CROSS-BORDER INSOLVENCY ISSUES AFFECTING SINGAPORE

• Citation: (2011) 23 SAcLJ 413
• Published date: 01 December 2011
• Date: 01 December 2011

I. Introduction

1 This is the ninth judicial colloquium but it is the first to be held in an Asian city - the previous colloquia having been held at more attractive cities like Toronto (1995), New Orleans (1997), Munich (1999), London (2001), Las Vegas (2002), Sydney (2005) and Cape Town (2007). One can see from the geographical progression of these venues that the direction has been moving from west to east, in line with the direction of the shift of economic power, or prowess, from west to east. More economic growth from more trade and investments in Asia will mean more cross-border insolvencies in Asia, and for this reason, holding this colloquium in Singapore this year may be said to be timely.

2 Indeed, only last month Borders Group Inc, which owns hundreds of bookstores all over the world, filed for Chapter 11 bankruptcy protection,1 and one day later, REDGroup Retail, an Australian company which owns the Borders bookstores in Australia, New Zealand and Singapore, also announced that it was going into voluntary administration in Australia. Just about three weeks ago, South Korea‘s second-biggest dry bulk shipping company, Korean Line Corporation, announced that it had commenced restructuring after a local Korean court placed the financially-strapped dry bulk group in receivership. These three insolvencies show that there is a need to put in place an efficient legal framework for the orderly governance of international or regional insolvency proceedings.

3 Initially, I was asked to speak on cross-border insolvency issues in a more regional context, and the need to foster cross-border co-operation and communication. When I expressed some apprehension about my ability to speak on such a broad front since I am not familiar with the insolvency laws and practices of the other countries in the region, it was suggested that it would be most productive if I could focus

on the state of insolvency regulation in Singapore and on the numerous cases that have been brought before the Singapore courts. The organisers felt that an analysis of cross-border insolvency from a Singapore viewpoint would be interesting to participants in this colloquium, Singapore being one of the most internationalised jurisdictions in Asia. I am happy to do so.

4 Singapore was a British colony and therefore belongs to the small family of common law countries in Asia, along with Malaysia, Brunei, India, Pakistan, Sri Lanka, and Australia and New Zealand (if the latter two countries count themselves as part of Asia). We are considerably outnumbered by the civil law countries and the Islamic law countries in Asia. Even in ASEAN (Association of Southeast Asian Nations), seven out of the ten countries are civil law countries.2 There is, of course, a great deal of intra-ASEAN trade and even greater ASEANChina or ASEAN-India trade. However, even among the members of ASEAN, after more than 40 years from its formation, there is still considerable unfamiliarity or ignorance among ASEAN legislators and lawyers of one another‘s legal systems and laws. ASEAN has not even reached the stage of political and economic integration when having a common or harmonised trade and commercial law can be seriously discussed. There are many reasons for this, the language of the laws being one of the more significant reasons. Lawyers in the common law group consisting of Brunei, Malaysia and Singapore have no problem understanding one another‘s laws and legal systems, but the same cannot be said of the other countries whose legal systems are based broadly on the civil law system.

II. Singapore‘s Free Trade Agreements (“FTAs”)

5 Hence, although ASEAN has established a free trade area (“AFTA”), and although Singapore has signed FTAs with (a) Australia and New Zealand, (b) China, (c) India, (d) Japan, and (e) the Republic of Korea, the principal trading nations in Asia, I am not aware that there is any discussion among ASEAN itself to establish a common insolvency regime for its members, much less with ASEAN‘s other trading blocs. There are, of course, many reasons for this apparent lack of urgency or even interest in the subject, notwithstanding the argument that insolvency practice plays a vital role in ensuring the efficiency of capital markets. ASEAN states have many more important and pressing political, economic and social issues to resolve among themselves. They are at different levels and stages of economic development. Their economies are very different from one another‘s.

6 Each ASEAN state already has its own legal framework to regulate insolvencies, whether corporate or personal. Harmonisation of insolvency laws and practices will not come about unless there are compelling reasons for it to take place. While globalisation of trade, services and investments over the last few decades has raised economic standards in the whole of ASEAN, the need for a common insolvency regime to deal with personal and/or corporate insolvencies is not apparent. The Asian financial crisis in 1997 should have given the impetus for regional co-operation in establishing such a regime among the ASEAN states, but nothing happened: insolvency issues were completely dwarfed by the political, economic and social problems facing the Asian economies that were seriously impaired by the crisis. Again, even the recent global credit and financial crisis that led to so many insolvencies in the developed economies of the West had no serious impact on creditors in the ASEAN states. Investors in the region and Hong Kong had very substantial sums of money invested in Enron CDOs (collateralised debt obligations), but no bank in Singapore or most of the ASEAN states needed to be “tarped”, or bailed out, unlike those in the US, the UK and other European states. The insolvency of Lehman and many other global corporations and investment entities generated a large volume of litigation on insolvency issues in the US, the UK and some EU states, but none appears to have surfaced in Singapore. I have no knowledge if such issues arose in the rest of ASEAN.

7 ASEAN has set 2015 as the target for creating a single regional economic market known as the ASEAN Economic Community. Perhaps then, if and when the member states encounter more cross-border insolvencies among themselves, the need for action in this area of the law will appear on the radar screen.

III. The United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Cross-Border Insolvency (“the Model Law”) in ASEAN

8 Let me now comment on the UNCITRAL Model Law in the context of ASEAN. The Model Law has been in existence since 1997 but has only been adopted in some form or another by, now I am told, 20 countries. Of this number, not more than a handful of them are likely to require the degree or scope of judicial and other forms of co-operation needed to maximise the recovery of assets for creditors. The fact is that the large majority of the world‘s economies are recipients of capital from a small number of rich, developed countries and therefore do not experience the problems of cross-border insolvency affecting global companies from those economies that invest in them. Of the Asian economies, only Korea and Japan have adopted the Model Law, presumably because their respective governments see

the benefits of adopting the Model Law, since they, unlike the rest of the Asian economies, have very large global investments in manufacturing, trade and services. It will be interesting to know the experiences of these countries in tackling cross-border insolvency problems confronting Korean and Japanese creditors of failed enterprises.

9 Chief Justice Spigelman of the Supreme Court of New South Wales, in his address made at the INSOL International Annual Regional Conference held in Shanghai in 20083 (“2008 Address”) pointed out that the BRIC economies (Brazil, Russia, India and China) have not adopted the Model Law and that “[t]hroughout the Asian region there appears to be a great deal of reluctance to adopt the Model Law or to enter into regional arrangements”. He suggested that a more promising approach would be to persuade Asian countries to enter into bilateral arrangements, particularly between nations with similar legal systems and similar stages of economic development, or regional arrangements where there is a broader-based agreement about trade and commerce. He also stated that the difficulties of international agreement on cross-border insolvency are, in almost all respects, identical to those which arise in the course of seeking international agreement with respect to trade and investment issues generally. He suggested that attempting to piggy-back on whatever bilateral or regional negotiations in trade and investments there may be may prove to be the most fruitful course.

10 There is merit in this approach and it may work for some countries. But in this connection, I may mention that Singapore‘s bilateral free trade agreements are largely based on the liberalisation and facilitation of trade and investment. Singapore signed AFTA in 1993, and has since expanded its network of free trade agreements to cover 18 regional and bilateral free trade agreements with 24 trading partners. They include Australia, China, India, Japan and the US. They focus on increasing bilateral trade and investments. Successful investments create much more mutual benefits than failed enterprises. Hence, to my knowledge, none of Singapore‘s free trade agreements contains any provisions relating to cross-border issues in the context of insolvency. And as I have said earlier, neither has there been any discussion on these issues within ASEAN. So there is much to be done if progress is to be made in this area.

IV. The Insolvency Regime in Singapore

11 Let me now discuss the insolvency regime in Singapore. The main legislation, the Companies Act,4 is modelled on the UK and Australian companies‘ legislation, but the...