The term “globalisation” is associated with expansion and the free movement of capital and resources. Funds raised in Country A can be invested in a variety of different countries for better returns. In times of economic expansion, it can be unfashionable to consider insolvency issues. This may explain why insolvency practitioners find themselves holding many discussions among themselves.
One such discussion has concerned a particular, some say peculiar, rule in Singapore. Postulate a pool of assets in Singapore that is free of encumbrances. Should it matter, in an insolvency, whether that pool is owned by a Singapore incorporated company, a foreign company or a foreign company registered (under the provisions of the Singapore companies legislation) in Singapore. The short answer is that at present, it matters very much.
If the owner is a company incorporated in Singapore, and it is wound up by the Singapore courts, the pool of assets will be distributed by the Singapore liquidator to the company’s local and foreign creditors on a pari passu basis.
However, if the owner is a foreign company registered to carry on business in Singapore, Section 377(3)(c) of the Companies Act requires the Singapore liquidator to ring-fence the pool of assets, and apply those assets first to the settlement of its local creditors, before he remits the balance of those assets to the company’s foreign liquidator and its creditors in the main foreign winding up proceedings. This position is clearly set out in the Singapore High Court case of RBG Resources plc v Credit Lyonnais [2006] 1 SLR (R) 240.
Yet, if the foreign company is not registered to carry on business in Singapore, the Singapore liquidator may apply to the High Court to disapply the ring-fencing rule. This is the effect of Beluga Chartering GmbH (in liquidation) v. Beluga Projects (Singapore) Pte Ltd [2013] SGHC 60. It is said that the disapplication will be made as appropriate in the circumstances, and as consistent with justice and Singapore public policy.
One view of Beluga is that it signals a move away from a territorialist approach towards a more universal recognition of cross-border insolvency proceedings. It should be noted though that Singapore is not a signatory to the UNCITRAL Model Law on Cross-Border Insolvency and the universalist approach has stuttered in some jurisidictions after having ridden a wave following the financial crisis of 2008/9. Exceptions may be found in many European jurisdictions which have reformed and refined their insolvency regimes, simplifying and accelerating their domestic and cross-border processes.
When insolvency practitioners in Singapore have their morale raising discussions, they contemplate the advent of a new insolvency legislation that would recognise the changes in economics and ownership patterns in the past decades. They cheer at the prospect that provisions that would allow creditors to organise their affairs inter-se here, even if the debtor is incorporated in a different jurisdiction. More recently, they debate what the Court of Appeal might say when the court hears the appeal against the High Court’s decision in Beluga, both about the particular exercise of discretion not to disapply ring-fencing on the facts and more broadly about the availability of assets in Singapore for creditors here and abroad.
At a minimum, there is a hint of a soon to come opportunity for insolvency practitioners to have a broader audience.
