In a ground-breaking application before the Singapore courts, a foreign-incorporated company successfully obtained an order to place itself under judicial management in Singapore.
The case is the first of its kind under the new amendments to the Companies Act introduced in 2017, which extended Singapore's judicial management regime to foreign companies. This update discusses some of the key take-away points from the case and the implications for future cases.
Introduction
The amendments to the Singapore Companies Act ("Companies Act") in 2017, introduced a host of new exciting opportunities for Singapore to take centre stage as an international debt restructuring and insolvency hub.
Of particular interest, the extension of the applicability of Singapore's judicial management regime to foreign companies. Prior to this amendment, only companies incorporated in Singapore could apply for judicial management under the Companies Act.
In this test case, the directors of a Bermudian-incorporated company applied, and successfully obtained, a judicial management order before the Singapore courts.
This case brings to the fore the application of the "substantial connection" test under section 351(1)(d) of the Companies Act, in the context of judicial management involving a foreign incorporated company.
Applicability of Singapore judicial management to foreign companies
For a foreign company to avail itself of the judicial management regime under the Companies Act, the foreign company must be a "corporation liable to wound up under the Act", as defined under section 227AA of the Companies Act. This in turn, requires a foreign company to have a "substantial connection" with Singapore, as set out in section 351(1)(d) of the Companies Act.
Section 351(2A) of the Companies Act sets out six non-exhaustive factors that the Singapore courts may rely on in determining if a foreign company has a "substantial connection" to Singapore:
- Singapore is the centre of main interests of the company;
- the company is carrying on business in Singapore or has a place of business in Singapore;
- the company is a foreign company that is registered under Division 2 of Part XI of the Companies Act;
- the company has substantial assets in Singapore;
- the company has chosen Singapore law, as the law governing a loan or other transaction, or the law governing the resolution of one or more disputes arising out of, or in connection with a loan or other transaction;
- the company has submitted to the jurisdiction of the Singapore courts, for the resolution of one or more disputes relating to a loan or other transaction.
Establishing a "substantial connection" to Singapore
China Sports International ("Company") is based in the city of Quanzhou, in China's Fujian province. It makes clothes and shoes under the Yeli Sports brand. The Company is a Bermudian-incorporated entity, with the majority of its assets in Hong Kong and China. However, the Company is listed on the main board of the Singapore Exchange Securities Trading ("SGX-ST"). This was one factor which established Singapore as the centre of main interest ("COMI") of the Company and hence the Company's substantial connection to Singapore.
The Company, being a Singapore Exchange listed entity, is subject to the requirements under the Companies Act. In particular, the requirement for financial reporting, accounting standards and audit. The Company is also subject to the SGX-ST Listing Manual and the SGX-ST Rules. Therefore, Singapore is the location where the Company is subject to regulation and also the location whose law governs the preparation and audit of accounts.
This position closely mirrors that in Hong Kong. In Re Winsway Enterprises Holdings [2017] 1 HKLRD 1, the court found that the Hong Kong listed company had a "material connection" to Hong Kong as, among others, its books and accounting records were kept in Hong Kong, its auditors are in Hong Kong, its shareholders are resident in Hong Kong, and it holds its annual general meetings and extraordinary general meetings in Hong Kong. Similarly, pursuant to its listing on the SGX-ST, the Company's auditors are in Singapore and its annual general meetings are held in Singapore.
Moreover, establishing a substantial connection through a foreign company's listing on the Singapore Exchange is not novel. In the case of Pacific Andes Resources Development Ltd and other matters [2016] SGHC 210, the Singapore High Court found that the Bermuda incorporated Pacific Andes Resources Development Ltd had sufficient nexus to Singapore as it was a Singapore-listed entity, albeit in the context of a scheme of arrangement under section 210(10) of the Companies Act. There is no reason why similar principles ought not to apply in the context of judicial management.
In the circumstances, and taking into account the various factors, the Singapore courts granted the Company's application to be placed under judicial management in Singapore.
Commentary
This case highlights the willingness of the Singapore courts to take a practical and common-sensical approach in determining whether a foreign company has a substantial connection to Singapore, and would therefore qualify for judicial management in Singapore. In particular, the recognition of Singapore's regulation and oversight over a Singapore Exchange listed foreign company as a relevant factor in support of Singapore as the COMI of a foreign company.
Moving forward, it is hoped that more foreign incorporated companies would take advantage of Singapore's restructuring friendly legislative framework, as well as the wealth of experience and expertise that Singapore practitioners have to offer in this regard. The enhancement of the Singapore judicial management regime through the 2017 amendments, has also seen the relaxing of the eligibility criteria for the Company to apply for judicial management and the incorporation of provisions for rescue financing.
Shook Lin & Bok LLP's Litigation Partner Debby Lim and Corporate Partner Johnny Lim acted for the Company who was the successful applicant for judicial management.
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