The Singapore High Court has confirmed that it will recognize the status and powers of a foreign liquidator in the liquidation of an unregistered foreign company in Singapore.
Life cycle of a company
Statistics from the Accounting and Corporate Regulatory Authority ("ACRA") of Singapore reveal that the increasing number of companies formed in Singapore (2004:17,151; 2009:26,414) is matched by a corresponding increase in the number of companies ceasing operations (2004:5,882; 2009:22,388).
Arguably, the most traumatic way in which a company ceases operations is compulsory liquidation; where its creditors apply to court to appoint a liquidator to collect, realise and distribute its assets among its creditors. According to the Insolvency & Public Trustee's Office, the number of Singapore companies that faced this fate increased from 106 in 2007 to 142 in 2010.
The Companies Act governs the entire life cycle of a Singapore company – from its incorporation to its liquidation and eventual dissolution.
Foreign companies in Singapore
What about foreign companies? Section 368 of the Companies Act requires foreign companies to register with ACRA if it establishes a place of business or carries on business in Singapore. Once registered, such foreign companies would be governed by the Companies Act.
The Companies Act provides that a registered foreign company may be wound up in Singapore by the Singapore court appointing a Singapore liquidator. If a registered foreign company is wound up in its country of incorporation and a foreign liquidator is appointed by the court in its country of incorporation, the Companies Act recognises the authority of that foreign liquidator, who shall have the powers of a Singapore liquidator (section 377(2)(b), Companies Act).
What if a foreign company does not register with ACRA? The Companies Act provides that an unregistered foreign company may be wound up in Singapore by the Singapore court appointing a Singapore liquidator. However, there is no corresponding provision in the Companies Act recognising the foreign liquidator of an unregistered foreign company that is wound up in its country of incorporation.
There is a common mistaken assumption that all foreign companies that are listed on the Singapore Exchange Securities Trading Limited ("SGX") are registered in Singapore. However, this is not the case because a foreign company is not regarded as carrying on business in Singapore just because, among other things, it:
- is listed on the SGX;
- holds meetings of its directors or shareholders or carries on other activities concerning its internal affairs;
- maintains any bank account;
- creates evidence of any debt or creates a charge on movable or immovable property;
- secures or collects any of its debts or enforces its rights in regard to any securities relating to such debts;
- invests any of its funds or holds any property; or
- establishes a share transfer or share registration office;
There are numerous examples of foreign companies incorporated abroad in countries such as Australia, China, Hong Kong and the United Kingdom, in tax havens such as Bermuda, British Virgin Islands and Cayman Islands, and even in exotic locales such as the Marshall Islands and Mauritius, that are listed on the SGX but are not registered in Singapore
If such unregistered foreign companies are wound up in their country of incorporation, what are the rights of the foreign liquidator appointed by the court in the country of incorporation, given that there is no express provision in the Companies Act recognising his authority?
China Sun Bio-Chem Technology Group Company Limited
This question arose in the case of China Sun Bio-Chem Techology Group Company Limited ("CSBC").
CSBC is a company incorporated in the Cayman Islands and was listed on the SGX although trading in its shares has been suspended since 25 March 2009. As CSBC's substantial assets and businesses are operated by its wholly-owned subsidiaries in China, CSBC is not registered with ACRA in Singapore. In other words, it is an unregistered foreign company.
On 4 October 2006, CSBC issued US$100,000,000 Zero Coupon Convertible Bonds convertible into shares of CSBC ("Bonds"). The bondholders of the Bonds exercised the right at their option to require CSBC to redeem all or part of the Bonds such that US$93,900,000 was payable by CSBC to the bondholders on 5 October 2009.
CSBC was unable to do so and a winding up petition was presented on behalf of the bondholders against CSBC on 20 April 2010 in the Cayman Islands. An application for the appointment of provisional liquidators of CSBC was also presented by CSBC, pursuant to which the Grand Court of the Cayman Islands appointed two joint provisional liquidators based in the Cayman Islands and in Hong Kong ("foreign liquidators").
The foreign liquidators wrote to CSBC's former bankers and accountants in May 2010 requesting information relating to CSBC to identify assets of and to understand the affairs of the CSBC group. The former bankers and accountants were naturally hesitant to furnish the foreign liquidators with the information sought because the Companies Act did not expressly provide for or otherwise recognise the authority of a foreign liquidator of an unregistered foreign company such as CSBC.
Rodyk acted for the foreign liquidators in making an unprecedented application to court for declarations that the foreign liquidators had, among other powers, power to collect, recover, take possession and control of, and deal with assets of CSBC, similar to a Singapore liquidator.
This was a novel application in Singapore because, prior to that, there was no reported decision in Singapore of a similar application made by a foreign liquidator of an unregistered foreign company. There is also a dearth of reported cases from the familiar common law jurisdictions of Malaysia, England, Hong Kong, Australia and Canada.
The Rodyk team relied on the decision of Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc and others  1 AC 508 ("Cambridge Gas"), a decision of the Privy Council on appeal from the Staff of Government Division of the High Court of Justice of the Isle of Man. The Privy Council is the apex court in the Isle of Man judicial system. The Isle of Man is a small island roughly the size of Singapore in the Irish Sea between the islands of Great Britain and Ireland.
In Cambridge Gas, European investors borrowed US$300 million on the New York bond market to purchase five vessels and commenced trading. These investors became insolvent and petitioned for relief under Chapter 11 of the United States Bankruptcy Code which allowed insolvent companies to negotiate a plan of reorganisation with their creditors. The Federal Bankruptcy Court for the Southern District of New York confirmed a plan providing for the assets to be taken over by the creditors and ordered it be carried into effect. The vessels were owned and managed by a group of Manx companies, each ship owned by a separate subsidiary of a management company, and all the shares in the management company held by a holding company N, which was in turn held through a web of companies incorporated in other offshore jurisdictions, including Cambridge Gas Transportation Corporation ("CG"), a Cayman company, which owned 70% of the shares in the holding company. The plan envisaged that the shares in the holding company would be vested in the creditors' representatives. The creditors' representatives petitioned the Manx High Court for an order vesting the shares in them. CG cross-petitioned to ask the Manx High Court not to recognise or enforce the plan. The Privy Council held that the Manx High Court had jurisdiction to assist the committee of creditors as the appointed representatives under the Chapter 11 order and to give effect to the plan.
The Privy Council was of the view that the principle of universality meant that a person who is empowered under foreign bankruptcy law to act on behalf of the insolvent company should be recognised as being entitled to do so locally. In coming to this conclusion, the Privy Council cited a 1906 Transvaal case where a liquidator appointed in England was empowered to deal with the company's Transvaal assets. Transvaal was a crown colony of the British Empire and is today part of the Republic of South Africa.
Rodyk argued before the Singapore High Court that an unregistered foreign company that does not carry on business in Singapore should be in a no less advantageous position than a registered foreign company carrying on business in Singapore, when it comes to recognition by the Singapore court of a foreign liquidator appointed by a court in its place of incorporation. This is especially when there is a lower likelihood of the existence of Singapore creditors given that it does not carry on business in Singapore.
The High Court accepted these arguments, and made the declarations sought, expressly recognising the authority of the foreign liquidators over the Singapore assets of CSBC. This paved the way for cooperation from the former bankers and accountants.
With SGX's recent appointment in October 2010 of Ms Paulina McGroarty to head its Europe, Middle East and Russia listings business, its stated pursuit of Japanese listings at a seminar titled "SGX – An Asian Platform for International Listings" held on 18 January 2011, as well as its planned merger with ASX, the number of foreign companies listed on SGX that are unregistered is likely to rise further in the near future.
Should such unregistered foreign companies be wound up in their country of incorporation, then on the basis of the precedent set in CSBC's case, the foreign liquidator would be able to seek recognition of his powers in Singapore, pending, or in lieu of, any step to wind up the unregistered foreign company in Singapore via the appointment of a Singapore liquidator.