Re Zetta Jet Pte Ltd(1) is a landmark decision by the Singapore High Court on the question of public policy under the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency, as adopted by Singapore in the Tenth Schedule to the Companies Act (the Singapore Model Law). This is the first reported decision where a Singapore court has been faced with the 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 Singapore's public policy would require a denial of application for recognition by foreign insolvency representatives appointed under proceedings enjoined by a Singapore court. However, the court then exceptionally exercised its power under the Singapore Model Law to allow limited recognition of the foreign representative in this case, enabling 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 serve as a useful guide in future cases where actions taken could be contrary to Singapore's public policy.
In Re Zetta Jet, the applicant seeking recognition of foreign insolvency proceedings was the US trustee appointed by the US Trustee's Office, overseen by the US Department of Justice and approved by the US Bankruptcy Court. The foreign insolvency proceedings were Chapter 7 proceedings, which had commenced as Chapter 11 proceedings. They were 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 US law, a worldwide moratorium on all proceedings against the Zetta entities was automatically imposed on 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, obtained an injunction in Singapore enjoining Zetta Jet Singapore from continuing with the Chapter 11 proceedings in the United States.
Subsequent to the issuance of the injunction, proceedings in the US Bankruptcy Court continued. As the Zetta entities had not obtained US court approval for the plan of reorganisation under Chapter 11, the proceedings were converted to Chapter 7 proceedings, which are 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 primary question which Justice Abdullah had to address was 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 UNCITRAL Model Law, the court can deny recognition only if recognition is "manifestly contrary" to public policy. Singapore's enactment of the UNCITRAL Model Law omits the word 'manifestly'.
As observed by Justice Abdullah, there is 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 judgments 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, Justice Abdullah 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 was lower than that in jurisdictions where the UNCITRAL 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 to grant recognition where there has been non-compliance with a Singapore court order. Justice Abdullah also observed that even if the higher threshold were applied, the same result would follow, noting that there was precedent in the United States – which adopts the original wording of the UNCITRAL Model Law – for the denial of recognition in similar circumstances.
However, this was 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 to grant recognition where there had been non-compliance with a Singapore court order, Justice Abdullah turned to consider the necessity of granting recognition. The trustee had argued that recognition was necessary so that he 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.
Justice Abdullah agreed with the applicants and found that it would be conceptually odd to distinguish the status of a company in different jurisdictions. He exceptionally exercised his discretion to grant limited recognition to the trustee to enable him 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.
In this landmark decision, Justice Abdullah ruled on several matters of law that had never been addressed by the Singapore courts:
- The standard of exclusion based on public policy in Singapore is lower than in other jurisdictions that have adopted the UNCITRAL 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; and
- The Singapore court has the power to grant limited recognition for a particular purpose to an applicant.
Justice Abdullah's decision on public policy puts Singapore in a different position from many other jurisdictions that have adopted the UNCITRAL Model Law. Of those jurisdictions, only Canada has omitted the word 'manifestly' in its adoption of the law. However, Canadian courts have referred to and relied on the Guide to the UNCITRAL Model Law and have not found that the omission implies a lower standard of exclusion. Singapore stands alone in its finding on this point.
Nonetheless, Justice Abdullah's decision clearly demonstrates Singapore's regard for uniformity and the importance of working together with foreign courts on foreign insolvency proceedings. While Justice Abdullah 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.
Justice Abdullah 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 – for example, where the court must balance principles of uniformity and cooperation against ensuring that its orders are complied with.
For further information on this topic please contact Tan Meiyen at Oon & Bazul LLP by telephone (+65 6223 3893) or email ([email protected]). The Oon & Bazul LLP website can be accessed at www.oonbazul.com.
Endnotes
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