Pacific Andes Resources Development: an analysis of the Singapore High Court’s local moratorium judgment

Allen & Overy LLP have published a useful case summary on JD Supra, which reads as follows.

Pacific Andes Resources Development Ltd [2016] SGHC 210 (27 September 2016) involved an application under section 210(10) of the Singaporean Companies Act for the restructuring of, among others, a Bermudian company listed in Singapore and which had issued bonds on the Singapore Exchange. The Singapore High Court allowed a moratorium over any proceedings in Singapore by its creditors (including its bank creditors who opposed the application).

Among other things, the Court ruled (declining to follow the English case of in Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) LR 25 QBD 399) that where a contractual obligation is governed by a foreign law, if one of the parties to the obligation is the subject of insolvency proceedings in a jurisdiction with which he has an established connection based on residence or ties of business, it should be recognised that the possibility of such proceedings must enter into the parties’ reasonable expectations in entering their relationship and as such may furnish a ground for a discharge to take effect under the applicable law. Accordingly, even though there were debt obligations governed by Hong Kong or English law, this was not a bar to the section 210 application.

Facts

As noted, this case involved an application under section 210(10) of the Companies Act (scheme of arrangement). The four applicants were all foreign companies incorporated outside Singapore. The applicants comprised:

  • Pacific Andes Resources Development Ltd (PARD), a company incorporated in Bermuda but listed on the Singapore Exchange; and
  • Three of its subsidiaries (Subsidiaries), each of whom owed money to various banks under loans guaranteed by PARD.

The Pacific Andes group was facing economic difficulties. As a result, insolvency proceedings were being taken out in various jurisdictions. The business of the Subsidiaries formed one arm of the business activities of the Pacific Andes group; the other main arm was located in Peru and the United States. This arm was the production of fish meal and fish oil in Peru, and the companies engaged in that business were undergoing restructuring in Peru and in the United States. The proceedings by PARD and its Subsidiaries in Singapore were to buy it time to resolve the restructurings in Peru and the United States. It was for these purposes that PARD and the Subsidiaries brought a plan for a scheme of arrangement before the Singapore High Court, and further sought moratoria on proceedings by its creditors in relation to this scheme.

The Court only granted the moratorium against proceedings brought or to be brought in Singapore against PARD by its creditors. It refused to grant the moratoria:

  • against proceedings brought or to be brought outside Singapore against PARD by its creditors; and
  • against proceedings brought or to be brought in or outside Singapore against the Subsidiaries by their creditors.

Decision

In considering the application, the following points made by the Court are noteworthy:

  • Schemes of arrangement are territorial in nature and would have no application to actions or proceedings in foreign courts. A Singapore court would therefore have no jurisdiction to restrain proceedings in foreign courts pursuant to section 210.
  • While a court would have jurisdiction to make orders under section 210 against foreign companies, it would only exercise its discretion to do so if the company had a sufficient nexus to Singapore. PARD as a company listed on the Singapore Exchange and with its main economic activity occurring in Singapore had sufficient nexus. The Subsidiaries, on the other hand, did not have any economic activity in Singapore. Any restructuring plan for them had to be presented for recognition and endorsement in other jurisdictions.
  • The Court declined to follow the English case of in Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) LR 25 QBD 399 which held that a discharge of a debt is not effective unless it is in accordance with the law governing the debt. Instead, the Court ruled that where a contractual obligation is governed by a foreign law, if one of the parties to the obligation is the subject of insolvency proceedings in a jurisdiction with which he has an established connection based on residence or ties of business, it should be recognised that the possibility of such proceedings must enter into the parties’ reasonable expectations in entering their relationship and as such may furnish a ground for a discharge to take effect under the applicable law. Hence, if the court has subject-matter jurisdiction and there exists assets in or sufficient nexus to the jurisdiction that warrants the exercise of jurisdiction, debts which are not governed by Singapore law may be legitimately compromised by a scheme proposed under section 210. That PARD’s debts were governed by Hong Kong law and that PARD’s bonds were governed by English law were therefore not a bar to the scheme being proposed under section 210.
  • The Court considered that Re Conchubar Aromatics Ltd [2015] SGHC 322 had correctly recognised that an order under s 210(10) may be ordered notwithstanding that an application for a scheme meeting to be called under s 210(1) has not been made.
  • The plan proposed under section 210 was very sketchy, being dependent on the results of the restructuring of the businesses in Peru and the United States. However, this lack of particularity was not due to a lack of bona fides or an attempt to game the system. When lending to PARD, the creditors must have reasonably anticipated that as a holding company with its businesses in other jurisdictions, its restructuring would depend on the value maximisation of its operating units. Furthermore, a court could deal with this lack of particularity by various ancillary orders such as requiring regular updates to be filed and for disclosure of information to be made by specified dates in order to ensure that the process was not being abused.
  • The fact that the creditors holding up to 25% of the debt had indicated their opposition to the proposed scheme was not a reason, at this stage, to refuse to grant the moratorium under section 210. The situation was an evolving one and it could not be said that the creditors might not change their mind as the Peruvian/US proceeding evolved.
  • The Court was concerned about the fact that the bond holders of PARD had lent to it on the basis that its main assets were the business in Peru. If the Court were not to restrain the bank creditors of PARD, they had indicated that they would be appointing a provisional liquidator in Bermuda who would then stop the restructuring of the business in Peru and sell it off.

Comment

The Singapore court’s willingness to be supportive of international insolvency proceedings has been recently highlighted by a series of cases, of which this is just one.

Other recent cases include JX Holdings Inc v Singapore Airlines Ltd [2016] SGHC 212, as well as Re Taisoo Suk [2016] SGHC 195 (grant of an application to stay all proceedings in Singapore against a foreign debtor in order to allow restructuring proceedings in Korea to take place) and Re Opti-Medix Ltd [2016] SGHC 108 (grant of recognition of a liquidator appointed in Japan over a company).

Although the Court declined to follow Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux, it remains good law in the England and Wales.

Although the case was criticised in Global Distressed Alpha Fund 1 LP v PT Bakrie Investindo [2011] EWHC 256 (Comm) as being outdated, it was considered binding by the English High Court which felt constrained to abide by it.

The risk therefore is that a party that has restructured its English law governed debts in a foreign scheme of arrangement might still find itself subject to its full obligations in an English court.

 

 

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