Overview

The central question in the case of Re Opti-Medix Ltd (in liquidation) and another matter [2016] SGHC 108 (Opti-Medix) was whether insolvency proceedings in a jurisdiction other than the place of incorporation could be recognised by the Singapore court.

Ex parte applications were made for (a) the recognition of foreign insolvency proceedings and (b) the appointment of a foreign bankruptcy trustee, in respect of two companies (the Companies).

Background facts

  • The Companies were incorporated in the British Virgin Islands.
  • The Companies’ main business concerned the factoring of receivables from medical institutions in Japan.
  • The factoring was funded by the issue of non-recourse notes, which were governed by Singapore law. The proceeds of the business were transferred into Singapore bank accounts.
  • However, the notes were only marketed in Japan using Japanese brokers.
  • Eventually, the business failed and the bankruptcy orders (the Japanese Orders) were granted by the Tokyo District Court, with the applicant in this case being appointed the Bankruptcy Trustee.
  • The majority of the largest creditors were Japanese entities or persons. There were only two Singapore creditors.
  • The Bankruptcy Trustee made the applications so as to exercise his powers under the Japanese Bankruptcy Orders to ascertain, administer and dispose of the companies’ assets held in various Singapore bank accounts.

The court’s decision

The court allowed the applications, citing a precedent, a Straits Settlement decision dating from 1926 (but reported in 1958), Re Lee Wah Bank [1958] 2 MC 81.

The Judge sought to restrict the effect of his decision by making it clear that the mere fact that a company is in liquidation in a particular country, does not by itself provide a basis to recognise that liquidation in Singapore. Instead, more is required before a foreign liquidation is recognised: in this case, the fact that Japan was where the bulk of the business was conducted was the determinative issue.

While it may be natural to suppose that a liquidator appointed in the place of incorporation should have primacy, this would not always be the case. In particular, the Judge sensibly noted that “the place of incorporation may be an accident of many factors, and may be far removed from the actual place of business”.

The Judge highlighted the centre of main interest or COMI test as being useful in identifying where insolvency proceedings should be conducted. In the judgment, the Judge wrote that “The COMI will likely be the place where most dealings occur, most money is paid in and out, and most decisions are made. It is thus the place where the bulk of the business is carried out, and for that reason, provides a strong connecting factor to the courts there.”

In applying the COMI test, the Judge suggested that it might be sensible to apply a presumption in favour of the registered office being the COMI. Nevertheless, any of such presumption would be rebutted on the facts of the present case.

Further, the Judge stated that where the interests of the forum are not adversely affected by a foreign order, the courts should lean towards recognition of the foreign insolvency proceedings.

Commentary

This decision is in line with what is sometimes referred to as the Universalist trend in insolvency law.

In this respect, the Judge stated:

“In cross border insolvency, there has been a general movement away from the traditional, territorial focus on the interests of the local creditors, towards recognition that universal cooperation between jurisdictions is a necessary part of the contemporary world. Under a Universalist approach, one court takes the lead while other courts assist in administering the liquidation.”

The effect of the Universalist trend is, in essence, “a greater readiness to go beyond traditional bases for recognising foreign insolvency proceedings”.

The Judge’s decision is sensible and commercially-oriented. The traditional rule that only foreign insolvency proceedings which are also initiated in the place of incorporation ought to be recognised by a forum court, is severely outmoded.

Globalisation has resulted in an explosion of economic activity which frequently transcends national borders. International businesses often engage in commerce through a spectrum of branches, offices, subsidiaries and special purpose vehicles. The Judge’s decision has accorded with the commercial realities of the 21st century in which we often find ourselves faced with a variety of eclectic business arrangements, designed to maximise advantages across multiple jurisdictions.

However, while the facts of the present case clearly weighed in favour of Japan being the COMI, one can easily envisage circumstances where the answer is not so clear-cut. In view of the sheer variety of cross-border business arrangements now prevalent across the world, the court may be faced with some difficulty at a future date, in attempting to lay down a coherent set of guidelines for the determination of the COMI in such situations.

The universalist trend in insolvency proceedings demonstrated in Opti-Medix has also surfaced in another recent decision of Aedit Abdullah JC in Re Taisoo Suk (as foreign representative of Hanjin Shipping Co Ltd) [2016] SGHC 195 (Taisoo).

In Taisoo, the applicant sought, and the court granted interim orders for the recognition of rehabilitation proceedings in Korea, and the restraint of all pending, contingent or fresh proceedings against a company. However, the test laid down for recognising foreign rehabilitation proceedings appears to be slightly distinct from the COMI test.

In particular, the Judge stated that the following factors would have to be assessed: (a) the connection of the company to the forum in which the rehabilitation proceedings are taking place and to the place of rehabilitation, (b) what the rehabilitation process entails, including its impact on domestic creditors and whether it is fair and equitable in the circumstances, and (c) whether there are any strong countervailing reasons against recognition of the foreign rehabilitation proceedings.

Nevertheless, it is of note that the decision in Taisoo applies and extends the universalist trend to insolvency proceedings, other than winding up and/or bankruptcy, such as restructuring and rehabilitation. Indeed, the Judge in Taisoo stated that “[s]uch recognition and assistance perhaps constituted a development of the common law in Singapore”.

It remains to be seen in what further circumstances the universalist trend in insolvency may lie to be applied. However, insolvency practitioners would be wise to keep these important jurisprudential developments in mind when approaching cases which involve multiple jurisdictions.

Dentons Rodyk acknowledges and thanks associate Reuben Gavin Peter for his contribution in the writing of this article.