Cross-Border Restructuring and Insolvency Between Singapore and Malaysia
By Lee Shih (Lim Chee Wee Partnership) and Ashok Kumar (BlackOak LLC)
I. Introduction
The close economic ties between Singapore and Malaysia have led to an increasing number of cross-border corporate restructurings and insolvency proceedings. This article explores the challenges and developments in handling these cross-border issues, focusing on schemes of arrangement, winding up, and recent protocols for court-to-court cooperation.
Singapore and Malaysia have divergent legal frameworks for cross-border insolvency matters. Singapore has adopted the UNCITRAL Model Law on Cross-Border Insolvency (the “Model Law”), providing greater legal certainty in cross-border insolvency matters across multiple jurisdictions. In contrast, Malaysia relies on common law recognition principles, as it has not incorporated the Model Law into its domestic legislation. This divergence creates potential uncertainties when seeking recognition for Singapore-sanctioned moratoriums, schemes, and insolvency office-holders in Malaysia.
II. The Protocols between Singapore and Malaysia
A significant development in this area is the implementation of Protocols for Court-to-Court Cooperation in Cross-Border Insolvency and Shipping (each a “Protocol”, and together the “Protocols”) in July 2021. These protocols, established between the Supreme Court of Singapore and the Federal Court of Malaysia, aim to facilitate communication and cooperation in admiralty, shipping, and cross-border corporate insolvency matters. They allow courts to initiate requests for communication with their foreign counterparts, potentially streamlining complex cross-border proceedings. The protocols cover various types of cross-border proceedings, including winding up, judicial management, schemes of arrangement for debt restructuring, and receivership in the context of corporate insolvency.
III. The Malaysian cross-border insolvency framework
Malaysia's cross-border insolvency framework primarily relies on common law recognition principles. The current Malaysia’s Companies Act 2016[1] (“CA 2016”) contains some limited cross-border insolvency provisions applicable to foreign liquidators of registered foreign companies.
IV. Malaysia's scheme of arrangement framework
Malaysia's scheme of arrangement framework is contained in sections 365-369 of the CA 2016. While there are similarities with Singapore's framework, notable differences exist. For instance, Malaysia requires an arrangement or compromise to be proposed for the court to restrain further proceedings, whereas Singapore's Insolvency, Restructuring and Dissolution Act 2018[2] (the “IRDA”) only requires the intention to make a proposal. Additionally, Malaysia lacks provisions for "pre-packed schemes" similar to those found in Singapore's IRDA. However, Malaysia is considering amendments to align more closely with Singapore's IRDA[3], which could facilitate smoother cross-border proceedings in the future.
A. Singapore company applying for a scheme of arrangement in Malaysia
For Singapore companies applying for schemes of arrangement in Malaysia, establishing a sufficient nexus is crucial. Recent cases, such as Nam Cheong Ltd and Sapura Energy Bhd,[4] indicate that Malaysian courts are willing to consider schemes for foreign companies with sufficient connections to Malaysia. Factors considered include the location of management, creditors, and business operations. In the Nam Cheong Ltd case, a Bermuda-incorporated, Singapore-listed company successfully initiated scheme of arrangement proceedings in Malaysia, with the Malaysian High Court granting sanction in December 2023. Similarly, in the Sapura Energy Bhd case, the Malaysian High Court granted an ex parte restraining order in favour of 23 entities, including two Bermuda-incorporated subsidiaries.
B. Recognition of Singapore moratorium in Malaysia
The recognition of Singapore moratoriums in Malaysia remains an area of uncertainty. It is possible that Malaysian courts could adopt an approach similar to the Singapore High Court's decision in Re Taisoo Suk[5] granting moratoriums in support of Singapore orders. In this case, the Singapore High Court granted interim orders to restrain proceedings against Hanjin Shipping Co Ltd and its Singapore subsidiaries, invoking the court's inherent jurisdiction to assist foreign rehabilitation proceedings. Courts may also apply principles from Arris Solutions, Inc v Asian Broadcasting Network (M) Sdn Bhd[6] to stay execution pending scheme outcomes.
C. Recognition of Singapore scheme sanction in Malaysia
The recognition of Singapore scheme sanctions in Malaysia is another area lacking clear precedent. While the Bermuda case of Re Contel Corporation Ltd[7] recognised a Singapore scheme, it relied on principles from Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings Plc,[8] which may be doubtful after Rubin v Eurofinance SA.[9] The application of the Gibbs Rule, which prevents discharge of English law-governed debts by foreign proceedings, remains uncertain in Malaysia. However, AirAsia X Bhd v BOC Aviation Ltd[10] suggests Malaysian courts may be moving away from strict application of this rule. In this case, the Malaysian High Court recognised that the Gibbs Rule has been rejected in Singapore, Australia, and the US, and shared the view that it should not restrict Malaysian courts from entertaining and approving schemes involving the discharge or modification of contractual rights governed by foreign laws.
D. Coordination of schemes in Singapore and Malaysia
There have been instances of concurrent schemes of arrangement for companies within the same group, such as Nam Cheong Ltd and Design Studio Group Ltd. The new Insolvency Protocol could assist in coordinating these cross-border proceedings and managing inter-conditional schemes more effectively. This is particularly relevant given the potential amendments to Malaysia's scheme of arrangement framework, which could increase similarities with Singapore law and further facilitate coordination between the two jurisdictions.
V. Winding up
A. Recognition of foreign liquidators of registered foreign companies
For registered foreign companies, the CA 2016 provides for recognition of foreign liquidators appointed in the place of incorporation or origin. These liquidators should apply to Malaysian courts for formal recognition and be aware of ring-fencing provisions requiring satisfaction of Malaysian liabilities before remitting funds overseas.
B. Recognition of foreign liquidators of unregistered foreign companies
For unregistered foreign companies, common law principles generally recognise liquidators appointed in the place of incorporation.[11] This recognition may extend to liquidators appointed in the company's centre of main interest (COMI). Malaysian courts are likely to follow Singapore's approach in Re Opto-Medix Ltd,[12] recognising liquidators appointed in jurisdictions with strong connecting factors to the company. In this case, the Singapore High Court recognised Japanese winding-up proceedings and the appointment of a Japanese bankruptcy trustee for British Virgin Islands-incorporated companies that conducted the bulk of their business in Japan.
VI. Implications/Conclusion
Despite the introduction of the Insolvency Protocol, the legal position for gaining recognition of Singapore proceedings in Malaysia remains somewhat unclear. Practitioners should consider parallel schemes or concurrent proceedings as potential solutions. Another option is the use of synthetic proceedings,[13] where domestic courts apply foreign law to create effects similar to secondary foreign proceedings. This approach, recognized as beneficial by UNCITRAL Working Group V (Insolvency Law), could mitigate conflicts while protecting foreign creditors and enhancing efficiency. Synthetic proceedings offer the potential for increased efficiency and reduced costs by eliminating the need for secondary proceedings. However, it remains an open question whether Singapore courts will exercise their power to conduct synthetic proceedings.
In conclusion, while challenges persist in cross-border restructuring and insolvency matters between Singapore and Malaysia, recent developments indicate a trend towards greater cooperation and recognition. The implementation of court-to-court cooperation protocols and potential legislative amendments in Malaysia suggest that the landscape for cross-border insolvency proceedings between these two jurisdictions may become more streamlined and predictable in the future.
Practitioners must carefully navigate the existing legal frameworks while remaining adaptable to potential changes. This includes staying informed about legal developments in both jurisdictions, considering the use of parallel or synthetic proceedings when appropriate, and leveraging the new Insolvency Protocol to facilitate communication and coordination between courts. As the legal landscape continues to evolve, it is crucial for insolvency practitioners to maintain a thorough understanding of the nuances in both Singapore and Malaysian law to effectively manage cross-border insolvency matters and protect the interests of their clients.
*This is a summary of the article originally published in the SAL Practitioner on 26 February 2024 on Journals Online. The original publication can be found here. © 2024 Contributor(s) and Singapore Academy of Law; no part of the article may be reproduced without permission from the copyright holders.
[1] Malaysia’s Companies Act 2016 (No 777 of 2016) (M’sia).
[2] Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed.).
[3] Effective 1 April 2024, the amendments to Malaysia’s scheme of arrangement provisions have come into force. Malaysia’s scheme of arrangement provisions are now closely aligned with Singapore’s with the introduction of, among others, super priority rescue financing, cross-class cramdown, and pre-packed schemes.
[4] Kuala Lumpur High Court Originating Summons No WA-24 NCC-148-03/2022
[5] [2016] 5 SLR 787 at [32].
[6] [2017] 4 SLR 1.
[7] [2011] SC (Bda) 14 Com.
[8] [2007] 1 AC 508.
[9] [2013] 1 AC 236.
[10] [2021] 10 MLJ 942.
[11] See Beluga Chartering GmbH v Beluga Projects (Singapore) Pte Ltd where the case cited, among others, r 179 of Dicey, Morris and Collins on The Conflict of Laws vol 2 (Sweet & Maxwell, 15th Ed, 2012) at para 30-102.
[12] [2016] 4 SLR 312.
[13] See Sim Kwan Kiat, “Jurisdictional Basis of Synthetic Proceedings in Cross-border Insolvency” [2019] SAL Prac 10.