Singapore High Court discusses concept of “centre of main interests” of debtor company under UNCITRAL Model Law on Cross-Border Insolvency

29 April 2019

Re: Zetta Jet Pte Ltd & Ors (Asia Aviation Holdings Pte Ltd, intervener) [2019] SGHC 53

Under the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”) as enacted under the Singapore Companies Act (“Singapore Model Law”), the Singapore courts must recognise a foreign proceeding if certain stipulated conditions are met, unless recognition would be contrary to the public policy of Singapore. A foreign proceeding must be recognised as a foreign main proceeding if it is taking place in the State where the debtor has its centre of main interests (“COMI”). Foreign main proceedings qualify for more extensive reliefs than foreign non-main proceedings; for instance, only foreign main proceedings qualify for automatic reliefs. In Re: Zetta Jet Pte Ltd & Ors (Asia Aviation Holdings Pte Ltd, intervener), the Singapore High Court had to determine the question of the COMI of Singapore-incorporated Zetta Jet Pte Ltd (“Zetta Jet Singapore”).

Facts

Chapter 11 bankruptcy proceedings (i.e. restructuring proceedings) were filed against Zetta Jet Singapore and its Californian subsidiary Zetta Jet USA, Inc (“Zetta Jet USA”) (collectively, “Zetta Entities”) in the US Bankruptcy Court. A worldwide automatic moratorium in the US came into effect. Subsequently, on the application of Asia Aviation Holdings Pte Ltd (“AAH”), a shareholder of Zetta Jet Singapore, the Singapore High Court granted an injunction restraining Zetta Jet Singapore and other shareholders from taking further steps in relation to bankruptcy filings in the US Bankruptcy Court (“Singapore Injunction”).

The US Chapter 11 proceedings continued notwithstanding the Singapore Injunction. These proceedings were subsequently converted to Chapter 7 proceedings (i.e. liquidation proceedings) under which a trustee was appointed (“Trustee”). The Trustee commenced recognition proceedings in Singapore following the US Bankruptcy Court’s authorisation to do so.

In Re: Zetta Jet Pte Ltd & Ors [2018] SGHC 16 (“Zetta Jet (No. 1)”), the Singapore High Court took the view that the US Chapter 7 proceedings was contrary to the public policy of Singapore as its continuation was in breach of the Singapore Injunction and thus undermined the administration of justice in Singapore. Accordingly, the Singapore High Court refused recognition save to allow the Trustee to apply to set aside the Singapore Injunction.

Zetta Jet Singapore then filed an application to set aside the Singapore Injunction. The Singapore Injunction was later discharged by consent of the parties involved. Thereafter, the Zetta Entities and the Trustee (“Applicants”) applied again to the Singapore High Court for recognition of the US proceedings under the Singapore Model Law.

The Trustee argued that:

  1. Zetta Jet Singapore’s COMI is the US as at the time of the filing of the recognition application. Accordingly, the US proceedings should be recognised as a foreign main proceeding. 
  2. Alternatively, Zetta Jet Singapore had an establishment in the US within the meaning of Article 2(d) of the Singapore Model Law and the US proceedings may be recognised as a foreign non-main proceeding. 

AAH opposed the recognition application and contended that Zetta Jet Singapore had no establishment in the US. AAH also took the position that no recognition ought to be accorded because the Trustee’s breach of the Singapore Injunction amounted to contempt and remained so even after the discharge of the Singapore Injunction.

Decision of the Singapore High Court

The Singapore High Court proceeded to grant recognition of the US bankruptcy proceedings in relation to Zetta Jet Singapore as the foreign main proceeding. The reasons for the Singapore High Court’s decision are elaborated upon below.

There were two issues to be addressed in relation to the determination of Zetta Jet Singapore’s COMI: (1) the date at which such assessment was to be made, and (2) the appropriate approach in assessing what constitutes the COMI of a particular debtor company.

Relevant date for determination of the debtor’s COMI

The following approaches with regard to the relevant date for determination of the debtor’s COMI were considered by the Singapore High Court:

  1. The English and European position: The date of commencement of the foreign insolvency proceedings 
  2. The Australian position: The date of hearing of the recognition application
  3. The US position: The date of filing of the recognition application

In reaching its view that the US approach should be adopted (i.e. the relevant date is the date of filing of the recognition application), the Singapore High Court observed that this provides greater certainty and accords with commercial realities and the language of the provisions of the Singapore Model Law:

  1. The use of the present tense in Article 2 of the Singapore Model Law (i.e. the reference to “foreign proceeding taking place”) indicates that it is the point of the application for recognition that is of significance; and
  2. Postponing the COMI determination until the application for recognition recognises that various entirely legitimate measures may be taken to shift a debtor’s COMI to another jurisdiction, for instance, to create a jurisdictional nexus for commencement of insolvency proceedings. In this regard, it is not objectionable for debtor companies to be given the autonomy (within limits) to select the jurisdiction that will offer the best prospects for achieving an effective restructuring solution.

The High Court declined to follow the Australian approach because it left the date of ascertainment of the debtor’s COMI uncertain.

Approach to be taken in the determination of COMI

On the issue of the appropriate approach to determine the debtor company’s COMI, the starting position is the presumption under Article 16(3) of the Singapore Model Law viz. that the debtor company’s registered office is its COMI. This presumption does not constitute a rebuttable presumption that must be disproved on the balance of probabilities but rather, one that may be displaced by the place of the debtor company’s central administration and other factors which point the COMI away from the place of registration to some other location.

As to which COMI factors ought to be taken into consideration, the Singapore High Court highlighted that the material COMI factors should be those that are objectively ascertainable by third parties generally, with a particular focus on creditors and potential creditors. Materiality is determined by how likely a creditor would weigh a particular factor in his mind when deciding whether to afford credit to the debtor company. Such factors ought to have an element of settled permanence or intended permanence.

The Singapore High Court noted that US courts have adopted the term “nerve centre”, focusing on where the debtor company performs its most important and consequential business decision-making functions. In its view, this approach, while useful, would only be one of several factors that needed to be weighed in the determination of the debtor company’s COMI.

Further, in ascertaining a specific company’s COMI, the Court expressed the view that there is no need to strictly maintain the distinction between different entities within a group. It also recognised that it is possible, in the COMI analysis, to consider the activities of the entire group of companies and not just that of the debtor company. As such, in its inquiry of Zetta Jet Singapore’s COMI, the Singapore High Court took into consideration the activities of the Zetta Entities and not just Zetta Jet Singapore itself to determine, inter alia, the location from which control and direction was administered; the location of clients, creditors, employees, operation; dealings with third parties; and the governing law.

On the facts, the Singapore High Court considered that the following factors displaced the presumption that Singapore was Zetta Jet Singapore’s COMI:

  • Central management and direction of Zetta Jet Singapore were, at all material times, conducted from the US. This was the most important factor in the court’s assessment; 
  • Corporate representations indicated that it operated from the US; and
  • A substantial portion of its creditors were located in the US.

Notably, the High Court found that the location of Zetta Jet Singapore’s assets, namely, the planes, was incidental and not indicative of the location of its COMI. Zetta Jet Singapore’s principal business was in aircraft rental and charter. It was to be expected of such a business that its assets may be dispersed in the location most appropriate from time to time.

Public policy exception

Finally, the Singapore High Court had to consider whether the granting of full recognition of the US proceedings would be contrary to the public policy of Singapore pursuant to Article 6 of the Singapore Model Law.

In this regard, the Singapore High Court held that:

  1. Recognition no longer undermined the administration of justice in Singapore as the Singapore Injunction had been discharged. The breach of the Singapore Injunction is still contempt which may be pursued, but that is a separate matter and does not, in itself, give rise to grounds for continued non-recognition of the US proceedings; 
  2. The Zetta Jet Entities’ contention of a countervailing public policy consideration of ensuring that the general interests of creditors are protected is not material in the application of Article 6 of the Singapore Model Law.

Comment

This is a landmark judgment which considers how COMI is to be determined under the Singapore Model Law. This provides clarity and valuable guidance for companies and their advisors seeking to invoke recognition proceedings in Singapore.

 

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