Singapore Court of Appeal holds that foreign liquidation proceedings involving solvent companies are within the scope of Singapore’s adaptation of the UNCITRAL Model Law on Cross-Border Insolvency
In June 2023, Setia Law’s Bethel Chan and Lee Jin Loong published an article discussing the Singapore Court’s treatment of foreign solvent liquidations under the UNCITRAL Model Law on Cross-border Insolvency (the “Model Law”) in Re Ascentra Holdings, Inc  SGHC 82 (“Re Ascentra (HC)”).
The Singapore High Court had held that the voluntary liquidation of a solvent company, Ascentra Holdings, Inc under the Cayman Islands Companies Act (2021 Revision) was not entitled to recognition as a “foreign main proceeding” under Article 2(f) of the Third Schedule to the Insolvency, Restructuring and Dissolution Act 2018, which is Singapore’s enactment of the Model Law (the “SG Model Law”). At the time of the article, the decision was under appeal.
The decision in Re Ascentra (CA)
On 18 October 2023, the Court of Appeal handed down its decision in Ascentra Holdings, Inc (in official liquidation) and others v SPGK Pte Ltd  SGCA 32 (“Re Ascentra (CA)”). Reversing the Singapore High Court’s decision, the Court of Appeal held that there was no requirement that a company be insolvent or in severe financial distress before a proceeding concerning that company may be recognised as a foreign proceeding under the SG Model Law.
Further, the requirement in Article 2(h) of the SG Model Law, that the proceeding in question must take place “under a law relating to insolvency or adjustment of debt”, would be satisfied as long as the law or relevant part of the law under which the relevant proceeding was conducted included provisions dealing with the insolvency of a company or the adjustment of its debts. This “Broad Approach” was in contrast to the “Narrow Approach” adopted by the Court below, which interpreted Article 2(h) as requiring that the specific provision pursuant to which the relevant proceeding was being conducted should relate to insolvency or adjustment of debts.
In coming to this conclusion, the Court of Appeal reasoned that:
a) there was no express requirement in the SG Model Law that a company had to be insolvent or in severe financial distress for a proceeding concerning that company to be recognised as a foreign proceeding;
b) whereas Article 2(a) of the UNCITRAL Model Law defined “foreign proceeding” as “a collective judicial or administrative proceeding in a foreign state, including an interim proceedings, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation”, this definition had specifically been modified in Article 2(h) of the SG Model Law to include the words “or adjustment of debt” after “pursuant to a law relating to insolvency”. This was, in essence, a nod to s 101(23) of the US Bankruptcy Code, and Parliament thus intended to bring within the ambit of the SG Model Law proceedings that are recognisable under corresponding provisions of US bankruptcy law. These would include proceedings for restructuring and reorganisation which did not require the subject companies to be insolvent or in financial distress as a prerequisite;
c) while the UNCITRAL Model Law was prepared for the primary purpose of prescribing a co-ordinated regime for proceedings involving insolvent companies, it would not undermine (and would indeed further) this purpose to extend the operation of the UNCITRAL Model Law to solvent companies. For example, the Court noted that regardless of a company’s solvency status, where a proceeding involves all the creditors of a company and all its assets and liabilities for the purposes of reorganisation and liquidation, cooperation and coordination were important, and the rationale for recognition of foreign proceedings would still be applicable; and
d) interpreting Article 2(h) of the SG Model Law as including proceedings concerning solvent companies was consistent with the approach taken in other jurisdictions including the US, the UK, Australia and New Zealand.
Observations and implications for recognition of foreign solvent liquidations under the common law
In Setia Law’s earlier article discussing Re Ascentra (HC), the authors had observed that the High Court decision could have an impact on the recognition of foreign solvent restructuring / liquidation proceedings under the common law (which continues to be relevant in the context of non-corporate entities which are not subject to the Model Law: see Re Tantleff Alan  3 SLR 250). This was because “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 remains to be seen how the common law’s treatment of foreign solvent liquidations may be impacted by the decision in Re Ascentra (CA). On one view, the Court of Appeal’s decision affirms that it is usually and primarily in the insolvency context that there is a need for global coordination to facilitate the administration of cross-border insolvencies or reorganisations, so as to preserve value for the general body of creditors and avoid a scramble for the debtor’s assets. On the other hand, the Court of Appeal’s decision suggests that the Courts may see a wider need for inter-jurisdictional coordination even in liquidation or restructuring proceedings involving solvent entities, and may thus be willing to apply the principle of modified universalism to foreign solvent liquidations and restructuring proceedings as well.
Lee Jin Loong