Jurisdiction - Singapore
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Singapore – Court Of Appeal Determines Application Of Singapore Assets In Winding Up Of Foreign Companies.

6 March, 2014


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




In an increasingly international commercial environment, cross-border transactions and transfers of assets have become an ecological staple. Particularly in an economic hub like Singapore, new issues involving the interplay of jurisdictions often surface. Such was the case in Beluga Chartering GmbH (in liquidation) and others v Beluga Projects (Singapore) Pte Ltd (in liquidation) and another [2014] SGCA 14, where the Court of Appeal had to determine the extent to which Singapore assets could be preserved for payments of locally incurred debts in the winding up of a foreign company.


The Appellant was an insolvent German company (acting through its liquidators) which held certain assets in Singapore, and also had Singapore creditors. The dispute centered around whether these assets should be held to satisfy the debts incurred in Singapore, or whether they should be remitted to the liquidators in Germany to be dealt with under German insolvency law.


The High Court decided that the assets should be “ring-fenced” to first pay local debts ([2013] 2 SLR 1035). On appeal, the Court of Appeal held that the requirement to ring-fence Singapore assets for payment of local debts did not extend to the present case, where the insolvent company was not registered in Singapore, and had not established a place of business or carried on business in Singapore. The Court thus ordered the remittance of the Singapore assets to Germany.


Brief Facts


Beluga Chartering GmbH (“Beluga Chartering”), a company incorporated in Germany, was placed into liquidation by a German Court. Subsequently, a winding up order was made against Beluga Chartering by the Singapore High Court as well.


Beluga Chartering’s connection to Singapore was through both debt and assets. Two of its subsidiary companies (“the Singapore Subsidiaries”), both incorporated in Singapore, had obtained judgments in Singapore against Beluga Chartering for a sum of around SGD1.4m. Beluga Chartering’s only Singapore asset (“the Singapore Asset”) was a US$850,000 debt owed by a Singapore company.


The Singapore liquidators of Beluga Chartering then applied to determine questions of law in order to ascertain whether they were entitled to remit the Singapore Asset to the seat of the principal liquidation in Germany, to be dealt with according to German insolvency law. The Singapore Subsidiaries opposed the application, submitting that the Singapore Asset should be applied to meet Beluga Chartering’s liabilities in Singapore first. The Singapore and German liquidators disagreed and took the position that the Singapore Asset should be transmitted to Germany, to be dealt with pari passu among all creditors, both local and foreign.


Holding Of The Court of Appeal


The Court of Appeal held in favour of the Singapore liquidators of Beluga Chartering, ordering that the Singapore Asset be remitted to the German liquidator, notwithstanding the outstanding judgment debt to the Singapore Subsidiaries.


The Singapore Subsidiaries relied mainly on s377(3)(c) of the Companies Act (“CA”), which imposes an obligation on a Singapore liquidator of an insolvent foreign company to recover assets in Singapore and satisfy any liabilities incurred here before remitting the remainder to the foreign liquidator (“the ring-fencing provision”). The dispute lay in the scope of this provision.


Disagreeing with the High Court, the Court held that the ring-fencing provision does not apply to all foreign companies, as to do so would create an overreaching territorial effect. Rather, it would only apply to:


(i) Foreign companies which have registered in Singapore under s368(1) of the CA; and

(ii) Foreign companies which have not registered but are liable to register under s368(1) because they intend to establish a place of business or commence carrying on business in Singapore.


In this case, the High Court had found that Beluga Chartering had not established a place of business nor carried on business in Singapore. The Singapore Subsidiaries did not appeal against this particular finding. The Court of Appeal saw no reason to disagree with that finding on the facts, and as such, held that Beluga Chartering did not incur the application of the ring-fencing provision.


Apart from the above statutory submissions, the Singapore Subsidiaries also argued for the ring- fencing of the Singapore Asset on the basis of common law. However, the Court of Appeal held that its discretion to act as ancillary to foreign liquidations did not extend to the positive power to ring- fence assets even where there was no statutory basis for doing so.


Having found no basis to ring-fence the Singapore Asset, the Court of Appeal allowed the Singapore liquidators of Beluga Chartering to remit the asset to the German liquidator.


In its judgment, the Court of Appeal also made a number of important observations on insolvency law in a cross-border context. On the position of a foreign liquidator where local liquidation proceedings are not started, the Court of Appeal remarked that such foreign liquidator will be recognized as the representative of a company for the purpose of getting in and realizing the company’s worldwide assets and there would generally be no basis for a Singapore court to decline to recognize the foreign liquidator’s claim to assets belonging to the company.


The Court of Appeal also discussed the context where a foreign winding up order has been made, and whether creditors can continue with execution proceedings in local courts where there are no local winding up proceedings. There is no clear case authority directly on point. However, the Court of Appeal was of the view that the Singapore courts, though not bound by any stay of proceedings that flowed from a foreign winding up order in the absence of local winding up proceedings, nonetheless have the inherent discretion to stay proceedings locally. Ultimately, whether and how the Singapore court will assist foreign winding up proceedings will depend on the particular circumstances.


Concluding Words


This judgment clarifies the extent to which ring-fencing rules apply to assets in Singapore in the winding up of foreign companies, restricting their application to foreign companies which have an adequate degree of connection to Singapore, in that they have a place of business or conduct business in Singapore. This balances the need to regulate foreign entities operating within the country, while also respecting the jurisdiction of the companies’ foreign domicile. Liquidators and creditors dealing with foreign companies should thus be aware of the circumstances under which they can claim priority on assets in Singapore.


Further, the Court of Appeal made a number of important observations on the extent of assistance a Singapore court may provide to a foreign liquidation proceeding. This area of the law remains in an interesting state of flux, particularly in light of the recommendation by the Insolvency Law Review Committee to adopt the provisions of the UNCITRAL Model Law on Cross-Border Insolvency, which aims to provide a comprehensive framework for international cooperation in cross-border insolvency.


Rajah & Tann


Sim Kwan Kiat, Partner, Rajah & Tann 

[email protected]


Ang Siok Chen, Rajah & Tann 

[email protected]


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