Recognition of Singapores scheme moratorium in the UK a bump in the road
18 October 2021
18 October 2021
That Singapore positions itself as Asia's premier international restructuring hub is well known.1 What is less certain is how the rest of the world will respond to the purported reach of Singapore's restructuring regime. In the recent decision in Chang Chin Fei v Cosco Shipping (Qidong) Offshore Ltd2 ("Cosco Shipping") (read the decision here), the Scottish Outer House of the Court of Session refused to recognise Singapore moratoria of two companies under s.64 of the IRDA, highlighting a common difficulty faced by practitioners seeking to resolve complex, cross-border capital structures, namely that the Rule in Gibbs prevents foreign insolvency proceedings from compromising English law debt. This now appears to extend to temporary moratoria as well.
The Singapore courts have the power to make orders restraining certain actions and proceedings against a company (and ultimately to other group companies under s.65 of the IRDA) which has proposed or intends to propose a compromise or arrangement with its creditors. Such a moratorium may be extended so that it applies to "any act of any person in Singapore… whether the act takes place in Singapore or elsewhere."3
The Singapore Court had made such an order in respect of Prosafe SE and Prosafe Rigs Pte Ltd (the "Applicant Companies") and the Applicant Companies subsequently sought recognition of the moratoria in the UK, specifically to address the possibility of significant assets coming into Scottish territorial waters. Given that the UK has adopted the Model Law, it may be thought that such a request should be straightforward, especially given there is a recent precedent for the English Courts recognising a Singapore moratorium under s.64 of the IRDA.4 But that case didn't have to grapple with the Rule in Gibbs.
In Cosco Shipping, a creditor ("Cosco") of the Applicant Companies whose debt was governed by English law opposed the applications for recognition. Cosco took the position that, because its debts were governed by English law and it had not submitted to the jurisdiction of the Singapore Courts, it stood outside the Singapore restructuring process. Relying on the Rule in Gibbs, the Scottish Court found in favour of Cosco.
Of particular significance is that in the moratoria sought were temporary in nature. They did not authorise any restructuring or approve any scheme of arrangement. Rather, they were meant to provide a breathing space for the Applicant Companies and their creditors to discuss restructuring matters. Following the decision of the English Court of Appeal in In re OJSC International Bank of Azerbaijan ("Azerbaijan"), it was understood that the Model Law could not be used to impose a permanent stay in order to get around the Rule in Gibbs. However, practitioners had generally assumed a temporary stay would be recognised.
Not so, said the Scottish Court, finding that the moratoria could not be separated from the proposed schemes of arrangement. Instead, the Court found (i) that the moratoria were "closely linked to, and dependent upon, the proposed Schemes"5 and (ii) that such schemes sought to bind dissenting creditors.6 Given that Cosco was entitled to enforce its rights under English law and could not be bound by the proposed Singapore schemes, the purpose of the moratoria could not be achieved.
It is worth noting that in this case there were no assets within the jurisdiction of the UK courts at the time of the application the effectiveness or otherwise of the moratorium in the UK is therefore somewhat moot. Contrast this with Brazil's recognition of the same Singapore moratoria under the Model Law, effectively protecting the Applicant Companies' assets in that jurisdiction.7
There is, of course, a wider question of whether the Rule in Gibbs is still appropriate, not least since the UK has adopted the Model Law. Singapore no longer recognises the rule,8 suggesting that, as a matter of Singapore law, a Singapore scheme of arrangement could validly compromise English law debt. If, on the facts of any particular case, a debtor's only connection to the UK is through its English law debt, and recognition could be achieved in other key jurisdictions, does the Rule in Gibbs have any relevance?
Whatever your views on the Rule in Gibbs, it is encouraging to see an increase in reported cases on Singapore's extra-territorial moratorium from important jurisdictions. Practitioners will hopefully take heart in the continued growth and belief in Singapore as a powerful restructuring forum for multinational companies.
With special thanks to Cathryn Neo (Senior Associate, Ashurst ADTLaw) for her contributions.
1 See, amongst other things, Singapore's Insolvency, Restructuring and Dissolution Act 2018 ("IRDA") and adoption of the UNCITRAL Model Law on Cross-Border Insolvency ("Model Law").
2  CSOH 94.
3 Section 64(5) IRDA.
4 H & CS Holdings Pte Ltd v Glencore International AG,  EWHC 1459 (Ch).
5  CSOH 94, .
6  CSOH 94, .
7  CSOH 94, .
8 Re Pacific Andes Resources Development Ltd  SGHC 210.