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28 August 2020
In Re PT MNC Investama TBK ( SGHC 149), the Singapore High Court (per Justice Aedit Abdullah) addressed, for the first time in a written grounds of decision, the question of whether a foreign company has the requisite standing to apply for a Section 211B moratorium under the Companies Act.
The grounds of decision, which the court noted was issued to assist interested parties, provides much-needed clarity on the requirements of the so-called 'substantial connection test' that foreign applicants must satisfy in order to be eligible for moratorium protection under Section 211B.
In Re PT MNC, the applicant was an investment company listed on the Indonesia Stock Exchange. In 2018 the company issued $213 million worth of 9% senior secured notes, which were listed on the Singapore Stock Exchange (SGX). In light of the financial difficulties caused by the COVID-19 pandemic, the applicant sought moratorium relief under Section 211B(1) of the Companies Act to provide it with the breathing space that it needed to engage in negotiations with the noteholders.
In analysing the statutory framework, the Singapore High Court noted that a foreign company will have legal standing to make an application under Section 211B of the Companies Act 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.
In that regard, while what 'substantial connection' entailed is not defined under the Companies Act, Section 351(2A) of the act provides a non-exhaustive list of relevant facts which the court may rely on to support a determination of 'substantial connection'. These include:
Interestingly, on the facts of Re PT MNC, the applicant could not invoke any of the abovementioned factors in the Companies Act as supporting the existence of a substantial connection.
In particular, the applicant's business activities, control and administration were primarily situated in Indonesia, while the notes themselves were governed by New York law. Further, there was no submission to Singapore law or invocation of Singapore law in any dispute.
Despite the above, the court confirmed that the six factors listed in Section 351(2A) were not an exhaustive and definite list (ie, 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 must involve some permanence or permanent effect and exclude activities of a merely transient nature.
In this case, the Singapore 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 Companies Act. Having 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 – including 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 Companies Act and provides useful insights as to the factors that the courts will take into account when determining whether a company has a substantial connection with Singapore under Section 351(2A) of the Companies 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.
For further information on this topic please contact Tan Meiyen or Keith Han at Oon & Bazul LLP by telephone (+65 6223 3893) or email (firstname.lastname@example.org or email@example.com). The Oon & Bazul LLP website can be accessed at www.oonbazul.com.
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