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Smitha Menon, partner at WongPartnership, and Stephanie Yeo, associate at the firm, explain the recent case of Re Opti-Medix Ltd (in liquidation) and another, and consider the effect of the judgment on the principle of universalism.
Re Opti-Medix Ltd (in liquidation) and another matter  SGHC 108
The companies involved were incorporated in the BVI. Their main area of business was factoring receivables from medical institutions in Japan, which was funded by non-recourse notes issued by the companies. The notes were governed by Singapore law, with a Singapore address for service of notices, but were marketed in Japan by Japanese brokers. The proceeds were then transferred to Singapore bank accounts. In 2015, the securities and surveillance commission of Japan suspended the issuing of new notes by the companies as there was insufficient profit to meet payments under the notes. Bankruptcy proceedings were subsequently commenced against the companies in Japan and bankruptcy orders were made by the Tokyo District Court in November 2015.
While the companies had primarily Japanese creditors, they had some Singapore creditors and funds held in their Singapore bank accounts. The bankruptcy trustee who had been appointed by the Tokyo District Court therefore sought to exercise his powers under the Japanese bankruptcy orders to ascertain, administer and dispose of the companies’ assets. However, the exercise of the power was complicated by the fact that no insolvency proceedings had been brought in the BVI (where the companies were incorporated and registered) and the existing legislation in Singapore did not provide for a specific process to obtain recognition of such a foreign liquidation order.
Before the Singapore Court, it was submitted that although the bankruptcy trustee had not been appointed in the BVI which was the place of incorporation of the companies, there was no likelihood of insolvency proceedings there. There being no actual, or potential competing claims by any other liquidators, the bankruptcy trustee, having been appointed by the court of the country where the companies had conducted their main business, should therefore be allowed to exercise his powers under the Japanese bankruptcy orders in Singapore. In this regard, the Hong Kong case of Re Russo Asiatic Bank  HKCU 8 was cited as an example of where recognition was granted to a liquidator who had been appointed by a court that was not of the company’s country of incorporation.
In addition, it was also submitted that in cross-border insolvency, there has been a general movement away from the traditional, territorial focus on the interests of the local creditors and towards recognition that universal cooperation between jurisdictions is conducive to the orderly conduct of business and resolution of business failures across jurisdictions. Accordingly, the Singapore Court should go beyond traditional bases for recognising foreign insolvency proceedings and determine where the principal liquidation proceedings were, based on where the centre of main interest (COMI) of the company concerned was. In the present case, Japan was the only possible COMI for the companies.
Finally, it was argued that no prejudice would be suffered by Singapore-based creditors as the Bankruptcy Trustee had undertaken to pay all preferential and other debts incurred in Singapore before remitting any funds out of Singapore.
The Singapore High Court allowed the application and granted recognition of the bankruptcy orders of the Tokyo District Court and of the appointment of the applicant as the bankruptcy trustee of the companies. It also ordered that all moveable assets and records be vested in the applicant as bankruptcy trustee and that he be empowered to collect and recover those assets and records.
This decision affirms, for the first time, that bankruptcy proceedings in a company’s COMI, but outside its place of incorporation, can be recognised in Singapore and clearly reflects Singapore’s growing acceptance of the universalist approach to cross-border insolvency. This was in fact expressly noted by the court in its decision in which it considered that there were indicators that ‘Singapore is warming to universalist notions in its insolvency regime’ (at para  of the decision). This is a significant development of our case law given that Singapore is not yet party to the UNCITRAL model law on cross-border insolvency.
While the court did affirm the use of the COMI approach to recognising foreign liquidation proceedings, it should be noted that it was in the context of the bankruptcy trustee having given a voluntary undertaking to pay all preferential and other debts in Singapore before remitting any funds out of Singapore. This was presumably one of the considerations that the court had in mind in granting the orders it did, as the decision concluded with the remark that it would be ‘better to have [the supporting affidavit of a Singapore solicitor] when certain assertions are made, such as that there is an absence of prejudice in Singapore’ as ‘[a] mere statement to such an effect by a foreign liquidator…would not carry as much weight’ (at para  of the decision).
It may thus be surmised that notwithstanding Singapore’s growing acceptance of the universalist approach, the Singapore court will ensure that the interests of Singapore-based creditors remain safeguarded. As such, it may be useful for a liquidator or trustee (as the case may be) seeking recognition of his appointment over a foreign company by the Singapore courts to notify Singapore-based creditors of the intended application—either by placing an advertisement in the newspapers (as the Bankruptcy Trustee did) or by writing to them, and invite them to raise any objections or concerns. Further, where there is doubt as to whether the company in question had conducted business in Singapore previously (which would have subjected it to the ring-fencing rule under section 377(3)(c) of the Companies Act (Cap. 50)), it may be useful to provide an undertaking to comply with the rule, as the bankruptcy trustee did in the present case so that Singapore-based creditors are not prejudiced.
Interviewed by Alex Heshmaty.
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First published on LexisPSL Restructuring and Insolvency
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