Meiyen Tan Keith Han Zephan Chua Angela Phoon October 16 2020 Recognition of bankruptcy orders: breach of natural justice Oon & Bazul LLP | Insolvency & Restructuring - Singapore Meiyen Tan, Keith Han, Zephan Chua, Angela Phoon Insolvency & Restructuring IntroductionFactsMajority decision – breach of natural justiceDissenting judgmentCommentIntroductionPaulus Tannos v Heince Tombak Simanjuntak ( SGCA 85) involved two appeals against a Singapore High Court decision which had recognised Indonesian bankruptcy orders. By a two-to-one majority, the Court of Appeal granted the appeal and set aside the High Court's recognition of the bankruptcy orders on the basis that there had been a breach of natural justice in their making.While recognition in this case proceeded on the basis of the common law regarding the recognition of bankruptcy orders, this case could be a useful interpretive aid for future challenges under statutory recognition procedures, such as those provided for by the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency(1) and the Choice of Court Agreements Act (CCAA) 2016.(2) Such statutes usually provide that recognition should be denied where it would contravene Singapore public policy,(3) which ordinarily includes cases of a breach of natural justice.FactsThe appellants were Indonesian citizens and permanent residents of Singapore. The first appellant was the majority shareholder of an Indonesian company, PT Megalestari Unggul (MLU). The other appellants were his wife and two daughters, who were allegedly guarantors of a loan to MLU.MLU could not pay the underlying loan and the creditor, PT Senja Imaji Prisma, commenced Indonesian restructuring proceedings (known as 'penundaan kewajiban pembayaran utang' (PKPU)) against MLU and the appellants as guarantors. At the hearing, the Indonesian court granted the PKPU order (the PKPU decision). MLU was represented by counsel at this hearing, but the appellants were neither present nor represented by counsel.Following the PKPU decision, the appellants had 45 days to propose a composition plan acceptable to their creditors, failing which they would be adjudged bankrupt. To this end, three creditors' meetings were held to discuss the composition of debts. The appellants appeared and contended that they had not received notice of the PKPU application and that the personal guarantees had been fraudulently obtained and were invalid.As the meetings did not result in a composition plan, the Indonesian court pronounced the appellants bankrupt and appointed the respondents as receivers (the bankruptcy decision). The respondents applied for recognition of the bankruptcy decision in the Singapore High Court and successfully obtained ex parte orders. The appellants then applied to have these set aside, but the High Court dismissed this application. The appellants appealed.Majority decision – breach of natural justiceBy a two-to-one majority, the Court of Appeal found that there had been a breach of natural justice in the making of the PKPU and bankruptcy decisions and granted the appeal.The Court of Appeal noted that the PKPU and bankruptcy decisions were not in the process of being appealed or set aside. The appellants had attempted but could not bring any appeal or judicial review proceedings in regard of these decisions. Hence, it was not premature for the court to consider whether there had been a breach of natural justice.(4)The Court of Appeal reiterated the principles of natural justice in the context of recognition and enforcement proceedings – namely, that the litigant be given:notice of the proceedings; andthe opportunity to substantially present its case.(5)No opportunity to be heardThe Court of Appeal overturned the High Court's decision that the appellants could not argue that they had been given insufficient notice as they had participated in the Indonesian proceedings.(6) Instead, it found that once the appellants had failed to attend the PKPU hearing, they had not been given any further opportunity to raise their objections. The appellants had participated in the Indonesian proceedings only after the PKPU decision was rendered on 9 January 2017. They had raised objections throughout the creditors' meetings and subsequent proceedings, but had been repeatedly told that the meetings and proceedings were not the appropriate forum to raise objections.(7) Specifically, the Indonesian court had told the appellants' lawyer that the way forward was to file an appeal.(8)No proper service of PKPU summonsThe Court of Appeal found that the summons to attend the PKPU proceedings had not been properly served on the appellants. This was an issue incumbent on the respondents to prove.In this respect, the respondents could not produce any conclusive evidence that the PKPU summons had been validly served on the appellants. The service by registered mail had been unsuccessful, with the reason stated being "incomplete address".(9) Further, PT Senja's ad in the Rakyat Merdeka newspaper had not been shown to satisfy the Indonesian rules on service.(10)The Court of Appeal also highlighted that the fact that the Indonesian court had considered the issue of service and found that the requisite procedure had been satisfied was "neither conclusive nor relevant" as to the propriety of its own proceedings, which was a question for the recognition court to answer.(11)No actual notice of PKPU proceedingsFinally, the Court of Appeal found that the evidence of the appellants' conduct demonstrated that it was unlikely that they had received actual notice of the PKPU proceedings. The appellants had not appointed lawyers until 11 January 2017 and the powers of attorney executed demonstrated that they had been in Singapore at that time. Further, the minor weaknesses in the appellants' evidence did not disprove the fact that they had been unaware of the PKPU proceedings prior to 9 January 2017.(12)The respondents' argument that the appellants had evaded service in order to dissipate funds was rejected. There was little to no evidence that the appellants had known of the proceedings prior to the PKPU hearing. Further, the fact that the first appellant was a shareholder of MLU could not lead to the inference that he had been aware of the PKPU proceedings. Finally, the appellants' conduct had been consistent – they had always been committed to seeking to vindicate their rights before the Indonesian courts, but had been unable to do so.(13)Dissenting judgmentIn his dissenting judgment, Woo J agreed that proper service had not been established but dissented on the factual issue as to whether the appellants had been given actual notice.He explained that whether the appellants had received notice was an issue within their personal knowledge which they should have clearly explained.(14) Therefore, the inconsistencies in their evidence compelled the inference that they had been aware of the PKPU proceedings but had chosen not to attend.(15) These inconsistencies were as follows:The appellants claimed that they had first learnt of the proceedings from the newspaper ads dated 13 January 2017, but they had appointed lawyers to act in this respect on 11 January 2017.(16)To explain this, the appellants claimed that the PKPU decision had been reported in a smaller newspaper article allegedly dated 10 January 2017. However, this article was not exhibited until questioned, and even then it was undated. This was also inconsistent with the fact that the first appellant and his lawyer had referred to the genesis of the appellants' knowledge of the PKPU proceedings as the "advertisements" and not the "report".(17)Comment This decision highlights the importance of proper service and the severity of breaching notice requirements.While recognition in this case proceeded on the basis of common law, this case could be a useful interpretive aid in future challenges under statutory recognition procedures, such as those provided for in the UNCITRAL Model Law on Cross-Border Insolvency and the CCAA. As mentioned above, such statutes usually provide that recognition should be denied where it would contravene Singapore public policy,(18) which ordinarily includes cases of a breach of natural justice. In particular, the Insolvency Law Review Committee had specifically considered breaches of natural justice and procedural fairness to be public policy grounds on which the courts can refuse recognition.(19)This case also highlights the importance of producing expert evidence on compliance with foreign law in recognition and enforcement proceedings. In this case, the respondents sought to demonstrate that the ad in the Rakyat Merdeka newspaper satisfied the Indonesian rules on service. However, the Singapore Court of Appeal found that the evidence on the Indonesian rules of service was undermined by the fact that only a small extract of the rules of service had been translated. Further, the respondents had failed to produce any expert opinion on Indonesian law.The Court of Appeal expressly left open a fundamental question of recognition of foreign bankruptcy orders.(20) In this case, recognition proceeded on the basis of common law and the parties were content to proceed based on the rules set out in Giant Light Metal. However, as noted by the High Court and the Court of Appeal, the Giant Light Metal principles were developed in the context of recognition of in personam foreign judgments (ie, judgments against a person which are binding only on that person). In contrast, the bankruptcy orders whose recognition was sought in this case were in rem (ie, orders against a thing which were therefore binding on the world). Therefore, the principles and requirements for the recognition of foreign money judgments could not simply be extended to the recognition of in rem foreign orders, as cautioned by various academics.(21) However, the High Court was not convinced that this was a valid distinction to draw to deny recognition.(22) On appeal, the parties had not raised further arguments and the Court of Appeal was content to leave the High Court's judgment on this issue untouched.For further information on this topic please contact Tan Meiyen, Keith Han, Zephan Chua or Angela Phoon at Oon & Bazul LLP by telephone (+65 6223 3893) or email ([email protected], [email protected], [email protected] or [email protected]). The Oon & Bazul LLP website can be accessed at www.oonbazul.com.Endnotes(1) Insolvency, Restructuring and Dissolution Act 2018 (40/2018), Third Schedule, UNCITRAL Model Law on Cross-Border Insolvency.(2) CCAA (14/2016).(3) See Section 14(c) of the CCAA, Article 6 of the UNCITRAL Model Law on Cross-Border Insolvency and Section 5(1)(a) of the Reciprocal Enforcement of Foreign Judgments Act (Cap 265, 2001 Rev Ed).(4) Paulus Tannos v Heince Tombak Simanjuntak  SGCA 85 (Court of Appeal decision) at  to .(5) Court of Appeal decision at ; Adams v Cape Industries Plc  1 CH 433 at .(6) Court of Appeal decision at ; Heince Tombak Simanjuntak v Paulus Tannos  SGHC 216 (High Court decision) at .(7) Court of Appeal decision at (8) Id at (9) Id at  to .(10) Id at  to .(11) Id at  to .(12) Id at  to  and .(13) Id at  to .(14) Id at .(15) Id at .(16) Id at .(17) Id at  to .(18) See Section 14(c) of the CCAA, Article 6 of the UNCITRAL Model Law on Cross-Border Insolvency and Section 5(1)(a) of the Reciprocal Enforcement of Foreign Judgments Act (Cap 265, 2001 Rev Ed).(19) Report of the Insolvency Law Review Committee 2013 at page 237 .(20) Court of Appeal decision at .(21) Cross-Border Insolvency (Richard Sheldon gen ed) (Bloomsbury, 4th ed, 2015) at para 9.3 and Law and Practice of Bankruptcy in Singapore and Malaysia (Kala Anandarajah et al) (Butterworths Asia, 1999) at p 472. These authorities are cited in the High Court decision at .(22) High Court decision at .