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High Court further clarifies when foreign companies may use Singapore’s restructuring regime

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07 October 2022

In Re Zipmex Co Ltd (2022), the Singapore High Court held that Thai, Indonesian and Australian subsidiaries of the Zipmex Group had their Centre of Main Interest in Singapore. It noted that it would have been evident to account holders of the company, which operated a cryptocurrency exchange platform, that the cryptocurrencies would be transferred to a “hot wallet” held by the Singapore incorporated group holding company. 

A company’s Centre of Main Interest (COMI) is important to insolvency proceedings. It determines whether insolvency proceedings commenced in a particular jurisdiction will, under the UNCITRAL Model Law on Cross-Border Insolvency (Model Law), be the main insolvency proceedings and hence what insolvency remedies will be available to the company or its creditors. Under Singapore law, it is also one basis under which a non-Singapore incorporated company may establish a substantial connection to Singapore. Doing so gives it a right to commence restructuring and other insolvency related proceedings in Singapore, thereby giving it access to Singapore’s debtor-in-possession insolvency proceedings framework.

The latest decision by the Singapore High Court, Re Zipmex Co Ltd [2022] SGHC 196 (17 August 2022), provides further guidance as to how a court will determine a company’s COMI, and confirms that the test for its COMI is the same both under the Model Law and under Singapore’s Insolvency, Restructuring and Dissolution Act 2018 (IRDA).

Whether Zipmex’s foreign subsidiaries have a Singapore COMI

In that case, the High Court had to consider the moratorium applications made by companies in the Zipmex Group under section 64 of the IRDA, the moratorium provision applicable to companies seeking to restructure in Singapore under a scheme of arrangement. Of the five companies in the group that applied, two were Singapore incorporated companies. The other three were incorporated outside Singapore, specifically, Thailand, Indonesia and Australia.

As the Thai, Indonesian and Australian Zipmex subsidiaries are not Singapore-incorporated companies nor registered as a branch carrying on business in Singapore, they had to establish a substantial connection to Singapore. What constitutes a substantial connection is set out in section 246 of the IRDA. This provides that the court rely on the presence of one or more of the matters enumerated in the section to support a determination that a foreign company has a substantial connection with Singapore. The matters so enumerated include that Singapore is the COMI of the company.

Factors in determining a company’s COMI

The Court has previously considered what factors are relevant to determining a company’s COMI in relation to the use of that term in the Model Law. In Re Zetta Jet Pte Ltd (2019) the Singapore High Court held that while a company’s registered office would be presumed to be its COMI, the presumption may be rebutted simply on the presence of evidence to the contrary. In this regard, it would look at the following factors which will be assessed as a whole in determining the location of the company’s COMI:

  • the location from which control and direction was administered;
  • the location of clients;
  • the location of creditors;
  • the location of employees;
  • the location of operations;
  • dealings with third parties; and
  • the governing law.

The High Court held that the same test would apply to determining COMI under section 246. This is because it saw no reason to differentiate between the use of COMI in different contexts.

The Singapore nexus would have been evident to account holders

In this case, the Court relied on the following to find that the COMI of each of the Thai, Indonesian and Australian subsidiaries was Singapore:

  • The management and operation of the companies are in Singapore; and
  • A large majority of the assets provided by the customers to the subsidiaries were further credited to the Singapore Zipmex subsidiary.

It would appear from the decision that an important role was played by what objectively would have been evident to a creditor of the company before that creditor decided to extend credit. The Court noted in this case that account holders would mostly have known that the cryptocurrencies would be transferred from the foreign subsidiary and consolidated in a “hot wallet” hosted by the Singapore Zipmex holding company. In the same vein, while the Court gave some weight to the fact that direction and control of each of the subsidiaries was from Singapore, it said that the weight to be given to this was lower than in the case of Re Zetta Jet Pte Ltd, as in this case, the fact that direction and control was centred in Singapore was less readily apparent to creditors and observers.

Court suggests practical measures for ensuring creditor engagement

The Court also made observations about the running and conduct of a complex restructuring in Singapore where the company under restructuring has many unrepresented creditors. It emphasised that the courts would scrutinise whether the company had engaged with the creditors, and set out a series of measures that companies undergoing restructuring could take to ensure proper engagement, including the following:

  • Ensuring proper communication and engagement through townhalls and facilities for dissemination of information;
  • Providing translations of documents;
  • Explaining how section 64 of the IRDA works, possible investments and likely timelines;
  • Establishing creditor committees;
  • Considering a framework for selection and representation to these committees; and
  • Appointing independent legal and financial advisers to focus on the needs of the unrepresented creditors.

COMI: The importance of what is evident to a company’s creditors

The case highlights that one factor of importance to the courts in determining COMI is what is known or apparent to creditors as the company’s locus. Accordingly, factors such as the location of a company’s management and direction, have also been assessed from this perspective. This trend is also one that emerges from earlier cases. For example:

  • In Re Zetta Jet Pte Ltd, the Singapore incorporated company was in the business of aircraft chartering. While its operations were conducted in Singapore, it was marketed on its website as being based in the US. This, along with the fact that its management was in the United States, was relied on by the Court in determining its COMI as being in the United States.
  • In Re Rooftop Group International Pte Ltd (2019), although the Singapore incorporated company sold toys in the United States and was managed from the United States, it had not represented anywhere that it was a United States based entity. Furthermore, its creditors were located in Asia and its loan agreements were governed by Singapore or Hong Kong law. The Court therefore found the company’s COMI to be Singapore.
  • In Re Alan Tantleff (2022), the Singapore incorporated subsidiaries of a REIT held hotels in the United States and did all their business there. Accordingly, the subsidiaries’ COMI were held to be the United States.

It should also be noted that the factors enumerated under section 246 to establish substantial  connection are not exhaustive. A court may rely on matters not set out, as it did in Re PT MNC Investama TBK (2020), where substantial connection was held to arise due to the Indonesian company’s listing of notes on the Singapore Exchange.

Creditors dealing with companies and wanting to ensure a particular jurisdiction for their insolvency proceedings may wish to bear this in mind in their review and due diligence of the company. In particular, if possible, they may wish to obtain a representation of the company’s COMI so that this can be part of the evidence of what would be evident to that company’s creditors in the event restructuring or insolvency proceedings are carried out in the future. 

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