Public Policy in Cross-Border Insolvency under the Model Law

INTRODUCTION

Re Zetta Jet Pte Ltd and Others [2018] SGHC 16 (“Re Zetta Jet”) is a landmark decision by the Singapore High Court on the question of public policy under the UNCITRAL Model Law on Cross-Border Insolvency (30 May 1997) (the “Model Law”) as adopted by Singapore in the Tenth Schedule of the Companies Act (the “Singapore Model Law”). This is the first reported decision where the Singapore court is faced with a question of public policy in an application for recognition of a foreign insolvency proceeding.

In this case, proceedings under Chapter 11 in the United States continued after the issuance of a Singapore injunction enjoining those proceedings. The Singapore court held that the public policy of Singapore would require a denial of application for recognition by foreign insolvency representatives appointed under proceedings enjoined by a Singapore court. However, the Singapore court then exceptionally exercised its power under the Singapore Model Law to allow limited recognition of the foreign representative in this case to enable the foreign representative to take steps to set aside the injunction. In addition, the Singapore court made observations on the threshold of the public policy exception under the Singapore Model Law, which serves as a useful guide in future cases where actions taken could be contrary to the public policy of Singapore.

BACKGROUND

In Re Zetta Jet, the applicant seeking recognition of foreign insolvency proceedings is the United States Trustee that had been appointed by the United States Trustee’s Office, overseen by the United States Department of Justice and approved by the United States Bankruptcy Court (“US Bankruptcy Court”). The foreign insolvency proceedings are Chapter 7 proceedings, which had commenced as Chapter 11 proceedings. They are commenced by Zetta Jet Pte Ltd (“Zetta Jet Singapore”) and its subsidiary Zetta Jet USA Inc (“Zetta Jet USA”) (together the “Zetta Entities”) in the US Bankruptcy Court in September 2017. Under United States law, a worldwide moratorium on all proceedings against the Zetta Entities is automatically imposed upon filing of the said foreign insolvency proceedings.

Shortly after the filing of the foreign insolvency proceedings, a company called Asia Aviation Holdings Pte Ltd (“AAH”), a shareholder of Zetta Jet Singapore, applied for and obtained an injunction in Singapore enjoining Zetta Jet Singapore from continuing with the Chapter 11 proceedings in the United States (the “Injunction”).

Subsequent to the issuance of the Injunction, proceedings in the US Bankruptcy Court continued. As the Zetta Entities did not obtain US court approval for the plan of reorganisation under Chapter 11, the proceedings were converted to Chapter 7 proceedings, which are proceedings akin to winding up proceedings in Singapore. The Trustee then commenced these recognition proceedings in Singapore.

AAH intervened in the recognition proceedings and complained that there had been a breach of the Injunction as steps were taken in the Chapter 11 proceedings despite the subsistence of the Injunction.

THE ISSUE

The primary question Abdullah J had to address is whether the Singapore court can grant recognition to a foreign insolvency representative appointed under proceedings enjoined by another Singapore court.

This led to a consideration by the Singapore court of the standard of the public policy exception under Article 6 of the Singapore Model Law.  Under the Model Law, the court can only deny recognition if recognition is “manifestly contrary” to public policy. Singapore’s enactment of the Model Law omits the word “manifestly”.

HOLDING OF THE COURT

There is, as observed by Abdullah J, commentary suggesting that despite the lack of the word “manifestly”, a narrow reading of Article 6 should be applied. Such commentary discusses public policy in the enforcement of arbitral awards and recognition of foreign judgment, and notes that although “manifestly” is not used in the relevant legislation there, Singapore courts have nevertheless taken a restrictive view to the interpretation of public policy. The commentary suggests that the same would arguably apply to Article 6 of the Singapore Model Law.

However, Abdullah J found that due to the omission of the word “manifestly”, which he considered to be deliberate and conscious, the standard of exclusion on public policy grounds in Singapore is lower than that in jurisdictions where the Model Law has been enacted unmodified.

He observed that while he could not lay down what would specifically trigger the public policy bar in Singapore, he would interpret it as requiring the denial of an application for recognition by foreign insolvency representatives appointed under proceedings enjoined by a Singapore court. It would be rare for the court not to refuse recognition where there has been non-compliance with a Singapore court order. Abdullah J also observed that even if the higher threshold was applied, the same result would follow, noting that there was precedent in the United States which adopts the original wording of the Model Law, for the denial of recognition in similar circumstances.

This was however not the end of the matter.

Having found that the public policy exception had been triggered, and that it would be rare for the Singapore court not to refuse recognition where there has been non-compliance with a Singapore court order, Abdullah J turned to consider the necessity of granting recognition. The Trustee had argued that recognition was necessary so that the Trustee could apply to set aside the Injunction, while AAH took the view that although the Zetta Entities were in liquidation in the United States, they were live in Singapore and could apply to discharge the Injunction.

Abdullah J agreed with the Applicant and found that it would be conceptually odd to distinguish between the status of a company in different jurisdictions. He also agreed with the Applicant and exceptionally exercised his discretion to grant limited recognition to the Trustee to enable the latter to apply to discharge the Injunction. He considered this to be consonant with the philosophy and objective of the Singapore Model Law, including the need to have regard to its international basis and the promotion of uniformity required by Article 8 of the Singapore Model Law.

CONCLUSION AND THOUGHTS

In this landmark decision, Abdullah J ruled on several matters of law that had never been visited by the Singapore courts. This can be summarised as follows:

• The standard of exclusion based on public policy in Singapore is lower than in other jurisdictions that have adopted the Model Law wholesale.
• The Singapore court will recognise the fact that a company is in liquidation overseas, notwithstanding the fact that it appears to be live in Singapore.
• The Singapore court has the power to grant limited recognition for a particular purpose to an applicant.

Abdullah J’s decision on public policy puts Singapore in a different position from many other jurisdictions that have adopted the Model Law. Of the other jurisdictions that have adopted the Model Law, only Canada has not retained the word “manifestly” in its adoption of the Model Law. Canadian courts however have referred to and relied on the Guide to the Model Law and have not found that the omission of the word “manifestly” leads to an inference that the standard of exclusion is lower. Singapore stands alone in its finding on this point.

Nonetheless, Abdullah J’s decision clearly demonstrates the regard Singapore has for uniformity and the importance of working together with foreign courts on foreign insolvency proceedings. While Abdullah J declined to grant full recognition at this stage in the face of the Injunction, he observed that there should be no difference in the status of a company in different jurisdictions and recognised that the Trustee had to be given assistance if the Injunction was to be set aside.

Abdullah J therefore adopted a practical and novel solution by exercising his discretion to grant limited recognition to the Trustee to set aside the Injunction.  The decision demonstrates the Singapore court’s ability to deal with a situation when there are potential conflicting points of public policy, such as where the court has to balance principles of uniformity against ensuring that its orders are complied with.

Parties with further queries may wish to contact our Restructuring and Insolvency Practice.

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