Ascentra Holdings, Inc – a Model answer?
Globalisation means that the effects of a business entering insolvency proceedings rarely stay within the territorial confines of a single jurisdiction; one need only look to the recent cryptocurrency bankruptcies as evidence of this. Cross-border insolvencies are no longer the preserve of large multinational corporation failures. Globalisation and the advent of digitisation mean that even small enterprises have customers, assets, and suppliers in multiple countries. This is particularly so across Asia.
When a liquidator or other insolvency practitioner is appointed over a company in one country (often but not always the country of incorporation) it is helpful if there is a streamlined and joined-up framework in place so that his or her appointment and powers can be recognised and accepted by the courts in another “foreign” country in which that company’s assets, business or creditors are based. The purpose of such a framework is to create a level-playing field whereby the company’s assets can be distributed fairly to its creditors, wherever they may be based, under a single system of distribution. Avoiding the need for multiple parallel proceedings and/or officeholders in different countries saves time and costs and preserves value which ultimately will benefit the creditors of the company. By extension, having such a framework in force encourages and supports international trade and investment. In its simplest form, this is the stated aim of the United Nations Model Law on Cross-Border Insolvency (Model Law). Harmonisation of mutually recognised insolvency principles and legal certainty of outcome promotes better trade and investment between countries, supporting global prosperity.
Singapore has long been a key trading post and more recently has made concerted efforts to promote itself as a key international (not just Asian) hub for cross-border restructuring and insolvency matters. Accordingly, it is unsurprising that the Singapore legislature included the Model Law (with some adaptations) into the Third Schedule of its recently enacted omnibus insolvency legislation; the Insolvency and Restructuring and Dissolution Act 20181 (Singapore Model Law)2.
The recent case of Re Ascentra3, gave the Singapore courts the opportunity to provide some clarity on the scope of the Singapore Model Law in relation to which foreign proceedings it will recognise. In essence, the Singapore court (Court) held that a members voluntary liquidation or any other insolvency proceedings involving companies which are not insolvent or in severe financial distress will not be recognised under Article 17 because they do not constitute foreign proceedings within the meaning of Article 2(h) of the Singapore Model Law.
The rationale is that the Model Law was never intended to apply to solvent companies and so the Singapore Model Law should not either (despite the Singapore Model Law not expressly stipulating this). Accordingly, foreign officeholders appointed over solvent companies should not apply for recognition as a gateway for relief or a local stay in support of those foreign proceedings. In arriving at the decision (which is on appeal by the liquidators), the Court adopted a purposive interpretation of the words “under a law relating to insolvency” and distinguished and dismissed other international decisions in which solvent liquidations had been recognised under the Model Law adopted by those countries. The key takeaway is that foreign officeholders appointed over solvent companies should not waste the time and costs involved in seeking recognition in Singapore. If those foreign officeholders need to bring claims in Singapore to collect in and realise assets in relation to the foreign proceeding, they will have to look to other routes to achieve this. The Singapore courts will still recognise the authority of those foreign officeholders as agents of the debtors, but they will not be able to avail themselves of the broad relief available to assist them under the Singapore Model Law, most notably the automatic stay and the power to examine witnesses, take evidence or request the delivery of information concerning the debtor company’s property, affairs, rights, obligations, or liabilities4.
While the decision may be received by some as curtailing the concept of modified universalism and running contrary to some other international decisions on the same point, it does accord with the overarching principles of the Model Law and imposes guardrails in Singapore which will aid foreign officeholders and their advisors when considering eligibility for recognition in the future. What remains unclear, however, is whether the Singapore courts will need to undertake an assessment of insolvency and/or financial distress of the debtor at the time of the recognition proceeding. Moreover, it remains unclear whether an English scheme of arrangement (which can be used by solvent companies) or English restructuring plans (where actual insolvency is not a necessary requirement) in which the debtor company is not insolvent or in “severe financial distress” will be recognised by the Singapore courts as “foreign proceedings”5.
Re Ascentra Holdings, Inc: background
Ascentra Holdings, Inc was a cosmetics company that sold products in Hong Kong, Taiwan, and Singapore. In June 2021, the shareholders of the company elected to put the company into members voluntary liquidation owing to disagreements on the strategic direction of the business. This petition was continued in the Cayman Islands (where the company was incorporated) and was accepted by the Grand Court6. Subsequently, in line with company law in the Cayman Islands, Ascentra Holdings, Inc was placed into official liquidation7.
Given the global nature of Ascentra Holdings, the liquidators sought international recognition orders of their appointment. Specifically in Singapore this was done with a view to benefit from the powers and relief afforded under the Singapore Model Law. The liquidators were seeking to gather evidence in order to understand potential causes of action against various potential defendants, namely SPGK Pte Ltd and Scuderia Bianco Pte Ltd8, who unsurprisingly contested the recognition application.
Prior to seeking recognition in Singapore, the liquidators successfully sought recognition of their appointment under Chapter 15 of the US Bankruptcy Code9.
The leading authority on recognition of the Singapore Model Law is the case of United Securities10, whereby the Singapore Court of Appeal laid down the four cumulative requirements which need to be established before a proceeding is considered a “foreign proceeding” within the meaning of the Singapore Model Law.
Paraphrasing Article 2(h)11 of the Singapore Model Law for these purposes, recognition will be granted to foreign insolvency proceedings where a law relating to insolvency has been engaged in a judicial proceeding for the purpose of reorganisation or liquidation12.
In following the decision in United Securities, it was important for the Court to consider whether the Cayman law under which Ascentra Holdings was liquidated was a “law relating to insolvency”. Should the law not be related to insolvency, then on a strict statutory interpretation the Court would not have the power to recognise the foreign insolvency proceeding under the Singapore Model Law13.
The liquidators believed the phrase ought to be interpreted widely, as it had done by the courts in other countries, whereby any engagement with the ‘general topic of insolvency’ is enough to construe the law as one that relates to insolvency. Furthermore, there was no express exclusion of solvent liquidations in the definition of “foreign proceeding” or solvent debtors from the meaning of “debtor” in Article 2 of the Singapore Model Law. The respondents argued for a much narrower interpretation, submitting that, for a law to be related to insolvency, the law must be directly related to an actual act of insolvency rather than anything tangential to insolvency as a general theme. Given that the liquidation of Ascentra was a voluntary one in which the company was solvent, the respondents reasoned that such a voluntary liquidation under Cayman law could not be considered a law “relating to insolvency”.
The Court found in support of the respondents in adopting a narrow interpretation of the term “relating to insolvency”. In consideration of Cayman law under which the liquidation of Ascentra was initiated, the Court believed the process of liquidation was one that “does not and cannot apply to a company that is insolvent or in severe financial difficulty”14. This is logical, given that the directors of a company, which is insolvent or in severe financial difficulty, would not be able to provide a statement of solvency required following a voluntary winding up under Cayman law15.
By contrast, the Court recognised Ascentra to be “hopelessly and irretrievably solvent”16 and that in Ascentra’s liquidation, all the company’s creditors would be paid in full and the shareholders would receive any surplus. This is not something that would occur if the company was insolvent and therefore the narrower interpretation ought to apply.
In reaching this conclusion, the Court needed to show a degree of creativity because on a strict statutory interpretation there was nothing in Article 2 of the Singapore Model Law nor the United Securities decision that excluded solvent companies from scope. The Court felt compelled to interpret Article 2(h) of the Singapore Model Law purposively and in so doing examined extrinsic material including both the 1997 Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency (which is expressly referred to Section 252(2) of the Insolvency, Restructuring and Dissolution Act 2018) and the UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation published in 2013 (which is not expressly referred to in Section 252(2) the Insolvency, Restructuring and Dissolution Act 2018) in helping it arrive at its decision.
Meaning of “law relating to insolvency”
The Court considered it necessary to break down this phrase into three constituent parts to aid in its interpretation. In determining what the term “insolvency” means, the Court considered what the substantive test for insolvency is under Singapore law, English law and Cayman law and concluded that on its ordinary meaning “insolvency” in Article 2(h) means a company’s inability to pay its debts which have already fallen due, or which will fall due within the reasonably near future. The Court considered that “law” means both legislation and judge-made law and that “relating to” insolvency ought not to be construed, as the liquidators contended, as being a proceeding with any type of formal nexus with insolvency, but rather it refers to a body of laws (whether statutory or judge-made), which governs a company that is insolvent. Because assessing a company’s solvency or insolvency has an element of futurity to the analysis, this includes a company which apprehends being unable to pay its debts as they fall due in the reasonably near future17.
The Court found little favour in the liquidators approach to “subordinate substance over form” and the example given by the liquidators that a provision permitting a solvent company to be wound up on just and equitable grounds could conceptually be a foreign proceeding - as it is located within a statute which deals generally with insolvency - was not accepted by the Court.
Recognition around the world
The Court took a forensic look at the implementation and interpretation of the Model Law in other jurisdictions before coming to its decision. The Court specifically distinguished and dismissed those decisions handed down in the United States, Australia and England and Wales whereby voluntary liquidations had been granted recognition as foreign proceedings under the Model Law as implemented in those jurisdictions.
Prior to Re Ascentra Holdings it was settled practice that US courts in recognition applications under Chapter 15 of the Bankruptcy Code would widely construe the meaning of “foreign proceedings” to include solvent liquidations and provisional liquidations18.
The Court considered certain US case law referred to it by the liquidators in support of the principle that solvent liquidations are eligible for recognition. In each of these cases, however, the Court found that the decisions could be criticised and/or distinguished.
Primarily, the Court reasoned that in these cases, the US courts had failed to consider the legislative intent behind the implementation of the Model Law in the United States. By reference to Committee Reports of the US legislature and academic literature in the area, the Court viewed that the decisions taken in the United States had misconstrued the intent behind the existence of Chapter 15 and the Model Law. Both of which, in the Court’s view, are primarily intended to focus on entities that are either insolvent or in financial distress. The Court considered consultation documents that were used in the drafting of the Model Law and the UNCITRAL guides to enactment and interpretation to evidence the Model Law’s intent.
Even though the Court criticised the US decisions, it acknowledged that the US courts were within their jurisdictional rights to interpret the Model Law as and however they wish19. This is an important point, given that it allows the Court jurisdiction to interpret the Singapore Model Law without feeling shackled by other international court decisions. Foreign decisions may be persuasive and regard ought to be had of the same, but they will not supplant the domestic court’s own jurisdiction20. One might argue that this approach appears incongruent to the observations made by the Court of Appeal in United Securities that “the Singapore courts should attempt to track closely as possible to the general interpretive trends taken in other jurisdictions that apply the Model Law in its various enactments21.” Ultimately, it will be a matter for the domestic courts to determine the meaning and scope of the term “foreign proceedings” in accordance with its own adaptation of the Model Law.
The Australian case that was referred to by the liquidators was the New South Wales Supreme Court’s decision in Re Chow Cho Poon22. This case involved a Singapore-incorporated entity that had been wound up by the Singapore courts on the grounds that it was just and equitable to do so. The liquidators sought recognition under the Model Law adapted by Australia.
The main criticism levelled by the Court at using Re Chow Cho Poon as persuasive authority for granting recognition in Re Ascentra, was that the New South Wales Supreme Court had expressly observed in its judgment that the winding up was “not a winding up in insolvency. It was not the inability of the [company] to pay its debts as they fell due […]. Rather the [Singapore] court concluded […] that it was “just and equitable” that the company be wound up. […] In those circumstances, it is difficult to see how the Singapore law “pursuant to” which the winding up is in place is properly characterised as “a law relating to insolvency”.”
Nevertheless, and despite the above observation the New South Wales Court followed the decisions in Re Stanford23 and Re Betcorp24 in concluding that the whole of the winding up provisions in the applicable Companies Act25 are to be classified as “a law relating to insolvency” and recognised the just and equitable winding up as a foreign proceeding. In Re Ascentra, the Court considered that it would be highly unlikely that the New South Wales Supreme Court would have reached the same conclusion if it had consulted the guidance set out in the UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation which was published in 2013.
England & Wales
There are various English decisions that have considered the question of whether foreign proceedings are to be classified as having their basis in “a law relating to insolvency”.
Broadly, the two paths that have been followed by the English courts are:
- Should insolvency/financial distress be one of many reasons that the company is being wound up, then the liquidation of such an entity can be considered as being done based on “a law related to insolvency”26 27; and
- The liquidation will only fall under the Model Law as a valid foreign proceeding if the entity being wound up is in financial distress/is insolvent28.
The Court preferred the reasoning in Re Sturgeon and found that for a liquidation to fall under the Model Law, it needs to be related to an entity that is in financial distress/is insolvent. The first path was rejected on the grounds that in any case, in Re Sturgeon, while the initial application for liquidation was not made with insolvency as one of the reasons, the entity was in fact insolvent. This is in stark contrast to Re Ascentra, where the entity was “hopelessly and irretrievable solvent”. With regards to Re Agrokor, the company was also in “severe financial difficulty” and therefore, again, this was a major distinguishing feature from the facts in Re Ascentra.
Interpreting the decision
The Court’s decision provides much food for thought in terms of which foreign insolvency proceedings will be recognised in Singapore in the future and whether other courts in jurisdictions in which the Model Law has been adopted will follow the same reasoning.
Interpreted narrowly, the decision means that members voluntary liquidations of solvent companies initiated in the Cayman Islands will not be recognised as foreign proceedings under the Singapore Model Law. However, given the fact that most common law jurisdictions have the concept of members voluntary liquidations, one would expect that, by extension, any such members voluntary liquidations regimes will not be recognised by the Singapore courts as foreign proceedings. However, in light of the reasons given by the Court that it is not the form but the substance that is of material relevance to the meaning of “relating to insolvency”- i.e. it does not matter if the law is found within a Companies Law, an Insolvency Law or any other statute or judge-made law of the foreign jurisdiction, what matters is whether the company is in fact insolvent (or in severe financial distress) – then a potential consequence of this decision is that liquidators appointed pursuant to a members voluntary liquidation process may still be recognised in Singapore. For such a recognition to occur, at the time of the recognition proceedings the members voluntary liquidation would have to be converted into a creditors voluntary liquidation or official liquidation owing to the debtor company no longer being solvent. Conversely, could it be argued that a Singapore court would not recognise an insolvent liquidation or administration if it could be evidenced that the debtor company was in fact solvent at the time?
Care should be taken by foreign insolvency practitioners before seeking recognition in Singapore (or any other country that has adopted the Model Law for that matter) without a thorough assessment of whether the proceedings are eligible as qualifying foreign proceedings. Clearly, following the decision in Re Ascentra, it will be difficult to see a situation in which recognition would be granted by the Singapore courts to voluntary liquidations in circumstances where the debtor company in liquidation is solvent.
One element of comfort that the Court provided, however, is that the decision does not mean that the appointment of the foreign liquidators will not be recognised at all. Their authority to act and bind the insolvent debtor and/or bring causes of action in Singapore will still be accepted and recognised; the decision merely precludes the liquidators from using the “relief or coercive powers” that are afforded to them under the Third Schedule of the Insolvency, Restructuring and Dissolution Act 201829.
In this case, the specific aim of the recognition application was the gathering of evidence in order to understand potential causes of action against various potential defendants. The Court acknowledged that the liquidators were within their rights to seek procedural remedies in the name of Ascentra Holdings under domestic Singapore law.
The wider import of this decision concerns whether such an approach will also be applied to restructuring/reorganisation proceedings such as the English law scheme of arrangement or restructuring plan which may be promoted by an entity that is still solvent; would the Singapore courts refuse to recognise such a scheme or plan under the Model Law given that the law “is not related to insolvency” because the debtor company may not be insolvent or in sufficiently “severe financial distress”? The better view would be that such restructuring/reorganisation proceedings would likely be caught by the words a “law relating to […] the adjustment of debt” in Article 2(h) of the Singapore Model Law and so the solvency or otherwise of the debtor ought not be such a determining factor for recognition30. This still begs the question how should the courts determine whether a debtor’s financial distress is severe enough? Would zero-coupon bonds maturing in 2 years’ time be sufficient if there was no current prospect of the debtor/issuer being able to redeem them at the present time?
Moreover, is an assessment of the debtor’s solvency/insolvency necessary at the time of the recognition application or at the time of the commencement of the foreign proceeding? Could a liquidator appointed over a company under just and equitable grounds still be recognised under the Singapore Model Law if at the time of the application there was evidence to show that the debtor company was in fact insolvent or in severe financial distress?
An increasing number of international restructuring tools now exist and feature on the statute books in a number of jurisdictions relating to a debtor’s reorganisation and rehabilitation rather than liquidation. Such tools are available to debtors that, while suffering from some form of financial hardship, may not be insolvent or in sufficiently severe financial distress. It will be important, going forward, to see what approach the Singapore courts adopt to such foreign proceedings. It seems likely that the Singapore courts would classify such proceedings as qualifying foreign proceedings eligible for recognition, but at the time of writing there is yet to be a reported case on this question.
How the Singapore courts determine such points may well inform how its own restructuring processes are classified elsewhere in those countries who have enacted the Model Law31 and how it is perceived as an international restructuring and insolvency hub. So, while the decision in Re Ascentra represents a model answer by the Singapore courts, it seems unlikely it will be the only answer to the same question when considered by courts in other jurisdictions.
1Section 252 of the Insolvency, Restructuring and Dissolution Act 2018.
2Legislation based on the Model Law has been adopted in 57 States in a total of 60 jurisdictions. The only jurisdictions in Asia being Myanmar, Republic of Korea, Philippines and Singapore.
3Re Ascentra Holdings, Inc (in Official Liquidation) SGHC 82 .
4See Article 21(1) of the Singapore Model Law for discretionary relief available to foreign representatives following the foreign proceeding being recognised.
5Both English law schemes of arrangement and English law restructuring plans are found within the UK Companies Act 2006 (as opposed to the Insolvency Act 1986). However, one of the threshold requirements for an application to use an English restructuring plan is that the debtor company “has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on business as a going concern”.
6Ascentra Holdings, Inc (in Official Liquidation).
7Because the directors refused to sign the declaration of solvency.
8The liquidators asserted in their affidavit that they had potential claims for US$160m against SPGK Pte Ltd and other potential claims against Scuderia Bianco Pte Ltd.
9Chapter 15 encapsulates the Model Law into US domestic legislation (the US Bankruptcy Code).
10United Securities Sdn Bhd v United Overseas Bank Ltd  2 SLR 950.
11Article 2(h) defines “foreign proceeding” as being “a collective a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the property and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.”
12The Court of Appeal in United Securities held that Article 2(h) of the Singapore Model Law contains four cumulative requirements which must be established before a proceeding is a “foreign proceeding”, namely: (i) it must involve creditors collectively; (ii) it must have its basis in a law relating to insolvency; (iii) the court must exercise control or supervision of the property and affairs of the debtor in the proceeding; and (iv) purpose of the proceeding must be the debtor’s reorganization or liquidation.
13Under Article 17(1)(a) of the Singapore Model Law a court must recognize a proceeding if it is a foreign proceeding within the meaning of Article 2(h).
14SGHC 82 , pg.62.
15S116, s124 : Cayman Act.
16SGHC 82 , pg.7.
17SGHC 82 , pg.24.
18Although note that the decision of Re Global Cord Blood Corporation (SDNY, 2022) now casts some doubt on how readily the US courts will grant recognition of just and equitable liquidations and/or solvent liquidations in the future, particularly in circumstances where those applications are contested. The argument before the court in this case was that the appointment of joint provisional liquidators on just and equitable grounds in the Cayman Islands was not a foreign proceeding given that “the Cayman Proceeding … [was] most akin to a corporate governance and fraud remediation effort, and […] not a collective proceeding for the purpose of dealing with insolvency, reorganization, or liquidation.”
19SGHC 82 , pg. 52
20Although it should be noted that Article 8 of the Singapore Model Law provides that “in the interpretation of this Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith.”
21United Securities Sdn Bhd v United Overseas Bank Ltd  2 SLR 950 at .
22Re Chow Cho Poon (Private) Ltd (2011) 80 NSWLR 507.
23Re Stanford International Bank Ltd  EWHC 1441 (Ch).
24Re Betcorp Limited (in Liquidation) 400 BR 266 (Nevada United States Bankruptcy Court, 2009).
25The prevailing Singaporean statute was the Companies Act (2006 (Rev. Ed.). The just and equitable grounds for winding up a company in Singapore are now contained within section 125 of the Insolvency, Restructuring and Dissolution Act 2018.
26Re Stanford International Bank Ltd  EWHC 1441 (Ch)
27Re Agrokor DD  EWHC 2791 (Ch)
28Re Sturgeon Central Asia Balanced Fund Ltd (in liquidation)  EWHC 1215 (Ch)
29SGHC 82 , pg. 64
30The inclusion of the words “adjustment of debt” was specifically made to the definition of “foreign proceeding” in Article 2(h) of the Singapore Model Law but these words are not found in the definition of “foreign proceeding” in Article 2(a) of the Model Law. Chapter 15 of the US Bankruptcy Code also contains these words. However, it is worth noting that they are not included in the definition of “foreign proceeding” in Article 2(g) of Schedule 1 to the Cross-Border Insolvency Regulations 2006 (the UK’s domestic legislation encapsulating the Model Law).
31It is interesting to note that in Article 2(k) of the Singapore Model Law it defines “Singapore insolvency law” which incorporates, inter alia, sections 210 to 212 of the Companies Act 1967 (which deal with Singapore scheme of arrangements) and Parts 5, 7, 8, 9, 10, 11 and 22 of the Insolvency, Restructuring and Dissolution Act 2018 (which include schemes of arrangements in Part 5 and both members voluntary winding up and a just and equitable winding up by the court in Part 8) and that in Article 2(l) the definition of “Singapore insolvency officeholder” includes a scheme manager under the Insolvency, Restructuring and Dissolution Act 2018 or the Companies Act 1967.
In an unreported decision, the UK’s High Court of Justice Business and Property Courts of England and Wales recognised a Singapore moratorium pursuant to Section 64 of the Insolvency, Restructuring and Dissolution Act 2018 granted by the Singaporean court to H& CS Holdings Pte Ltd v Glencore International AG  EWHC 1459 (Ch) as a foreign main proceeding under the Model Law (as adopted by the UK in the CBIR). However, in the Scottish decision of Re Prosafe SE; Chang Chin Fen v Cosco Shipping (Qidong) Offshore Ltd  CSOH 94, the Scottish court while accepting that the Singapore moratorium could be recognised as a foreign proceeding, refused to grant the foreign representative the relief sought because of the Rule in Gibbs. The same Singaporean moratorium orders were, however, recognised by the Brazilian court.
In Re Contel Corporation Ltd  SC (Bda) 14 Com, the Supreme Court of Bermuda recognised a scheme of arrangement sanctioned by the Singapore Courts.