United States: "Limited Recognition" Of Foreign Insolvency Proceedings In Singapore Where The Circumstances Warrant It

Last Updated: March 15 2018
Article by Kia Jeng Koh

Creditors and anyone seeking recognition of foreign insolvency proceedings in Singapore should consider how the presence of an injunction or an adverse court order may affect the chances of successful recognition.

The recent Singapore High Court decision of Re: Zetta Jet Pte Ltd and others [2018] SGHC 16 sheds light on the matter. There, the Court declined to grant full recognition to a trustee of a US insolvency proceeding on public policy grounds, having found that the trustee was appointed in breach of a Singapore injunction order. However, in an effort to reach an equitable arrangement, the Court exercised its discretion to grant limited recognition for the purposes of setting aside or appealing the Singapore injunction.

Re: Zetta Jet is Singapore's first decision dealing with the recognition of foreign insolvency proceedings under the UNCITRAL Model Law on Cross-Border Insolvency (Model Law), since it was implemented with some modifications in March 2017 via the Companies Act (Cap 50). 

In this article, we explore (1) the basis of Zetta Jet's application, (2) the Court's effort to balance public policy and fairness considerations through "limited recognition", and (3) practical implications for creditors and interested parties.

The basis of Zetta Jet's application

Zetta Jet Pte Ltd (Zetta Jet Singapore), a company incorporated in Singapore, wholly owns Zetta Jet USA, Inc (Zetta Jet USA, a company organised under the laws of the State of California.

On 15 September 2017, voluntary proceedings under Chapter 11 of the US Bankruptcy Code were commenced in respect of the Zetta Jet entities in the US Bankruptcy Court in the Central District of California, Los Angeles Division.

On 19 September 2017, in the Singapore High Court, two shareholders of Zetta Jet Singapore obtained an injunction against Zetta Jet Singapore and two other shareholders, restraining them from carrying out any further steps in and relating to the Zetta Jet Chapter 11 proceedings.

After the injunction was granted, a Chapter 11 Trustee of the Zetta Jet entities was appointed. On 4 December 2017, due to financing issues, the Chapter 11 proceedings were converted to Chapter 7 proceedings, which are essentially liquidation proceedings under US law. The same Chapter 11 Trustee was appointed as the Chapter 7 Trustee.  

With the authorisation of the US bankruptcy court, the Trustee commenced recognition proceedings in Singapore under the Model Law. Asia Aviation Holdings Pte Ltd (Asia Aviation), a shareholder of Zetta Jet Singapore, appeared as intervener to oppose recognition. Asia Aviation was also one of the 2 shareholders who applied for and successfully obtained the Singapore injunction.

The Court proceeded to consider the application for recognition of the Chapter 7 proceedings in accordance with the Model Law, given that the Zetta Jet entities had commercial dealings in the US where the Chapter 7 proceedings are taking place.

Limited recognition: The Court's effort to balance public policy and fairness considerations

Under the Model Law, a Singapore court can deny recognition of a foreign insolvency proceeding if the recognition would be contrary to Singapore public policy.

In this case, a prior Singapore injunction prohibited the continuation of the US bankruptcy proceedings which led to the Trustee's appointment. As the Trustee was appointed in breach of a Singapore injunction, the Court hesitated to grant full recognition of the Chapter 7 proceedings on the grounds that it would be against the public policy of Singapore.

Nonetheless, the Court identified that without some form of recognition, the Trustee would not be able to deal with the injunction at all. In the interest of fairness, the Court granted limited recognition to the Chapter 7 proceedings only for the purposes of setting aside or appealing the Singapore injunction.

Re: Zetta Jet underscores the correct approach when it comes to a breach of or non-compliance with a Singapore court order. In the words of the Court, "...ignoring an injunction granted by a Singapore court undermines the administration of justice". In particular, a party who does not comply with a Singapore court order generally cannot seek the assistance of the courts unless the non-compliance is rectified or purged.

Nonetheless, as evident from Re: Zetta Jet, the Singapore courts will aim to strike a balance between the administration of justice and fairness to parties involved.

Practical implications for debtors, creditors and interested parties

Before commencing insolvency proceedings against an entity (especially an entity with a presence in multiple jurisdictions), you may wish to seek legal advice and check which jurisdictions you wish to seek recognition in.

As Re: Zetta Jet has demonstrated, the presence of an injunction may hamper or delay the process of gaining recognition in Singapore. As the Model Law is also applicable in numerous other jurisdictions, the presence of an injunction may have the same effect in these other jurisdictions. Hence, it is advisable to seek legal advice and strategise the way forward, particularly when an adverse party may apply for injunctive relief from the Courts of a particular jurisdiction.  There is a real need to be vigilant and to act fast when warranted.

If an injunction or an adverse court order is already in place, you should seek further legal advice on how to best deal with the injunction. You may wish to consider setting aside the injunction before applying for recognition. If the injunction cannot be set aside, you may wish to focus on seeking limited recognition to deal with the injunction in the first instance instead of pushing through for full recognition.

Dentons Rodyk acknowledges and thanks associate Qiu Li Lee for her contribution to the article.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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