Singapore: The Singapore Court's Treatment Of Foreign Solvent Liquidations Under The UNCITRAL Model Law On Cross-Border Insolvency

INTRODUCTION

Whether foreign solvent liquidations are entitled to recognition and assistance under the UNCITRAL Model Law on Cross-border Insolvency is a question which has divided its enacting jurisdictions. The Singapore Court recently weighed in on this issue in Re Ascentra Holdings, Inc [2023] SGHC 82 ("Re Ascentra").

THE DECISION

Ascentra Holdings, Inc ("Ascentra") sold health and beauty products as well as computer communications software. Following disputes between its shareholders, the Company was placed in voluntary liquidation under the Cayman Islands Companies Act (2021 Revision) (the "Cayman Act"). Importantly, Ascentra was solvent. The Liquidators applied to the Singapore Court for recognition of the Cayman liquidation in Singapore as a "foreign main proceeding" under Article 2(f) of the Third Schedule to the Insolvency, Restructuring and Dissolution Act 2018. The Third Schedule is Singapore's enactment of the Model Law.

The Judge dismissed the application, holding as follows:

• Only a "foreign proceeding" within the meaning of Article 2(h) of the Third Schedule could be recognised under Article 17 of the Third Schedule. The Article 2(h) definition required that the foreign proceeding be "under a law relating to insolvency".
• The ordinary meaning of "a law relating to insolvency" was a body of rules which governs a company that is insolvent or in severe financial distress. It did not suffice that the body of rules under which the foreign proceeding was taking place happened to be located in a statute that also governed insolvency. So, it did not suffice that Ascentra's solvent liquidation was under the Cayman Act, which governed the liquidation of all Cayman companies both solvent and insolvent.
• The purpose of the Model Law was to enable national courts to put in place a global collective regime for the benefit of creditors as a class, to avoid creditors scrambling to seize the debtor's assets. These purposes were not engaged in the liquidation of a company which was solvent and whose assets were sufficient to pay all creditors in full. This understanding was confirmed by the preparatory records and documents of the Model Law, as well as the guides to enactment provided by UNCITRAL.

It is worth noting that the definition of "foreign proceeding" in Article 2(h) of Singapore's Third Schedule is different from the parallel Article 2(a) of the Model Law. Whereas the latter defines foreign proceeding as a proceeding "...pursuant to a law relating to insolvency...", Article 2(h) of the Third Schedule defines foreign proceeding as a proceeding "...pursuant to a law relating to insolvency or adjustment of debt...". As the Judge observed, the additional words "adjustment of debt" are taken from Section 101(23) of Chapter 15 of the US Bankruptcy Code.

However, the Judge rejected the suggestion that he should give any special weight to decisions of the US Bankruptcy Court in which recognition and assistance had been granted in support of foreign solvent liquidations on the basis that these were "foreign proceedings" within Chapter 15. Noting that these US decisions had been criticized, the Judge preferred the view of the English Court in Re Sturgeon Central Asia Balanced Fund (in liquidation) Carter v Bailey and another (as foreign representatives of Sturgeon Central Asia Balanced Fund Ltd) [2020] EWHC 123 (Ch) that it was contrary to the Model Law's purpose and object to enlarge its scope by interpreting "foreign proceeding" as including solvent companies and proceedings.

The writers understand that the decision in Re Ascentra is under appeal.

POTENTIAL IMPACT ON RECOGNITION OF FOREIGN SOLVENT LIQUIDATIONS UNDER THE COMMON LAW

While Re Ascentra was concerned with an application for recognition under the Model Law, the decision may have implications for the recognition of foreign solvent liquidations under the common law. The decision suggests that modified universalism, the principle which the Model Law was conceived to advance, and which has also formed the basis of several Singapore decisions recognising foreign corporate insolvency and rehabilitation proceedings under the common law, is exclusively applicable to insolvency and financial distress situations.

It is in that unique context that global co-ordination and inter-jurisdictional co-operation are required to facilitate the fair and efficient administration of cross-border insolvencies or reorganisations, so as to preserve and maximise value for the general body of creditors and avoid a disorderly scramble for the debtor's assets across jurisdictions. It would appear that an application for recognition of a foreign solvent liquidation under the common law may be denied on broadly the same ground cited in Re Ascentra – that modified universalism is not engaged when the debtor is neither insolvent nor in financial distress.