In Re PT MNC Investama TBK  SGHC 149 (“Re PT MNC”), the Singapore High Court (per Justice Aedit Abdullah) addressed, for the first time in a written grounds of decision (“GD”), the question of whether a foreign company has the requisite standing to apply for a Section 211B moratorium under the Companies Act (the “Act”).
The GD, which the Court noted was issued to assist interested parties, provides much needed clarity on the requirements of the “substantial connection test” that foreign applicants have to satisfy, in order for them to be eligible for moratorium protection under Section 211B of the Act.
In Re PT MNC, the Applicant is an investment company listed on the Indonesia Stock Exchange. In 2018, it issued USD$213,000,000 worth of 9% Senior Secured Notes, which were listed on the Singapore Stock Exchange (“SGX”). In light of the financial difficulties caused by the 2020 Coronavirus pandemic, the Applicant sought moratorium relief under Section 211B(1) of the Act, to provide it with the breathing space it needed to engage in negotiations with the Noteholders.
“Substantial connection” with Singapore
In analysing the statutory framework, the Court noted that a foreign company will have legal standing to make an application under Section 211B if it has a “substantial connection” with Singapore, which would render it to be liable to be wound up under Section 351 of the Act, and therefore eligible for moratorium protection under Section 211B of the Act.
In that regard, while what “substantial connection” entailed is not defined under the Act, Section 351(2A) provides a non-exhaustive list of relevant facts which the Court may rely on to support a determination of “substantial connection”. These include: (
a) Singapore being the centre of the company’s main interests;
(b) the company carrying on business in Singapore or having a place of business in Singapore;
(c) the company being a foreign company that is registered under Division 2 of Part XI of the Act;
(d) the company having substantial assets in Singapore;
(e) the company having chose Singapore law as the law governing a loan or other transaction, or the law governing the resolution of one or more disputes arising out of or in connection with a loan or other transaction; and
(f) the company having submitted to the jurisdiction of the Court for the resolution of one or more disputes relating to a loan or other transaction.
It is interesting to note that, on the facts of Re PT MNC, the Applicant could not invoke any of the 6 factors above enumerated in the Act as supporting the existence of a substantial connection.
In particular, the Applicant’s business activities, control, and administration were primarily situated in Indonesia. The Notes themselves were governed by New York law. There was also no submission to Singapore law or invocation of Singapore law in any dispute.
Despite the above, the Court confirmed that the 6 factors listed in Section 351(2A) were not an exhaustive and definite list, i.e. the indicators of substantial connection for the purposes of the section are not closed.
The Court then rationalised from the expressed list in Section 351(2A) that the meaning of “substantive connection” would cover the presence of business activities, control, and assets in Singapore. These activities have to involve some permanence or permanent effect, and exclude activities of a merely transient nature.
In this case, the High Court held that the fact that the Notes were being traded on the SGX would, in and of itself, suffice to establish a substantial connection with Singapore for the purposes of Section 351(1)(d) of the Act. Having the company securities traded on the SGX is akin to substantial business activity that is not merely transient. Further, the fact that the Applicant is subject to Singapore regulations and laws in the listing of its securities is also a strong indicator of the Applicant’s substantial connection to Singapore.
The Applicant had also pointed to other factors – such as the situation of its debt service account in Singapore, the fact that the Notes were arranged by Singapore-based banks, and that the account charge over the debt service account is governed by Singapore law – as also buttressing its argument that the substantial connection test was satisfied. However, on the facts of the case, the Court declined to make any findings on these other factors as it had already found that substantial connection was already established by the listing of the Notes on the SGX.
This case is the first known application by an Indonesian company under Section 211B of the Act, and provides useful insights as to the factors that the Court will take into account when determining whether a company has a substantial connection with Singapore under Section 351(2A) of the Act. In particular, this case clarifies that Section 351(2A) is not an exhaustive list, and having securities traded on a Singapore exchange would, in and of itself, be sufficient to establish a substantial connection with Singapore.