Re: Zetta Jet Pte Ltd and others

• Judge: Aedit Abdullah J
• Judgment Date: 24 January 2018
• Neutral Citation: [2018] SGHC 16
• Citation: [2018] SGHC 16
• Defendant Counsel: N. Sreenivasan SC, Rajaram Muralli Raja, Jerrie Tan Qiu Lin and Kyle Gabriel Peters (Straits Law Practice LLC)
• Published date: 01 February 2018
• Hearing Date: 16 January 2018
• Plaintiff Counsel: Tan Mei Yen and Ng Wei Long (Oon & Bazul LLP)
• Date: 24 January 2018
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 1391 of 2017
• Subject Matter: Recognition of foreign insolvency proceedings,Cross-border insolvency,Insolvency Law

Aedit Abdullah J: Introduction

This short form ex tempore judgment conveys my decision on the application for recognition by the interim Trustee acting in Chapter 7 proceedings in the United States Bankruptcy Court in the Central District of California – Los Angeles Division (the “US Bankruptcy Court”).

Background

Zetta Jet Pte Ltd (“Zetta Jet Singapore”), is a company incorporated in Singapore. Zetta Jet USA, Inc (“Zetta Jet USA”), is a company organised under the laws of the State of California, US and is wholly owned by Zetta Jet Singapore. Jonathan D. King, is the Chapter 7 Trustee of Zetta Jet Singapore and Zetta Jet USA (“the Zetta Entities”) appointed pursuant to US bankruptcy proceedings, and applying for recognition under Section 354B and the Tenth Schedule of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”). The Intervener in this application, Asia Aviation Holdings Pte Ltd (“AAH”), is a shareholder of Zetta Jet Singapore. The principal business of the Zetta Entities is in aircraft rental and charter.¹

The shareholders of Zetta Jet Singapore and their respective shareholdings are as follows²: AAH – 34%; Truly Great Global Limited (“TGGL”) – 30% Stephen Matthew Walter (“Walter”) – 23%; James Noel Halstead Seagrim (“Seagrim”) – 13%; The relationship between the shareholders is governed by the terms of the Subscription incorporating Shareholders’ Agreement (“the SHA”) dated 26 February 2016.³

On 15 September 2017, voluntary Chapter 11 bankruptcy proceedings were filed against the Zetta Entities in the US Bankruptcy Court and a worldwide automatic moratorium in the US came into effect.⁴

On 18 September 2017, Suit No 864 of 2017 was commenced in the High Court of Singapore by AAH and TGGL against Seagrim, Walter and Zetta Jet Singapore for commencing the Chapter 11 proceedings in alleged breach of the SHA.⁵ On 19 September 2017, AAH and TGGL obtained an injunction order from the High Court of Singapore (“the Singapore injunction”) which enjoined Zetta Jet Singapore, Seagrim and Walter from carrying out any further steps in and relating to the bankruptcy filings relating to Zetta Jet Singapore and Zetta Jet USA in the US Bankruptcy Court until trial or further order.⁶ On 1 November 2017, TGGL discontinued its action, leaving AHH as the sole Plaintiff in Suit No 864 of 2017.⁷

Subsequent to the issuance of the Singapore injunction, proceedings in the US Bankruptcy Court continued. On 5 October 2017, Jonathan D. King, was appointed the Chapter 11 Trustee of the Zetta Entities in the US bankruptcy proceedings.⁸ On 4 December 2017, the Chapter 11 proceedings were converted to Chapter 7 proceedings as financing could not be obtained for the reorganisation plan under Chapter 11.⁹ On 5 December 2017, Jonathan D. King was appointed the Chapter 7 Trustee in the Chapter 7 proceedings.¹⁰

On 11 December 2017, the US Bankruptcy Court authorised the Chapter 7 Trustee to commence recognition proceedings in Singapore.¹¹ On 13 December 2017, the Chapter 7 Trustee brought this application.¹²

Chapter 11 proceedings in the US may be briefly described as a form of protected restructuring or reorganisation, accompanied by an automatic moratorium or stay upon application. Such moratorium or stay operates, at least from the perspective of the US, on a worldwide basis.

Chapter 7 proceedings in the US is essentially liquidation. These may be contrasted with Chapter 13 proceedings, in which there is some attempt at a repayment plan.

In either instance, Chapter 11 or Chapter 7 proceedings, an insolvency representative, termed the Trustee is appointed by the Bankruptcy Court.

The legal framework

The 2017 amendments to the Companies Act introduced s 354B, which in turn brings in, through the Tenth Schedule of the Companies Act, the UNCITRAL Model Law on Cross-Border Insolvency (30 May 1997) (“the Model Law”). Article 6 of the Model Law enacted in Singapore under the Tenth Schedule of the Companies Act (“the Singapore Model Law”) differs from Article 6 of the Model Law in that the former omits the word “manifestly”. The effect of this omission will be considered below.

Under Article 15 of the Singapore Model Law, a foreign insolvency representative may apply to the High Court in Singapore for recognition of the foreign insolvency proceeding in which the foreign representative has been appointed. Recognition essentially allows, among other things, the foreign representative to function as the insolvency representative in Singapore, with accompanying powers.

Under Article 17 of the Singapore Model Law, the Court must grant recognition if the various requirements are met. A foreign proceeding is recognised as a foreign main proceeding, if the foreign proceeding takes place where the debtor has its centre of main interests (“COMI”), or as a foreign non-main proceeding where the debtor has an establishment there, as defined under Article 2(d). Whether or not the foreign proceeding was properly commenced is not relevant to the granting of recognition.

However, under Article 6 of the Singapore Model Law, to which Article 17 is subject, a Singapore court may refuse recognition if such recognition would be “contrary” to the public policy of Singapore. Article 6 of the Model Law on the other hand requires recognition to be “manifestly contrary” to public policy for it to be refused.

In the present case, a number of issues were raised by both sides. It suffices for the present judgment to consider only two main areas: the determination of the COMI, and whether recognition would be contrary to public policy.

Determination of COMI

The determination of the COMI will establish whether recognition can be given to the Chapter 7 Trustee as a foreign representative in foreign main proceedings. Under Article 16 of the Singapore Model Law, the presumption is that the debtor’s COMI is its place of registration. Zetta Jet Singapore is a Singapore-incorporated company, while Zetta Jet USA is incorporated in the US. In these proceedings, the COMI of Zetta Jet Singapore, was in issue.

The Intervener argues that in the case of Zetta Jet Singapore, the COMI is in Singapore as the Managing Director, before he was purportedly removed, was based in Singapore; the employees were generally based out of the US; no offices were maintained in the US, and while it had a flight operation centre in the US, most operations were handled out of the other centre in Singapore. Flight scheduling and operations were conducted in Singapore, and Zetta Jet Singapore carried on business in Singapore and has creditors in Singapore.¹³ The Intervener also points to the source of revenue, which it says is largely from outside the US.

The Applicant argues that various factors point to the US being the COMI of Zetta Jet Singapore. The pointers that the Applicant relied on included that the operations were carried out in the US through a maintenance facility, and operational control was at its hanger base, including sales, business operations, scheduling, maintenance and stocking. Substantial assets were, it is claimed, in the US rather than in Singapore. Employees were also largely in the US. Most business was centred on the US. Account books and bank accounts were maintained in the US generally, though there were Singapore links as well.¹⁴

The Applicant treats the Zetta Entities as a single whole.¹⁵ I have my concerns about this approach. It is to my mind essential to observe the separate corporate personalities, and to treat each entity on its own, unless there is sufficient reason shown to deal with them as one. It may be that in this context we may not apply the full rigour of the common law on piercing the corporate veil, but some basis must be made out for the two entities to be treated as a single entity. The Applicant’s affidavit in support does contain assertions that the entities were treated as one in practice. Though examples are listed, that is not enough to trigger a disregard of the separate corporate identities. I am not comfortable with the piercing of the veil and the treatment of the entities as a single whole. This I think merits further argument, taking into account both Singapore and English cases on separate corporate identities.

I do not wish to hold up the resolution however of the main question of the public policy bar, discussed below, particularly as at least, I am satisfied on the evidence adduced by the Applicant that Zetta Jet Singapore had an establishment, as defined under Article 2(d) of the Singapore Model Law, in the US. This is a basis for limited recognition of the US proceedings as a foreign non-main proceeding. There is of course no issue with respect to Zetta Jet USA. In view of my order in this application, the question of the proper approach to COMI and the appropriateness of treating the two companies as one can be relooked at later.

Public policy

If the US is the COMI of the Zetta Entities or if the Zetta Entities have an establishment in the US, then recognition would have to be granted to the Chapter 7 Trustee under Article 17 of the Singapore Model Law, unless the Court concludes it should not do so...