'Limited Recognition' Of Foreign Insolvency Proceedings In Singapore Where The Circumstances Warrant It

Creditors and anyone seeking recognition of foreign insolvency proceedings in Singapore should consider how the presence of an injunction or an adverse court order may affect the chances of successful recognition.

The recent Singapore High Court decision of Re: Zetta Jet Pte Ltd and others [2018] SGHC 16 sheds light on the matter. There, the Court declined to grant full recognition to a trustee of a US insolvency proceeding on public policy grounds, having found that the trustee was appointed in breach of a Singapore injunction order. However, in an effort to reach an equitable arrangement, the Court exercised its discretion to grant limited recognition for the purposes of setting aside or appealing the Singapore injunction.

Re: Zetta Jet is Singapore's first decision dealing with the recognition of foreign insolvency proceedings under the UNCITRAL Model Law on Cross-Border Insolvency (Model Law), since it was implemented with some modifications in March 2017 via the Companies Act (Cap 50).

In this article, we explore (1) the basis of Zetta Jet's application, (2) the Court's effort to balance public policy and fairness considerations through "limited recognition", and (3) practical implications for creditors and interested parties.

The basis of Zetta Jet's application

Zetta Jet Pte Ltd (Zetta Jet Singapore), a company incorporated in Singapore, wholly owns Zetta Jet USA, Inc (Zetta Jet USA, a company organised under the laws of the State of California.

On 15 September 2017, voluntary proceedings under Chapter 11 of the US Bankruptcy Code were commenced in respect of the Zetta Jet entities in the US Bankruptcy Court in the Central District of California, Los Angeles Division.

On 19 September 2017, in the Singapore High Court, two shareholders of Zetta Jet Singapore obtained an injunction against Zetta Jet Singapore and two other shareholders, restraining them from carrying out any further steps in and relating to the Zetta Jet Chapter 11 proceedings.

After the injunction was granted, a Chapter 11 Trustee of the Zetta Jet entities was appointed. On 4 December 2017, due to financing issues, the Chapter 11 proceedings were converted to Chapter 7 proceedings, which are essentially liquidation proceedings under US law. The same Chapter 11 Trustee was appointed as the Chapter 7 Trustee.

With the authorisation of the US bankruptcy court, the Trustee commenced recognition proceedings in Singapore under the Model Law. Asia Aviation Holdings Pte Ltd...