 
The High Court upheld the Singapore bankruptcy order, rejecting all three grounds of the Plaintiff’s application.

 
Leave Of Malaysian Courts

 
The Plaintiff sought to rely on s123(1)(a) of the Bankruptcy Act, which allows the Singapore Court to annul a bankruptcy order if it should not have been made at the time, arguing that the Defendants should have obtained leave of the Malaysian High Court to institute proceedings in Singapore.

 
The Singapore High Court held that there is no reason why a person adjudged a bankrupt in Malaysia should not be similarly declared a bankrupt in Singapore if the application is well founded. In this case, there was no other reason why the Singapore order should not have been made, as the Singapore proceedings were not an abuse of process, and there were benefits to the concurrent proceedings across both jurisdictions in that the pool of assets for distribution was increased.

 
Pending Proceedings In Malaysia

 
The Plaintiff also raised s123(1)(c) of the Bankruptcy Act, which allows annulment of a bankruptcy order where bankruptcy proceedings are pending in Malaysia for the distribution of the Plaintiff’s estate and effects in Malaysia.

 
This is a novel point of law on this provision in the Bankruptcy Act, and the Court had to determine its application. It held that the existence of Malaysian proceedings was not in and of itself enough to justify annulment; the Plaintiff had to further show that (i) distribution ought to take place in Malaysia, and that (ii) the Singapore bankruptcy order ought to be annulled in the circumstances.

 
On the point of whether distribution ought to take place in Malaysia, the Court acknowledged that the majority of the creditors were resident in Malaysia. However, this was outweighed by the fact that there were also Singapore-based creditors, and that the Plaintiff had no assets in Malaysia. Further, a substantial amount of time had passed from the making of the bankruptcy orders to the present application, meaning that a substantial amount of work had already been put into the administration of the Plaintiff’s estate in Singapore.

 
On the point of whether the Singapore order ought to be annulled, the Court found in favour of the Defendants on the basis that both bankruptcy regimes had successfully co-existed for a substantial period of time. Further, although the Malaysian authorities were not incapable of administering the Plaintiff’s estate, this in itself was not enough to warrant annulling the Singapore order.

 
Therefore, the Plaintiff’s submission on this ground was rejected as well.

 
Creditors Resident In Malaysia

 
The Plaintiff’s third ground lay in s123(1)(d) of the Bankruptcy Act, which provides for annulment where a majority of creditors are resident in Malaysia, and where the estate ought to be distributed under Malaysian law due to the situation of the bankrupt’s property or for other reasons.

 
Mirroring the circumstances of s123(1)(c), there was a lack of case law regarding this provision as well. Here, the Court similarly held that, apart from the creditors being resident in Malaysia, the Plaintiff had to show that (i) the estate ought to be distributed under the bankruptcy laws of Malaysia, and that (ii) the Singapore bankruptcy order ought to be annulled in the circumstances.

 
As the subjective requirements of s123(1)(d) mirrored those of s123(1)(c), the Court adopted its analysis of the application of s123(c), rejecting the Plaintiff’s submission under s123(1)(d) as well. Therefore, following the failure of all three grounds of contention, the Plaintiff’s application to annul the Singapore bankruptcy order was dismissed.

 
Concluding Words

 
With cross-border bankruptcy proceedings being relatively common, this judgment provides some much needed insight into the interaction of the different bankruptcy regimes. In particular, it clarifies the application of certain provisions in the Bankruptcy Act governing the co-existence of Singaporean and Malaysian bankruptcy proceedings.

 

Rajah & Tann

 

For further information, please contact:

 

Chua Beng Chye, Partner, Rajah & Tann
beng.chye.chua@rajahtann.com

 

Raelene Su-Lin Pereira, Partner, Rajah & Tann
raelene.pereira@rajahtann.com

 

Cherie Tan Shu Ying, Rajah & Tann
cherie.tan@rajahtann.com

 

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