In this contribution, Leiden PhD researcher Ilya Kokorin and I, seek to revisit the Zetta Jet case, as was decided on 4 March 2019 by the High Court of Singapore (Justice Aedit Abdullah) (Re: Zetta Jet Ptd and others (Asia Aviation Holding Pte Ltd, intervener) [2019] SGHC 53 (Zetta Jet)). We highlight what we see as its major significance, namely two clarifications related to the determination of “centre of main interests” (COMI) under Singapore law. These clarifications relate to the international foundations of the law, not to Singapore law itself. They concern (i) the date (reference time) on which the assessment of the debtor’s COMI should take place under UNCITRAL Model Law on Cross-Border Insolvency (as enacted in Singapore in May 2017), and (ii) the test for COMI determination, including the strength of the registered office presumption. Our general conclusion is that the position adopted by the High Court of Singapore in Zetta Jet sets it apart from current European rules, when it comes to the application of the concept of COMI. We argue that this divergence is neither justifiable, nor economically desirable.
The case concerns debtor Zetta Jet Pte Ltd (Zetta Jet Singapore, debtor), a Singapore-incorporated company, involved in aircraft rental and charter. Together with Zetta Jet USA, Inc., its wholly owned US subsidiary, Zetta Jet USA, Inc. (together called “Zetta Entities”), Zetta Jet Singapore filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The proceedings were subsequently converted into Chapter 7 proceedings. At its first try, the Singapore courts refused recognition of these proceedings was refused in Singapore, based on the fact that they effectively contravened an Singapore injunction granted in Singapore, enjoining foreign proceedings. As the court then argued, “ignoring an injunction granted by a Singapore court undermines the administration of justice.” But in summer 2018, however, the injunction was discharged by consent of the parties involved in summer 2018, and the path for recognition was now clear. As the public policy obstacle for recognition (arguably) disappeared, the court had to decide whether the US proceedings against Zetta Jet Singapore should be recognised as foreign main proceedings or foreign non-main proceedings. It is worth highlighting the key difference between the two. Foreign main proceedings qualify for more extensive reliefs than foreign non-main proceedings. For instance, only main proceedings trigger automatic relief (e.g.for instance, a stay of execution against the debtor’s assets) pursuant to Article 20(1) of the Singapore Model Law. The question then comes down to localisation of the debtor’s COMI, which determines the jurisdiction of main proceedings (Article 2 of the Singapore Model Law).
The largest part of the judgment of the Hight Court of Singapore’s (more than 30-page judgments) discusses the issue of COMI, taking a broad comparative perspective. In particular, the court reviews the (sometimes diverging and inconsistent) approaches adhered to in the USA, the UK (and the EU, in general), and Australia. Ultimately, the court decides for the most part to follow the US approach. This concerns the relevant date for determining COMI (COMI date) and factors to be considered in determining COMI (COMI test).
How do we view this approach from the current European stance on COMI?
Regarding the date (or reference time) of COMI, the court analyses three options: 1) the date of the commencement of the foreign insolvency proceedings, which is ( the UK and EU view), 2) the date of the hearing of the recognition application, (as followed in Australia,) and 3) the date the application for recognition is filed, (a view found in the US). Opting for the latterst one, the court reasons that “determining the debtor’s COMI as at the date the recognition application is filed, ie the US position, provides greater certainty and better accords with commercial realities and the language of the provisions of the Model Law.”.
We believe that the court’s choice is rather unfortunate. Imagine a situation, where the foreign court opens main insolvency proceedings, finding the debtor’s COMI to be present in the jurisdiction of that court. One year later, a court in another country faced with thea recognition application (recognising court) concludes otherwise, taking into account the facts around the application date into account. As a result, the foreign proceeding loses support in the form of relief available under Article 20 of the Singapore Model Law and universality of the foreign main proceedings is thus severely weakened.
The resulting divergence of COMI reference times indirectly accepts the possibility of having more than one COMI. This contradicts one of the major assumptions behind the Model Law, namely that there can be only one main insolvency proceeding. Moreover, the divergence leaves important stakeholders (such as creditors) in the dark as to which legal regime determines their substantial and procedural rights.
Whereas the US courts continue to consider the date of the application, their jurisprudence has recently been heavily criticised by prominent insolvency law scholars. A letter from 20 August 2018, to the National Bankruptcy Conference (NBC, an organization of leading American bankruptcy judges, professors, and practitioners) argues that the current US approach conflicts “with the original intention of the Model Law and the recent revision of the Guide to Enactment (Guide), which measure COMI as of the date of the commencement of the foreign proceeding.” We wholeheartedly adhere to the same view.
Firstly, as explained by the Guide, the language of the Model Law “does not address the question of the relevant date, but rather requires the foreign proceeding to be current or pending at the time of the recognition decision” (Guide, paragraph. 158). Secondly, drafters of the Model Law assumed that COMI would not – (and could not –) change once foreign proceedings have been initiated (NBC letter, p. 12). This makes the discussion of forum shopping (or, as the court refers to it, the discretion to select the jurisdiction) less relevant. In any case, the benefits of forum shopping remain questionable. Finally, the Guide to Enactment of 1997, a relevant and important document in the interpretation of the Singapore Model Law, clearly states that the concept of the main proceeding, where “the debtor has the centre of its main interests”, as found in the Model Law “corresponds to the formulation in article 3 of the EU Convention on Insolvency Proceedings, thus building on the emerging harmonization as regards the notion of a “main” proceeding” (paragraph. 31). The same thrust towards harmonious interpretation of the European Insolvency Regulation (EIR, now recast) and the Model Law is evidenced in paragraph. 82 of the Guide.
Our second point relates to the COMI test. The UNCITRAL Model Law does not contain a definition of “centre of main interests”. It only provides that the debtors’ registered office is presumed to be the COMI (Art. 16(3)). A similar presumption can be found in Article 3(1) of the European Insolvency Regulation, as renewed in June 2017 (EIR recast), contains a similar presumption. In practice, European courts have set a rather high bar for the rebuttal of the presumption and require the applicant to provide sufficient evidence that COMI is somewhere else – for instance in (see the Regional Court of Berlin’s, early 2018, ruling in the NIKI case). In contrast, US courts treat the presumption as merely indicative for “speed and convenience in instances in which the COMI is obvious and undisputed, for instance see the (Bankr. S.D.N.Y. Bankruptcy Court’s 2016 in Creative Finance) ruling.
The High Court of Singapore in Zetta Jet seems to have occupied a middle ground. On the one hand, the court accepts that “the presumption would be displaced if it is shown that the place of the company’s central administration and other factors point the COMI away from the place of registration to some other location”; (a similar formula isto that proposed in 2011 by the Court of Justice of the EU in 2011 in the Interedil case). On the other hand, the court suggests focusing on the “centre of gravity”, irrespective of the distinction between different entities within the group. This is strongly reminidscent of the US “nerve centre” doctrine, which is a national legal phenomenon and is unrelated to the international basis of the COMI-norm, and is clearly at odds with the current entity-by-entity COMI determination under the EIR recast.
The approach of the High Court of Singapore benefits certainly from its inherent flexibility, allowing for better consideration of the economic reality, (e.g.for instance in cases of corporate groups). However, the same flexibility may prove damaging for certainty and predictability of court determinations. In practice, simultaneous application of the divergent and conflicting COMI tests opens the door to forum shopping, jurisdictional conflicts and even situations in which the COMI of the same company is found in different countries at the same time.
This is exactly what happened in the recent case of the Oi Group, Brazil’s largest fixed-line telecoms operator, where a Dutch member of the Oi Group, Oi Brasil Holdings Coöperatief U.A., ended up having two COMIs. The first COMI (accepted in Brazil and the USA) coincided with the group restructuring proceedings in Brazil. But courts in the Netherlands found the same company’s COMI there. The second COMI (accepted in the Netherlands) of that same company was found to be in the Netherlands, the jurisdiction of its registered office.
We come to the conclusion. The High Court in Zetta Jet noted that Singapore courts “have not had the occasion yet, at least in a written judgment, to consider the interpretation of COMI under the Singapore Model Law.” In light of this, the case of Zetta Jet is particularly significant, as it contains guidance on such important issues as the relevant date for allocating COMI (COMI date as reference time) and factors to be considered in determining COMI (COMI test).
It is rather disappointing that in some respects, the court’s position taken by the court manifests a detachment form the original intention of introducing COMI as the decisive norm and with that a further drift from the European approach. The purpose of the UNCITRAL Model Law is to promote the objectives of fair and efficient administration of cross-border insolvencies and greater legal certainty for trade and investment (see Preamble). However,But this purpose cannot be achieved where enacting states “compete” for better interpretations of the Model Law and so sideline its international origin and the need to promote uniformity in its application.
References
– Re: Zetta Jet Ptd and others (Asia Aviation Holding Pte Ltd, intervener) [2019] SGHC 53
– Landesgericht Berlin, 84 T 2/18, Jan. 8, 2018, ZIP, 2018, 140 (NIKI Luftfahrt).
– Creative Fin. Ltd. (In Liquidation), 543 B.R. 514-15, Bankr. S.D.N.Y. 2016.
– CJEU, Case C‑396/09, 20 October 2011, ECLI:EU:C:2011:671 (Interedil Srl)
This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. This time he is assisted by Ilya Kokorin, a PhD-researcher and lecturer at University of Leiden. GRR is a subscription-only publication, but here is a link to the full piece, which appeared in March 2019, on GRR’s website at globalrestructuringreview.com