INTRODUCTION
In Re Compuage Infocom Ltd[1] (“Judgment”), the Singapore High Court (“Court”) has recognized the Corporate Insolvency Resolution Process (“CIRP”) of an Indian company under the Insolvency and Bankruptcy Code, 2016 (“IBC”) and granted assistance to the Resolution Professional (“RP”) appointed by the National Company Law Tribunal (“NCLT”). Applying the UNCITRAL Model Law on Cross-Border Insolvency (1997)[2] (‘Model Law’), as adopted by Singapore by way of Section 252 and the Third Schedule of the Insolvency, Restructuring and Dissolution Act, 2018 (“IRDA”), the Judgment deals with several key issues, including whether the NCLT is a ‘foreign court’, whether RPs are ‘foreign representatives’, and whether repatriation of assets located in a foreign jurisdiction can be permitted for the benefit of creditors in other jurisdictions. This is the first such ruling in Singapore and is a welcome development. This piece discusses the key findings in the Judgment and their implications for all stakeholders involved in the CIRP of Indian companies.
BRIEF BACKGROUND
Compuage Infocom Ltd. (“CIL”),an Indian company specialising in IT distribution, has a branch office in Singapore. CIL’s default on certain loan repayments to an Indian creditor led to the initiation of CIRP and the appointment of a RP under the IBC. The RP applied to the Court under the Model Law in Singapore forrecognition of CIL’s CIRP, and for the RP to be permitted to take necessary actions for administration, realisation, sale and repatriation of all assets (and any proceeds thereof) of CIL located in Singapore to CIL’s estate in India.
KEY FINDINGS
The Court substantially allowed the RP’s application and rendered findings on the following key issues:
- whether CIRP is a ‘foreign proceeding’;
- whether NCLT is a ‘foreign court’;
- whether RP is a ‘foreign representative’;
- whether CIL’s centre of main interests (“COMI”) is in India; and
- whether CIL’s assets in Singapore could be repatriated to CIL’s estate in India.
CIRP is a ‘foreign proceeding’
Applying the test laid down in Ascentra Holdings Inc. v. SPGK Pte. Ltd.,[3] the Court held that for CIRP to qualify as a ‘foreign proceeding’, the proceedings must be collective in nature and a judicial or administrative proceeding in a foreign State. After examining the relevant provisions of the IBC, the Court found that CIRP:
- is a structured reorganisation process, involving formation of a committee of creditors and appointment of a resolution professional to manage the affairs and assets of the company;
- facilitates implementation of a resolution plan that provides for treatment of the claims of all creditors and revival of the company;
- ensures mandatory safeguards of fair treatment of all creditors generally and considers rights and obligations of all creditors; and
- has a clear preference for re-organisation over liquidation, with liquidation being the last resort when no resolution plan is accepted.
Accordingly, the Court held that CIRP meets the requirements of a ‘foreign proceeding’.[4]
NCLT is a ‘foreign court’
The Court noted that the NCLT is a quasi-judicial body and not a ‘court’. However, it found that this quasi-judicial nature does not defeat its status as a foreign court. The Court observed that the NCLT exercises several judicial powers in relation to controlling and supervising the CIRP, including the power to admit companies into CIRP, imposition of moratorium, powers to approve or reject a resolution plan (which can determine a company’s fate), etc. The Court ruled that the Model Law does not require a specific form for a body to constitute a ‘court’ and since the NCLT assumes adjudicative characteristics (as opposed to administrative characteristics), it thus qualifies as a ‘foreign court’.[5]
RP is a ‘foreign representative’
A ‘foreign representative’ is a person or body authorised in a foreign proceeding to administer the reorganisation or liquidation of the debtor’s property or affairs or to act as a representative of the foreign proceeding.[6] The Court noted that the RP is appointed and authorised by the NCLT to administer reorganisation of the company and, accordingly, found that the RP falls within the definition of ‘foreign representative’.
CIL’s centre of main interests (COMI) is in India
To recognise a foreign proceeding as a ‘foreign main proceeding’, the foreign proceeding must take place in the country where the debtor has its COMI.[7] The Court noted that the debtor’s COMI is ordinarily presumed to be where its registered office is situated (in this case, India), but also relied on other factors, that cemented India as the COMI, viz. (a) both CIL and its Singapore branch were controlled from India, (b) CIL’s main assets, operations and substantial business was in India, and (c) majority of CIL’s creditors were based in India, with only one from Singapore, who had filed claims with the RP.
Repatriation of Assets
The Court, however, declined to permit repatriation of CIL’s Singapore assets to India at this stage, to protect the interests of any Singapore-based creditors. The Court noted that (a) the RP had already provided notice of the CIRP to all known creditors (including Singapore-based creditors) of CIL and invited them to submit their claims, (b) only one Singapore-based creditor had filed a claim (which had been fully admitted), (c) the RP intended to advertise the recognition of CIRP in Singapore to notify other potential creditors and also invite them to submit claims, (d) such creditors may also participate in the CIRP as members of the Committee of Creditors (“COC”), and (e) any resolution plan submitted to the NCLT would ensure equal treatment of all similarly situated creditors, regardless of where they are based. Nevertheless, the Court ruled that Singapore-based creditors must be first put on notice and given a last opportunity to voice their objections prior to the repatriation of CIL’s assets in Singapore to India. However, the Court also observed that if it was demonstrated that Singapore-based creditors would be treated fairly and would be given ample opportunity to participate in the process in India, there would rarely be any reason to refuse repatriation after convening a hearing with the participation of Singapore-based creditors.
Concluding Thoughts
The Judgment is a welcome step for stakeholders involved in the CIRP of Indian companies under the IBC. Since the Model Law has been adopted in nearly 60 jurisdictions, including the United States, Japan, and Australia, the Judgment will be helpful in getting CIRP proceedings recognised in all such jurisdictions. The Judgment sets an important precedent and encourages RPs to approach foreign jurisdictions for realising proceeds from foreign assets for the benefit of all creditors. It will be interesting to see how RPs demonstrate fair treatment to foreign creditors in a way that will provide assurance to foreign courts to pass orders allowing repatriation of foreign assets to India (while safeguarding local-creditor interests). It will be interesting to see what other practical challenges RPs may encounter in each such jurisdiction.
[2] Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law, G.A. Res. 52/158, U.N. Doc. A/RES/52/158 (Jan. 30, 1998). Available here. [‘Model Law’]
[3] [2023] 2 SLR 421
[4] Article 2(h) of the Third Schedule to the IRDA; Article 2(a) of the Model Law.
[5] Article 2(e) of the Third Schedule to the IRDA; Article 2(e) of the Model Law.
[6] Article 2(i) of the Third Schedule to the IRDA; Article 2(d) of the Model Law.
[7] Article 2(i) of the Third Schedule to the IRDA; Article 2(d) of the Model Law.