The significance of the Brazilian recognition of Singapore’s proceedings over Prosafe SE
By Sean Lee (Singapore Global Restructuring Initiative)
The recent decision by the Brazilian court to recognise proceedings in Singapore for the restructuring of Prosafe SE and its Singaporean subsidiary Prosafe Rigs Pte Ltd (“Prosafe Rigs”) set the international insolvency community abuzz. (For an excellent write up on the Brazilian decision, please see Ana Carolina Monteiro’s post on the SGRI blog). As significant as the case may be for Brazil, given that this is the first instance of recognition by a Brazilian court after the adoption of the UNCITRAL Model Law on Cross-Border Insolvency, the case is also a significant one for Singapore.
Brief background to the Singapore proceedings
Prosafe SE specialises in the owning and operating of semi-submersible accommodation vessels. Headquartered in Norway, Prosafe SE has offices in UK, Mexico, Brazil and Singapore, with the latter two being significant for the purposes of the Singapore restructuring efforts. Excess supply of vessels in the market, along with insufficient demand, led to the group’s financial problems and challenges, and the group was ultimately required to reach a consensus with the main creditors in order to stay afloat. To obtain runway for debt restructuring, Prosafe SE and Prosafe Rigs applied for moratorium protection pursuant to Section 64 of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”).
The Singapore Court granted both Prosafe SE’s and Prosafe Rigs’ application for moratorium protection, restraining proceedings over the assets of the aforementioned entities for 5 months. In August 2021, the Singapore Court also granted leave for the entities to convene scheme meetings pursuant to Section 210 of the Companies Act.
Brazil’s first recognition of foreign proceedings after the adoption of the Model Law
To facilitate restructuring efforts, Prosafe SE applied for “temporary relief of urgency” to suspend enforcement proceedings by creditors relating to assets located in Brazil, especially key vessels owned by Prosafe SE (through its Singaporean subsidiaries). The group also applied for recognition of Singapore proceedings “as the main proceedings”, though also applied, as an alternative, for such proceedings to be considered as non-main “if the understanding is that [Prosafe SE] has only assets or establishments in [Singapore]”.
Ultimately, the Brazilian court granted “transnational insolvency treatment” of the Singapore proceedings, due to the fulfilment of formal requirements in Law No. 11.101/05, Article 167-J. The Brazilian court recognised that granting moratorium protection will enable the continuity of Prosafe SE’s business activities and the non-recognition (or delay of recognition) would cause damage to debtor and the restructuring efforts in Singapore. Granting the recognition of Singapore proceedings as “foreign main proceedings”, the Brazilian court argued that although Prosafe SE had its formal headquarters in Norway, weight should be placed on the fact that the vessels are owned by the Singaporean subsidiaries, especially Prosafe Rigs, which is the sole shareholder of Prosafe’s Brazilian subsidiary.
Significance
As mentioned, this case marks the Brazilian court’s first recognition under the Model Law. As Ana Carolina has mentioned in her post, recognition by Brazilian companies in foreign countries is already a common practice, though it remains to be seen whether reciprocal recognition will be given the same treatment. As the economies and companies around the globe continue to grapple with the financial impact of the COVID-19 pandemic, one might expect further instances of recognition of foreign insolvency proceedings both in Brazil and elsewhere.
Therefore, this case seems to reinforce the international robustness of Singapore’s new restructuring framework, and the attractiveness of Singapore’s insolvency and debt restructuring laws for foreign companies. As foreign courts continue to recognise Singaporean insolvency and restructuring proceedings, Singapore’s position as an international hub for debt restructuring will be strengthened not only because debtors will have access to an efficient and attractiveness restructuring framework, but also because debtors may be assured that their restructuring efforts in Singapore will be recognised overseas. On this front, it might be worthwhile to mention that Prosafe SE is in the midst of applying for recognition of Singapore proceeding in Scotland. Additional evidence of coordination to further Singaporean restructuring efforts can also be seen in the decision by the Central Jakarta District Court to recognise the moratorium granted by the Singapore High Court in June 2021 in relation to the restructuring of Indonesian conglomerate PT. Pan Brothers Tbk.
Finally, the Brazilian court’s decision to conclude that the Singapore proceedings should be recognised as a foreign main-proceeding based on “the place where it enters into most of its contracts and where it is recognized by its creditors” is noteworthy. As Professor Bob Wessel has pointed out, it is unclear which contracts and creditors the Brazilian courts are referring to. However, upon reading between the lines, the Brazilian court could have placed weight on the existence of restructuring efforts in Singapore in reaching its conclusion. The Brazilian judgment could perhaps indicate that the jurisdiction of existing insolvency proceedings ought to be a legitimate and significant factor in the centre of main interest test.
*The author expresses his thanks to Ana Carolina Monteiro, who is the lawyer representing the corporate debtor in Brazil, for providing the English translation of the Brazilian judgment.