In today's interconnected global economy, it is paramount for systems to be in place to address the complexities associated with insolvency processes spanning multiple jurisdictions. The recognition and assistance of foreign liquidators in cross-border insolvencies is of particular importance to ensure that proceedings are conducted fairly and efficiently for the collective benefit of creditors and stakeholders.
In this article, we summarise and draw conclusions from the Singapore Court of Appeal's findings in British Steamship Protection and Indemnity Association et al v Thresh, Charles et al1 and the Hong Kong Court's recent decision in In the Matter of Bull's-Eye Limited2, from our perspective as offshore lawyers.
Both cases tackle and clarify some important issues relating to when, how and the extent to which the courts in Singapore and Hong Kong will productively assist a foreign offshore insolvency proceeding without the need for a parallel process.
An original version of this article was first published by The Hong Kong Lawyer, April 2025.
British Steamship Protection
In British Steamship Protection, the Singapore Court of Appeal addressed three key questions:
- whether Bermuda liquidation proceedings (Bermuda Proceedings) were brought under a law relating to insolvency or adjustment of debt and collective in nature so as to qualify as "foreign proceedings" under Article 2(h) of the Singapore Model Law (SG Model Law) (the First Question);
- whether the Bermuda Proceedings should be recognised as a foreign main proceeding under Article 17(2) of the SG Model Law on the basis that the company's centre of main interests (COMI) was in Bermuda at the relevant time (the Second Question); and
- whether recognition of the Bermuda Proceedings was against Singapore's public policy (the Third Question).
The First Question
The Court of Appeal first had to decide if (i) and (iii) of the five cumulative requirements3 set out in Ascentra Holdings, Inc (in official liquidation) v SPGK Pte Ltd4, summarised below, were satisfied for the Bermuda Proceedings to be considered "foreign proceedings" under Article 2(h) of the SG Model Law:
- the proceedings are collective in nature;
- the proceedings are a judicial or administrative proceeding in a foreign state;
- the proceedings are conducted under a law relating to insolvency or adjustment of debt;
- the property and affairs of the debtor company are subject to control or supervision of the foreign court in that proceeding; and
- the proceedings are for the purpose of reorganisation or liquidation.
Were the Bermuda Proceedings collective in nature?
Following Ascentra Holdings,proceedings are considered collective in nature if:
- they "concern all creditors of the debtor generally"; and
- "substantially all of the assets and liabilities of the debtor are dealt with in the proceeding, subject to local priorities and statutory exceptions, and to local exclusions relating to the rights of secured creditors".
Here, joint provisional liquidators (JPLs) had been appointed by the Bermuda Court with full powers, which included, inter alia, the power to bring and defend proceedings, carry on the company's business, raise security, do all such other things as may be required to wind up the company's affairs and distribute its assets, conduct investigations to secure assets, determine the company's liabilities and do such act under the Bermuda Companies Act as was required to be done by a liquidator.
The winding up order also empowered the JPLs to "act in the same manner as liquidators on matters concerning creditors and to deal with substantially all of the assets of the Company".
The Court of Appeal concluded that these wide-ranging powers (which are typical in offshore liquidations, whether they be in the Cayman Islands, BVI or Bermuda) pointed squarely to the Bermuda Proceedings being a collective process.
Were the Bermuda Proceedings conducted under a law relating to insolvency or adjustment of debt?
The Court of Appeal endorsed the "Broad Approach" expounded in Ascentra Holdings that a proceeding would be considered one conducted under a law relating to insolvency or adjustment of debt "as long as the law or relevant part of the law under which the relevant proceeding is conducted includes provisions dealing with the insolvency of a company or adjustment of its debts". It found that the Bermuda Proceedings were such proceedings as they were brought under sub-sections of section 35 of the Bermuda Insurance Act which concern the winding up of Bermuda licensed insurance companies, of which the company is one.
The Court of Appeal accordingly found that the Bermuda Proceedings were a "foreign proceeding" within the meaning of Article 2(h) of the SG Model Law.
The Second Question
A finding that the Bermuda Proceedings were a "foreign main proceeding" under Article 17(2)(a) of the SG Model Law would mean that relief under Article 20 of the SG Model Law would be automatic. A contrary finding (i.e., that the Bermuda Proceedings were a "foreign non-main proceeding") would mean that only discretionary relief under Article 21 of the SG Model Law would be available.
Foreign proceedings will be recognised as foreign main proceedings if they take place in the debtor's COMI. As determining COMI generally involves an assessment of factors which indicate to those who deal with the debtor, especially creditors, where any insolvency proceedings concerning the debtor would be commenced, the starting (rebuttable) presumption is that a debtor's COMI is its place of registration. This presumption may be displaced by other factors.
The overarching point made by the appellants was that the company's COMI was not Bermuda because its insurance business and operations were conducted outside of Bermuda. They argued that the company was "effectively a shell".
The JPLs argued otherwise saying, inter alia, that the company was registered under the Bermuda Insurance Act as a Class 2 Insurer and was subject to the supervision of and regulation by the Bermuda Monetary Authority. It was obliged both to appoint a principal representative and to maintain statutory records in Bermuda, which it did. The JPLs further argued that little or no weight should be given to the factors raised by the appellant because the company's non-compliance with Bermuda legislation was what had caused its downfall and having regard to those factors would be to endorse a breach as a means of circumventing the company's true COMI (i.e., the place where it was licenced to carry on its business).
The Court of Appeal agreed with the JPLs. The starting position was what the company's business was established as a business carrying on regulated activities in Bermuda. It was licensed to carry on business "in and from within Bermuda". As its sole business was its insurance activities, it was subject to the regulatory regime under the Bermuda Insurance Act and required to comply with statutory obligations for that purpose. Pursuant to the terms of its license, it was not permitted to carry on insurance activities outside of Bermuda. Insofar as the company carried out insurance activities outside of Bermuda in breach of its licence, the Court of Appeal found that these activities were not relevant in assessing COMI, and that it would be plainly wrong to allow an errant company to benefit from a breach of its statutory obligations.
With the touchstone for the assessment of COMI being the perception of third parties, especially creditors, as to where a debtor would open primary insolvency proceedings, the relevant factors pointed to Bermuda being the company's COMI.
The Third Question
The appellants sought to argue that the JPLs had failed to protect the interests of creditors by commencing the recognition application and incurring excessive costs, and it was against Singapore's public policy to grant the JPLs the orders sought.
The Court of Appeal rejected those arguments and found that those points had nothing to do with the integrity of the Bermuda Proceedings, the consequences of granting the relief sought or the conduct of the JPLs in the application. The JPLs could not sensibly be seen to be acting against the interests of creditors when they had been authorised by the Bermuda Court to bring the application as foreign representatives. Accordingly, the public policy exception in Article 6 of the SG Model Law was not engaged.
In the Matter of Bull's-Eye Limited
In In the Matter of Bull's-Eye Limited,BVI Court appointed liquidators sought recognition and assistance from the Hong Kong Court, inter alia, to take control of the company's assets in accounts maintained with various banks and securities firms in Hong Kong.
The Hong Kong Court reiterated the principles espoused in Re Global Brands5, namely, that it would recognise foreign insolvency proceedings if: (1) the foreign insolvency proceedings are a collective insolvency proceeding; and (2) the foreign insolvency proceedings are opened in the company's COMI. Where (2) does not apply and the foreign insolvency proceedings are taking place in the company's place of incorporation, the Hong Kong Court may grant recognition and assistance if either (1) it is limited to recognition of a liquidator's authority to represent a company and the orders sought are incidental to that authority, i.e., "managerial assistance"; or (2) a liquidator requires recognition and carefully prescribed assistance as a matter of practicality.
The Hong Kong Court found that, as a matter of private international law, matters of internal management and authority to represent a foreign company are determined by the laws of its place of incorporation. Limited recognition and assistance may thus be granted based on the need for managerial assistance as the foreign officeholders are the duly authorised agents of the company and as such entitled to act on its behalf, including to cause the company to instigate an action to advance or protect its interests.
The Hong Kong Court made it clear that limited recognition and assistance falling outside the ambit of "managerial assistance" may also be granted where, for practical reasons, it is necessary, so long as the interests of the forum (i.e., Hong Kong) are not adversely affected by the foreign order. The Court should lean towards recognition in these circumstances. It did not, however, indicate in what circumstances the interests of the forum would be affected by a foreign order.
As for the scope of the assistance to be granted, it should be: (1) limited to enabling the foreign officeholder to perform acts which they are empowered to undertake under the law by which they were appointed, (2) necessary for the performance of their functions, and (3) consistent with the substantive law and public policy of the assisting Court. Assistance is not available for purposes which are properly the subject of other schemes.
The Hong Kong Court noted that it had previously provided a standard form recognition order as a guide, and the standard form empowered foreign officeholders, inter alia, to bring legal proceedings and request and receive information concerning the company. Additionally, where assets are in Hong Kong, a recognition order would enable the foreign officeholders to take possession of or deal with the same.
On the facts of the case, the Hong Kong Court granted the BVI appointed liquidators recognition and assistance as (1) the company maintained accounts with various banks and securities firms in Hong Kong such that recognition was necessary to enable the BVI appointed liquidators to take possession of those assets, (2) the balance of the powers sought by the BVI appointed liquidators were substantially similar to those set out in the standard form order, and (3) the assistance sought was consistent with their powers under BVI law.
Comment
These two important recent cases focus on some essential aspects of cross border insolvency. The Singapore decision reinforces the principle that the point of embarkation for any analysis of COMI must be the place of incorporation of the company, even if there are other compelling factors. The Hong Kong Court's decision helpfully restates the position where offshore appointed liquidators are seeking to recover and protect assets in Hong Kong and concludes that assistance should be granted within certain parameters. Both cases are excellent illustrations of why it is crucial for the onshore and offshore lawyers to cooperate and work closely together in securing the overall objective.
Footnotes
1. [2024] SGCA 43
2. [2024] HKCFI 3000
3. The parties disagreed on requirements (i) and (iii) but not the others
4. [2023] 2 SLR 421
5. [2022] HKCFI 1789
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
