The automatic stay under the version of the UNCITRAL Model Law on Cross-Border Insolvency adopted by Singapore ("Singapore Model Law") is an accessible and powerful tool for protection under the Singapore restructuring regime for non-Singapore debtors facing enforcement action in Singapore. Non-Singapore debtors subject to restructuring or liquidation cases outside Singapore may obtain protection from creditor action in Singapore through the application of the Singapore Model Law, thereby facilitating the debtor's ability to restructure. In United Securities Sdn Bhd (in receivership and liquidation) and another v United Overseas Bank Ltd [2021] SGCA 78, the Singapore Court of Appeal considered the application of the Singapore Model Law for the first time.
The Singapore Court of Appeal held that even when an automatic stay on proceedings applies under the Singapore Model Law where there are foreign main proceedings, the Singapore courts may still grant leave to secured creditors to take enforcement action against a debtor in Singapore where they are bringing a prima facie case on enforcement which is bona fide and capable of succeeding if allowed to proceed.
Singapore Model Law and Automatic Stay
A case involving the Singapore Model Law is ancillary to a primary restructuring proceeding brought outside Singapore. The Singapore Model Law governs the provision of relief under Singapore law to non-Singapore companies in "foreign proceedings" that seek to protect their assets from enforcement proceedings or direct appropriation by individual creditors.
The Singapore Model Law largely adopted the UNCITRAL Model Law on Cross-Border Insolvency and divides foreign insolvency proceedings into two categories: "foreign main proceedings" and "foreign non-main proceedings". Foreign main proceedings are cases pending in the country where the debtor has its centre of main interest. If a Singapore court recognises a case as a foreign main proceeding, the Singapore Model Law provides an automatic stay on, amongst other things, actions concerning the "debtor's property, rights, obligations, or liabilities"1 within the territory of Singapore. If a Singapore court recognises a case as a foreign non-main proceeding, the Singapore Model Law provides for discretionary relief, which may also include an automatic stay,2 subject to the requirement that all creditors are "adequately protected".3
Dual Proceedings in Malaysia and Singapore
This Singapore Court of Appeal case arose from a set of parallel proceedings in Singapore and Malaysia concerning a Singapore law-governed loan agreement and debenture between United Securities Sdn Bhd ("USSB") and United Overseas Bank ("UOB") under which USSB had defaulted. The parallel proceedings followed the Malaysian winding up proceedings in which the Malaysian court wound up USSB, a Malaysian company, and another company which was beneficially owned by USSB, "CSSB" (the "Malaysian Winding up Proceedings"). Pursuant to the winding up in Malaysia, CCSB sold off certain assets and the "Surplus Funds" that remained after paying debts were the subject of the parallel proceedings.
USSB had applied to the Malaysian court for a declaration that the Surplus Funds were not subject to the charge over CSSB shares created by the debenture. In parallel, UOB had applied to the Singapore courts for a declaration that its rights under the debenture were valid and exercisable, including its security over the rights attached to the CCSB shares and the right to the Surplus Funds ("Singapore Proceedings"). USSB then applied to the Singapore courts to stay the Singapore Proceedings on the ground that upon the recognition of the Malaysian Winding up Proceedings, the resulting automatic stay under the Singapore Model Law would apply.
Protecting Rights of Secured Creditors
The parties did not dispute the Singapore High Court's decision that the Malaysian Winding up Proceedings constituted a foreign main proceeding resulting in an automatic stay of proceedings "concerning the debtor's property, rights, obligations or liabilities" under Article 20(1) of the Singapore Model Law. However, at issue was whether the Singapore Court of Appeal could grant leave for the Singapore Proceedings to proceed notwithstanding the automatic stay in favour of the Malaysian Winding up Proceedings.
The Singapore Model Law provides that an automatic stay has "the same scope and effect" as if the debtor had been wound up in Singapore.4 In addition, Article 20(3) of the Singapore Model Law stipulates that the stay and suspension do not affect any right to take any steps to enforce security over the debtor's property, provided that such rights would have been exercisable if the debtor had been made the subject of a winding up order under the Singapore Insolvency, Restructuring and Dissolution Act (Act 40 of 2018).
In Singapore, the courts would generally permit secured creditors to proceed with enforcing their security notwithstanding any stay of proceedings arising upon the winding up of the debtor.5 An applicant purporting to be a creditor and seeking the court's leave to proceed with a case needs only to show a prima facie case, which is "bona fide" and "capable of succeeding if and when heard."6 In this case, the Singapore Court of Appeal held that in the Singapore Proceedings, UOB had established itself as a prima facie secured creditor and, on the face of the evidence, the debenture created a charge over the shares of CSSB. This was sufficient for the court to grant UOB leave from the automatic stay to proceed with the Singapore Proceedings.7
Discussion
In light of the global nature of many businesses, increasingly sophisticated financing structures and dispersed investor bases, we continue to see more and more companies in the region showing a greater willingness and need to use foreign processes. The Singapore Model Law provides a powerful procedural mechanism to facilitate cases in which the insolvent debtor has assets or debt in more than one jurisdiction. The Singapore Court of Appeal's decision provides important guidance as to the boundaries of the automatic stay. This decision also signals the willingness of the Singapore courts to protect the rights of secured creditors from restrictions in the course of insolvency proceedings.
1 Article 20(1)(a) of the Singapore Model Law.
2 Article 21(1) of the Singapore Model Law.
3 Articles 22 of the Singapore Model Law.
4 Article 20(2) of the Singapore Model Law.
5 This is because the secured assets of secured creditors are regarded as separate from the pool of assets available for pari passu distribution among unsecured creditors. United Securities Sdn Bhd at 39.
6 Id.
7 Id. at 44.
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