By Kong Man Er, Gerald Tay, Sim Bing Wen (Drew & Napier LLC)
Introduction
The Court of Appeal has dismissed the appeals brought by liquidators seeking to sue BSI Bank Ltd (“BSI”) and Standard Chartered Bank (Singapore) Ltd (“Standard Chartered”) (collectively, the “Banks”) over transactions allegedly linked to the 1Malaysia Development Bhd ("1MDB") fraud. The Court of Appeal upheld the High Court’s earlier decision, finding that Article 23(9) of the UNCITRAL Model Law on Cross-Border Insolvency as enacted in Singapore ("SG Model Law") under the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) is an absolute bar preventing foreign representatives from bringing avoidance claims in respect of transactions that predate the enactment of the SG Model Law. The Court also noted that particular unfairness would result if it were to allow the avoidance claims under the IRDA, which came into force in 2020, more than six years after the last relevant transaction.
The Banks were successfully defended by teams led by Chief Executive Officer Cavinder Bull SC for BSI and Director Chia Voon Jiet for Standard Chartered.
Background
The Appellants are Blackstone Asia Real Estate Partners Ltd (in liquidation) (“Blackstone”) and Brazen Sky Ltd (in liquidation) (“Brazen Sky”) (collectively, the “Companies”), and their British Virgin Islands liquidators (the “Liquidators”). The Companies were allegedly used as shell vehicles to launder moneys misappropriated from 1MDB and SRC International Sdn Bhd. The Companies’ bank accounts with Standard Chartered and BSI were allegedly used to move the proceeds of fraud between December 2010 and November 2014.
The Liquidators, who had earlier been recognised as foreign representatives under the SG Model Law, had applied to the High Court for orders granting them standing to bring claims for fraudulent and wrongful trading under sections 238-239 of the IRDA and the equivalent provisions previously in force under the Companies Act (Cap 50, 2006 Rev Ed) against the Banks. The Liquidators relied on Article 21(1)(g) of the SG Model Law, which empowers the Court to grant any relief available to a Singapore insolvency officeholder, as the basis for the orders sought.
The Banks and certain former employees of BSI (the “Bankers”) resisted the applications, relying primarily on Article 23(9) of the SG Model Law. While Article 23(1) provides that a recognised foreign representative has standing to bring claims under certain statutory provisions (“Avoidance and Misconduct Provisions”), including sections 238-239 of the IRDA, this is subject to Article 23(9), which provides that nothing in Article 23(1) applies in respect of any transaction entered into before the date on which the SG Model Law came into force, ie 23 May 2017. Since the relevant transactions took place between 2010 and 2014, Article 23(9) barred the Liquidators’ applications for standing.
The High Court agreed with the Banks and the Bankers and dismissed the applications.
The Appellants appealed, arguing among other things that because Article 23(9) only refers to Article 23(1), its effect must be confined to removing the automatic standing granted to a foreign representative under Article 23(1), and it should not be held to circumscribe the Court’s broad discretion under Article 21(1)(g).
Court of Appeal’s Decision
The Court of Appeal dismissed the appeals and upheld the High Court's decision. The Court of Appeal held that Article 23(9) is an absolute prohibition against granting a foreign representative standing to bring claims under the Avoidance and Misconduct Provisions for transactions predating the SG Model Law. Given that the transactions involving the accounts of the Appellants on which the Liquidators based their intended claims were entered into before the commencement of the SG Model Law, Article 23(9) operated to prevent them from bringing such claims.
In coming to this decision, the Court held that the text, context and purpose of Article 23(9) of the Model Law all militated against the interpretation put forward by the Appellants.
Text and context of Article 23(9) of the SG Model Law
The Court of Appeal held that the Appellants’ interpretation was contradicted by the text and context of Article 23(9). It offended two rules of statutory interpretation: (1) Parliament does not legislate in vain—every word is presumed to have meaning; and (2) a specific provision overrides a general enactment covering the same situation.
As regards the first rule, the Court found that Article 23 creates a self-contained regime specifically regulating foreign representatives' access to avoidance and misconduct provisions. To allow Article 21(1) to serve as an alternative gateway would render Article 23 practically otiose.
As regards the second rule, the Court found that Article 23 was enacted to address the specific issue of a foreign representative’s standing to invoke the Avoidance and Misconduct Provisions. The Appellants were therefore mistaken to rely on the general terms of Article 21(1) to sidestep Article 23.
In addition, the Court observed that Article 23(9) had been deliberately inserted into the SG Model Law by our Parliament. This further militated against the Appellants’ interpretation.
Purpose of Article 23(9) of the SG Model Law
The Court of Appeal noted the Appellants’ submission that a specific statutory provision should be construed with regard to the general purpose of the written law, and that in the present case, the general purpose of the SG Model Law was to promote more effective and efficient cross-border liquidation proceedings.
However, the Court held that it would be wholly circular to read down Article 23(9) on the basis that it goes against the grain of Article 23 and the SG Model Law, when Article 23(9) exists precisely for that limiting purpose.
The Court identified that the purpose of Article 23(9) is to prevent the unfairness resulting from retrospective application of legislation. It would be unfair to expose parties to claims under a legal regime that did not exist at the time of their transactions. The Liquidators’ intended claims under sections 238-239 of the IRDA were unfair in two respects.
First, at the time of the impugned transactions, foreign companies like Blackstone and Brazen Sky either did not have access to these provisions at all, or only had access if they were wound up in Singapore. Article 23(1) of the SG Model Law later dispensed with these restrictions, but it would be unfair for parties transacting with foreign companies to be made liable based on a legal regime that did not exist at the time of their transactions.
Secondly, as regards the intended claim for wrongful trading, section 239 of the IRDA is substantively different from its predecessor provision in the old Companies Act, under which civil liability for wrongful trading could only be imposed against an officer of the company and if there was a prior criminal conviction for wrongful trading. Allowing the Liquidators to invoke section 239 of the IRDA through the SG Model Law would expose the Banks and Bankers to a liability that did not exist at the time of the transactions.
Commentary
This decision provides important and authoritative guidance from the Court of Appeal on the scope and limits of the SG Model Law in the context of cross-border insolvency. It is the first appellate decision to consider the proper interpretation of Article 23(9) — an issue that, as the Court acknowledged, had not previously been the subject of contested judicial consideration.
The Court clarified two key principles. First, Article 23 is the sole gateway through which a foreign representative may access the Avoidance and Misconduct Provisions under the SG Model Law; Article 21(1) does not serve as an alternative route. The concepts of "relief" under Article 21 and "standing" under Article 23 are distinct, and treating them as interchangeable involves a category error. Secondly, Article 23(9) is an absolute prohibition against the grant of standing to a foreign representative to bring claims under the Avoidance and Misconduct Provisions in respect of transactions entered into before the coming into force of the SG Model Law.
The key takeaway is that the SG Model Law cannot be used to retrospectively expose parties to avoidance or misconduct claims based on transactions that predate its commencement. For parties who transacted with foreign companies before the SG Model Law came into force, Art 23(9) provides a complete defence to any attempt by a foreign representative to invoke the Avoidance and Misconduct Provisions.
For liquidators of foreign companies, the decision underscores that there are firm temporal limits on the standing conferred by the SG Model Law. Where the transactions underlying intended claims predate the SG Model Law, foreign representatives will need to explore other avenues, such as initiating insolvency proceedings in Singapore or pursuing common law claims.
*This article was originally published by Drew & Napier LLC.