The Model Law on Cross-Border Insolvency was issued by the UNCITRAL Secretariat in 1997. The purpose of this Model Law was to provide effective mechanisms for dealing with cases of cross-border insolvency so as to promote various objectives, and as part of this process, the Model Law focuses on identifying the main insolvency proceeding. The way to do this? By identifying the "COMI" (i.e. the centre of main interests).

20 years later in 2017, Singapore passed the Model Law on Cross-Border Insolvency into national legislation with some modifications (the Singapore Model Law), confirming that COMI was very much a part of Singapore insolvency law. (Note: The Singapore Model Law is presently set out in the Tenth Schedule of the Singapore Companies Act (Cap. 50). However, once the omnibus Insolvency, Restructuring and Dissolution Act comes into force, it will contain all insolvency-related provisions, including the Singapore Model Law.)

Prior to the Singapore Model Law, the Singapore Court had been grappling with cross-border insolvencies, hamstrung by traditional insolvency laws which were largely territorial in focus. Since the enactment of the Singapore Model Law, the Singapore Courts have had the opportunity to expand on the Singapore Model Law COMI test in the case of Re: Zetta Jet Pte Ltd and others (Asia Aviation Holdings Pte Ltd, intervener) [2019] SGHC 53.

Following a contentious proceeding spanning more than a year, the Singapore High Court granted full recognition of the US Chapter 7 proceedings and the US Court-appointed Trustee of Zetta Jet Pte Ltd and Zetta Jet USA Inc. in March 2019. The Singapore High Court's decision very helpfully set out the approach and considerations relevant to recognition applications under the Singapore Model Law.

This commentary should be of interest to anyone active in cross-border insolvency and restructuring, and of particular relevance to those involved in foreign insolvency proceedings requiring recognition by the Singapore Courts.

Setting the scene – the coming of COMI

The recognition of foreign insolvency proceedings in Singapore was discussed in passing by the Court of Appeal in its decision of Beluga Chartering GmbH (in liquidation) and others v Beluga Projects (Singapore) Pte Ltd (in liquidation) and another (deugro (Singapore) Pte Ltd, non-party) [2014] 2 SLR 815, but no express mention was made of COMI. However the subsequent decision of the Singapore Court in Re Opti-Medix Ltd (in liquidation) and another matter [2016] 4 SLR 312, recognised the COMI test as the basis for the recognition of foreign insolvency proceedings at common law. The Singapore Court considered English law developments and held that COMI would likely be the place where the bulk of the business is carried out i.e. where most dealings occur, most money paid in and out, and where most decisions are made. The registered office would be the presumed COMI in the absence of evidence to the contrary. This was followed in another case, Re Gulf Pacific Shipping Ltd (in creditors' voluntary liquidation) and others [2016] SGHC 287.

In short, the COMI test is now part of Singapore law.

Zetta Jet Pte Ltd – A brief history

Zetta Jet Pte Ltd is a Singapore incorporated private jet company operating flights predominantly in US and Europe. On 15 September 2017, Zetta Jet Pte Ltd attempted to restructure under the Chapter 11 proceedings in the US. While the Chapter 11 proceedings was ongoing, two shareholders of Zetta Jet Pte Ltd obtained a Singapore injunction against the company and two other shareholders, restraining them from carrying out any further steps in and relating to the US Chapter 11 proceedings. However, the Singapore injunction was ignored by the US parties and the US Court which overreached to declare the Singapore Court Order invalid. The Chapter 11 proceedings were converted to liquidation proceedings under Chapter 7.

On 13 December 2017, the US Trustee of Zetta Jet Pte Ltd applied (on his own behalf and on behalf of Zetta Jet Pte. Ltd. and Zetta Jet USA, Inc) but did not succeed in his application for full recognition of the US proceedings. The Singapore High Court found that the US Trustee had been appointed in breach of a Singapore injunction. However, recognizing that there may be a need to balance the equities, the Court exercised its discretion to grant limited recognition to the US Trustee for the purposes of setting aside or appealing the Singapore injunction. (A summary and our insights on Re: Zetta Jet Pte Ltd and others [2018] SGHC 16 can be found here.)

In July 2018, the Singapore injunction was set aside by consent of the parties.

The most recent Zetta Jet case is the US Trustee's second attempt for full recognition of the US Chapter 7 proceedings and the US Trustee as the foreign representative in Singapore.

Summary of the Court's decision

Article 17(2) of the Singapore Model Law provides that the foreign proceeding must be recognised as a foreign main proceeding if it is taking place in the State where the debtor has its COMI. Hence, the Singapore Court had to determine Zetta Jet Pte Ltd's COMI in order to determine whether the US proceedings should be recognised as the foreign main proceeding.

The Singapore High Court (acting in accordance with judicial comity) decided in favour of the US Trustee and found Zetta Jet Pte Ltd's COMI to be the US. The Singapore Court granted full recognition to the US Chapter 7 proceedings as the foreign main proceeding, and to the US Trustee as the foreign representative.

The key takeaways from the judgment are summarised below.

• COMI will be determined as at the date of the filing of the recognition application (i.e. following the approach under US law, which approach may differ from that in other jurisdictions).
• The factors considered by the Singapore Court when determining the COMI are:
  - the presumption under Article 16(3) of the Singapore Model Law that the place of the debtor company's registered office is its COMI ("the Article 16(3) Presumption"). However, the Article 16(3) Presumption is only a starting point and can be displaced by the presence of other factors pointing towards some other location.
  - objectively ascertainable by third parties generally, with a focus on creditors and potential creditors. The Court's focus is on the actual facts on the ground rather than on legal structures. The enquiry would be dependent on the circumstances of each case and no general rule can be laid down.
  
  
• The following factors were considered by the Court, with particular weight given to the factors marked with an asterisk (*).
  - Location from which control and direction was administered*
  - Location of clients
  - Location of creditors*
  - Location of employees
  - Location of operations
  - Location of assets
  - Dealings with third parties*
  - Governing Law (Note: The Court had noted this factor to be of less relevance in most situations given the (ostensible) demise of the Gibbs rule outside England – more on this below.)
  
  
• The three key factors (i.e. location from which control and direction was administered, location of creditors, and corporate representations to third parties) pointed to US as the COMI. These outweighed the factors in favour of Singapore (i.e. that Zetta Jet Pte Ltd's administration and operations were partly carried out in Singapore, and the location of employees in Singapore).
• On the facts, the Singapore Court considered the most important factor to be the location of Zetta Jet Pte Ltd's primary decision makers i.e. its management.
• The location where the foreign representative was acting from (in this case the US Trustee) is not relevant to the analysis when determining COMI. (Note: This is a departure from the approach by the US courts.)

Public policy issues arising from the previous breach of the Singapore injunction order

• The US Trustee's previous breach of the Singapore injunction did not bar the Singapore Court from recognising the US Chapter 7 proceedings and the US Trustee. Because the injunction order was discharged by consent, recognition no longer undermined the administration of justice in Singapore.
• Consensual discharge of the injunction order created special circumstances which helped paved the way for full recognition of the US Chapter 7 proceedings and US Trustee in Singapore. However, the Singapore Court warned that outside of such special circumstances, parties who disobey Singapore orders will have to answer for their actions should they ever need to look for assets or information in Singapore.

Thoughts and insights

1. Different packaging, familiar taste

The COMI tests in Re Opti-Medix under common law and in Re: Zetta Jet under statute, focus on locating the debtor's principal place of business. There appears to be alignment between the common law and statutory test and it seems that there is practically no advantage in drawing that distinction for the future. 

2. All factors are equal, but some factors are more equal than others

From the Singapore High Court's analysis of the factors, certain factors are given more weight – those relating to the location where control and direction of the debtor company is administered (what the US courts term as the "nerve centre"), and the perception of third parties. In Re: Zetta Jet, what was particularly pertinent was that the Zetta Jet entities had marketed themselves to be operating out of Burbank, California. Further, the Zetta Jet points of contact which the company had communicated to customers and creditors were persons based in US.

As for the other factors, much depends on the nature of the company's business. In Re: Zetta Jet, minimal weight was given to the location of the company's assets given that the company's main assets were planes which were naturally expected to be located in multiple jurisdictions. However, the Court may give more weight to the location of more permanent assets, for instance, property owned by a real estate development company.

3. Relevance of the governing law of the debtor's contracts and Gibbs rule

The Singapore Court in Re: Zetta Jet dedicated only three lines to the relevance of the governing law of the debtor's contracts, and in doing so, demonstrated the reduced importance of this factor. The Court referred to the demise of the Gibbs rule in most jurisdictions other than England. (The Gibbs rule does not apply in Singapore. See: Re Pacific Andes Resources Development Ltd and other matters [2018] 5 SLR 125.)

The Gibbs rule states that the discharge of a debt can only take place under the law governing the debt. Therefore if the debt is governed under English law, it must be discharged under English law meaning an English law scheme presumably by the English Courts. In practical terms, this usually means that any cross-border restructuring involving assets located in England will have to consider the need to commence parallel restructuring proceedings in the country of the law governing the debt (i.e. not merely recognition proceedings). The Gibbs rule was recently affirmed in the case of Gunel Bakhshiyeva v Sberbank of Russia & Ors [2018] EWCA Civ 2802. (We note that leave is being sought from the UK Supreme Court to challenge the outcome in Sberbank and along with it, the rule in Gibbs. Until then, it is said that the Gibbs rule remains good under English law.)

4. Time, and time again

Time of the debtor’s COMI is a contentious issue. In Re: Zetta Jet the Singapore Court agreed with the US approach and determined COMI as at the date of filing of the application for foreign recognition.

Given the different approaches taken in the various jurisdictions, the discerning debtor will need to identify at an early stage, where its COMI should be, and will need to be mindful of where recognition proceedings will need to be filed. Steps should be taken to ensure that evidence is consistently gathered in anticipation of recognition proceedings bearing in mind the timing of when COMI is determined in the relevant jurisdiction.

The various positions on timing are summarised below:

• The US approach: COMI is determined as at the date of filing of the recognition application (Singapore's position). Unlike Singapore, the US Court will consider the place of existing insolvency / restructuring activities.
• The UK approach: COMI is determined as at the date of the filing of the foreign proceedings – this is due to the EU regulations and the use of COMI in the Recast European Insolvency Regulation (the Recast EIR).
  (Note: The outcome of Brexit is expected to have a bearing on whether the Recast EIR continues to apply to the UK, which may in turn have a bearing on the timing of when COMI is decided under UK law. Indeed, in the very recent (as yet) unreported UK decision of Re Toisa Limited, the Court has held that the appropriate date on which to determine the COMI of the debtor should be the date of the recognition petition, following the US approach.)
• The Australian approach: COMI is determined as at the date of the hearing of the recognition application.

Concluding remarks

COMI shifting may well be useful where genuine attempts at restructuring require access to tools that facilitate restructuring e.g where rescue financing is available and super-priority accorded for much needed insolvency funding. At the same time, creditors need to be alive to illegitimate attempts at COMI shifting to make it difficult for creditors to exercise their legitimate rights. Creditors need to understand the tools at their disposal to thwart such attempts in insolvency and restructurings which more often than not, transcend borders nowadays.

The Dentons Global Restructuring, Insolvency and Bankruptcy team

The Dentons Global Restructuring, Insolvency and Bankruptcy (RIB) team is made up of more than 200 lawyers across 50 locations. We grasp the complexities of your industry and bring a cross disciplinary team to assist. Side by side, we navigate intricate legal challenges and discover the best possible opportunities.

Our global team has gathered in Singapore in September 2017 and April 2019 to put together two client seminars where global perspectives on cutting edge issues were provided by our Dentons experts. Some of the issues discussed in our most recent seminar in April 2019 can be read here.)

We will continue organising future seminars on cutting edge insolvency and restructuring issues and to keep a finger on the pulse of the legal developments around the world. We are looking to expand further into more jurisdictions within ASEAN, America and the Caribbean in order to provide a seamless service for clients and to remain nimble and fleet-footed in dealing with an increasingly cross-border world. Should you wish to join us for our next session in Singapore, please write to sg.academy@dentons.com so that we may include you in our mailing list.