22 April, 2014
Legal News & Analysis – Asia Pacific – Singapore – Insolvency & Restructuring
The theory of universality in insolvency, along with globalisation, has gained much traction across many jurisdictions in recent years. Briefly, the universality theory proposes that an insolvency proceeding has worldwide effect over all the assets of the insolvent company, wherever they may be.
It was on this premise that the Singapore High Court in Beluga Chartering GmbH v Beluga Projects (Singapore) Pte Ltd [2013] 2 SLR 1035 held that the court had a discretion to disapply Section 377(3)(c) of the Companies Act. Section 377(3)(c) provides that when a foreign company is wound up in Singapore, its Singapore assets should be ring-fenced and be used to pay off debts incurred in Singapore first before being remitted for distribution in the foreign insolvency proceedings. When we examined this decision in our October 2013 issue, we suggested that one reading of the High Court’s decision is that there was a move away from territorialism and toward universalism. On appeal, the Court of Appeal in Beluga Chartering GmbH v Beluga Projects (Singapore) Pte Ltd [2014] SGCA 14 (Beluga) understood the High Court Judge’s decision the same way.
The Court of Appeal in Beluga ultimately held that Section 377(3)(c) did not apply to the company in question as it was not carrying on business in Singapore in the first place, and therefore not obliged to register in Singapore under the Companies Act. The Court of Appeal therefore found it unnecessary to embark on a discussion of the existence / scope of the court’s discretion to disapply the ring fencing statutory provision.
A more restrictive view of universalism was previously expressed by the then Chief Justice Chan Sek Keong in his Keynote Address at the “Ninth Joint Multinational Judicial Colloquium on Insolvency” on 12 March 20111. In the then Chief Justice’s view, the court had no inherent discretion to disapply Section 377(3)(c).
Singapore’s insolvency laws stand at the cusp of significant transformation. In 2010, the Ministry of Law appointed an Insolvency Law Review Committee to propose reforms to Singapore’s insolvency laws. The Committee gave its final report in November last year and made the recommendation, amongst others, that Singapore should adopt the UNCITRAL Model Law on Cross Border Insolvency. As noted by the Committee, the Model Law encourages a more universalist approach to cross-border insolvency issues than For instance, Article 20 of the Model Law mandates that local courts stay any execution against the assets of a debtor upon recognition that foreign insolvency proceedings against the debtor, which represent the main proceedings against him, has commenced. This is to be contrasted with the present position under Singapore law, as noted by the Court of Appeal in Beluga:
“We would observe however that the commencement of legal proceedings against a defendant foreign company or an attempt to levy execution against its assets is not precluded by the mere fact that insolvency proceedings have been commenced against the company in another jurisdiction.”
Until Singapore formally adopts the Model Law, it would appear that a cautious approach towards universalism will be adopted. The Court of Appeal in Beluga recognised the desirability and practicality of a universal collection and distribution of assets, and that a creditor should not be able to gain an unfair priority by an attachment or execution on assets located within the jurisdiction of the court subsequent to a winding up order made elsewhere. It however noted that universalism, even if accepted, was to function only as a very broad statement of principle. While the court may take into account the foreign insolvency proceedings in the exercise of its discretion, whether and how the court will render assistance to that foreign insolvency proceeding through the regulation of its own proceedings will depend on the particular circumstances of the case.
The tussle between elements of territorialism embedded in Singapore’s insolvency regime and the international movement toward universalism thus remains unresolved. An important consideration may be socio-economic policy. In his 2011 Keynote Address, in relation to whether a universalist approach to insolvency ought to be adopted, the then Chief Justice said:
“The crucial question is: for whose benefit is this theory [of universalism] propounded or implemented? National economies are not and will never be equal, and the question is whether universalism will simply produce more benefits for bigger and richer economies as against smaller and poorer economies.”
We now wait to see whether Singapore embraces the Insolvency Law Review Committee’s proposal to adopt the Model Law.
End Notes:
1 Chan Sek Keong, “Cross-Border Insolvency Issues Affecting Singapore” (2011) 23 SAcLJ 413.
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