SINGAPORE. Chapter Under general law CROSS-BORDER INSOLVENCY

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1 CROSS-BORDER INSOLVENCY Chapter 31 SINGAPORE 1. Under general law Singapore is a sovereign state with its own independent judicial and legal system developed from the English common law. Singapore is a common law country as opposed to a civil law country. English judicial decisions have persuasive but not binding authority in Singapore. In terms of commercial law and practice, Singapore s laws are similar in practice and application as those in England and other Commonwealth countries such as Australia, Canada and Malaysia. The current legislative framework in Singapore in relation to insolvency procedures represents a mix of adaptations from England and Australia. A foreign judgment has no direct operation in Singapore. However, foreign judgments may be recognised and enforced either at common law or under statute. Under Common Law At common law, a foreign claimant, being the beneficiary of a foreign judgment, may apply to the High Court of Singapore for summary judgment under Order 14 of the Supreme Court (Statute of the Republic of Singapore, Chapter 322) Rules. Once the existence of the foreign judgment is proved, the burden of proof lies with the defendant and the defences available to him under the rules of private international law are that: the foreign court was not competent to render the judgment due to the lack of proper jurisdiction; the foreign judgment was obtained by fraud; or the foreign judgment is contrary to public policy in Singapore. 181

2 Under Statute Under statute, upon registration, certain foreign judgments will be recognised and enforced in Singapore on the basis of reciprocity. The relevant statutes are: 1.The Reciprocal Enforcement of Commonwealth Judgments Act (Statutes of the Republic of Singapore, Cap. 264). This provides for the enforcement of money judgments in civil actions rendered by a superior court of the United Kingdom of Great Britain and Northern Ireland. The Minister of Law has discretion to extend the application of this Act to judgments obtained in a superior court of any other Commonwealth country, and it now applies to the following countries: Australia, Brunei Darussalam, Sri Lanka, Hong Kong (for judgments obtained on or before 30th June 1997), India (except the State of Jammu and Kashmir), Malaysia, New Zealand, Pakistan, Papua New Guinea and the Windward Islands. 2.The Reciprocal Enforcement of Foreign Judgments Act (Statutes of the Republic of Singapore, Cap. 265). This Act provides for the enforcement of judgments (made by a court in any civil proceedings, or made by a court in any criminal proceedings for the payment of a sum of money in respect of compensation or damages to an injured party) for the payment of compensation or damages where the judgments are given in a foreign country, which gives Singapore judgments reciprocal treatment. The Minister of Law should be satisfied that substantial reciprocity will be assured before extending the application of the Act to any country. This Act has, to-date, been extended only to the Hong Kong Special Administrative Region of the People s Republic of China It is important to note that both these statutes require the assurance that the relevant foreign country would reciprocally enforce judgments of a Singapore court. The above statutes do not apply to foreign insolvency orders. Bankruptcies of individuals or partnerships are governed by the Bankruptcy Act (Statutes of the Republic of Singapore, Cap. 20) and the winding-up of companies is governed by discrete portions of the Companies Act (Statutes of the Republic of Singapore, Cap. 50) and certain provisions of the Bankruptcy Act relating to void and voidable transactions which are extended by reference to apply to insolvent companies under liquidation or judicial management. It is generally accepted that the law of the place of incorporation of a company governs its existence and status (Banque International de Commerce de Petrograd v Gouskassow [1923] 2 KB 682). Thus if a foreign company is wound up in the jurisdiction where it was incorporated, a Singapore court will recognise the foreign winding-up order. A winding-up order made by a court in a jurisdiction other than where the company was incorporated will not be recognised. It may be noted, however, that the Companies Act sections 350 to 354 provide for the winding-up in Singapore, inter alia, of a foreign company that is not registered under the Companies Act but which has assets located in or some other connection with Singapore. Applying the principle in Banque International de Commerce de Petrograd v Gouskassow, it appears that such a winding-up order made by a Singapore court will be effective only in Singapore. 182

3 Where a Singapore branch of the foreign company is also registered in Singapore as a foreign company under the Companies Act, the Companies Act Section 377 governs the effect in Singapore of a liquidation of that foreign company, in the place of its incorporation 2. Assisting legislation The Bankruptcy Act 1995 Section 151 provides that the Singapore High Court and its officers shall in all matters of bankruptcy and insolvency act in aid of, and be auxiliary to, the courts of Malaysia having jurisdiction in such matters, as long as the law of Malaysia provides reciprocal treatment to requests made by a competent court in Singapore. This provision also applies to designated countries specified by notification in the Singapore Government Gazette but to-date, no "designated countries" have been gazetted. The Bankruptcy Act, Section 152 provides that, if due to his bankruptcy, a debtor s property is vested in the Official Assignee in Malaysia, Singapore law must recognise that any of the debtor's property situated in Singapore will vest in the Malaysian Official Assignee as if the debtor was adjudicated bankrupt in Singapore. The above provisions will not be effective if a petition for bankruptcy proceedings had already been presented in Singapore although if the petition is dismissed, or withdrawn, the provisions will be effective. A Malaysian Official Assignee may sue and be sued in any court in Singapore in its official name. The Companies Act does not have similar statutory provisions to the Bankruptcy Act, sections 151 and 152. Since the Singapore courts will recognise a foreign winding-up order made against a company in the country where it was incorporated, any liquidator appointed under that country s laws would be recognised in Singapore. The company s property situate in Singapore does not automatically vest in the foreign liquidator. The property can be vested only by a vesting order made by a Singapore court under section 269 of the Companies Act. The foreign liquidator of a company shall have the powers and duties of a local liquidator only until a liquidator for Singapore is appointed (section 377(2)(b) of the Companies Act). 3. Insolvency practice Since independence in 1965, Singapore has risen steadily to the status of a regional economic power, a success widely attributed to a combination of political stability, excellent infrastructure, diligent workforce, well regulated financial and industrial sectors and economic policies geared towards promoting international free trade and investment. However, despite extensive efforts by the Singapore Government to encourage foreign companies to conduct business in Singapore, the law is still inadequate in dealing with the complicated cross-frontier problems that may arise in the event of the insolvency of foreign companies. 183

4 4. Proposed reforms In December 1999, the Singapore Ministry of Finance, the Attorney-General's Chambers and the Monetary Authority of Singapore ("MAS") set up the Company Legislation and Regulatory Framework Committee (the "Committee") to undertake a comprehensive and coherent review of Singapore's company law and regulatory framework and to recommend a modern company law and regulatory framework for Singapore which accords with global standards and which would promote a competitive economy. Amongst others, it was recognised that it was timely for Singapore to modernise and consolidate its insolvency legislation and structure an omnibus insolvency legislation (the Insolvency Act), which would provide for orderly and efficient liquidation and restructuring, and whilst so doing, would also harmonise and consolidate several areas of uncertainty. In the course of its review, the Committee also reviewed developments relating to the United Nations Commission on International Trade Law (UNCITRAL) Model law on Cross-Border Insolvency, which was issued in 1997 to provide effective and efficient mechanisms for dealing with cases of cross-border insolvency. The recommendation made by the Committee was to "await further developments which would dictate how these would impact on the insolvency legislation of the major common law jurisdictions". It remains to be seen when the adoption of much needed efficient cross-border insolvency laws will take place. The MAS is currently reviewing existing Singapore legislation on the effect of an insolvency in its home jurisdiction of a foreign bank or a foreign insurance company with branches in Singapore on Singapore depositors and policyholders. 5. Examples Re China Underwriters Life and General Insurance Co. Ltd. (1988) 1 Malaysian Law Journal 409 In this case, the Hong Kong court appointed Official Receiver of China Insurance, a company incorporated in Hong Kong and registered as a foreign company in Singapore, applied to the High Court in Singapore for an order for examination of the defendants under of the Companies Act, section 285. The defendants raised a preliminary issue that the High Court in Singapore has no jurisdiction under the Companies Act, section 285 to order an examination as China Insurance, being a foreign company and not being wound up in Singapore, is not a company to which section 285 would apply. Dismissing the Official Receiver's application, the Court held, inter alia, that the powers given under section 285 are given expressly to the Court in respect of matters within its jurisdiction, that is, relating to companies being wound up in Singapore. Consequently, it did not have jurisdiction to make an examination order relating to the winding-up abroad of a foreign company. 184

5 Tohru Motobayashi v Official Receiver [2000] 4 SLR 529 The Companies Act Section 377(3)(c) provides that a Singapore liquidator appointed by the Singapore Court of a foreign company registered in Singapore: shall, unless otherwise ordered by the Court, only recover and realise the assets of the foreign company in Singapore and shall... (after discharging Singapore preferential creditors) pay the net amount so recovered and realised to the liquidator of that foreign company for the place where it was formed or incorporated after paying any debts and satisfying any liabilities incurred in Singapore by the foreign company. In the Tohru case, a Japan incorporated company was registered as a foreign company (i.e., a branch) with the Singapore Registry of Companies and Businesses under the Companies Act. The Japanese company was adjudicated bankrupt in Japan with a Japanese trustee in bankruptcy appointed and was subsequently wound up in Singapore with Singapore liquidators appointed. An application to the High Court of Singapore was made by the Japanese trustee for a declaration that the Singapore liquidator was required to pay the net proceeds of the sale of the assets of the Japanese company realised in the Singapore liquidation to the Japanese trustee after payment only to Singapore preferential creditors who are conferred statutory priority under section 328 of the Companies Act. That application was refused. Instead, the Singapore Court of Appeal held that before a Singapore liquidator remits the net assets recovered and realised by him to the foreign liquidator appointed in the place of incorporation of the foreign company, the Singapore liquidator is obliged to pay off not only the statutory preferential debts under the Companies Act, section 328, but also all debts and liabilities incurred by the foreign company in Singapore. Whilst this decision effectively "ring-fences" Singapore creditors of foreign companies registered under the Companies Act to the extent of the payment of their claims against the foreign company out of Singapore assets, it creates a clear breach of any pari passu distribution of assets to all worldwide creditors of the foreign company. Further, it could be a disincentive for non-singapore parties to conduct international trade and investment with a foreign company which may have a branch in Singapore, particularly if the non-singapore party wishes to rely upon the Singapore assets as some form of collateral for the foreign company's obligations. It should also be noted that the decision only applies to foreign companies registered in Singapore. It remains to be seen whether the decision also applies to the winding up of unregistered foreign companies under the Companies Act sections

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