Navigating cross-border bankruptcy: Gilbert + Tobin has assisted in the recognition of foreign bankruptcy proceedings in Australia, acting for the trustees in bankruptcy in a successful application to recognise Singaporean bankruptcy proceedings.

In the recent decision of Duncan (Trustee) v Shrestha, in the matter of Shrestha [2022] FCA 1601, Gilbert + Tobin acted for Cameron Lindsay Duncan and David Dong-Won Kim from KordaMentha Singapore (the Trustees) in an application to recognise foreign bankruptcy proceedings in Australia. The proceeding was initiated by the Trustees in their capacity as trustees of the bankrupt estate of Mr Shrestha (the Bankrupt). The Bankrupt had been a director of several Singaporean companies including Bishwo Holdings and Airways Pte Ltd (Bishwo) and Tulsi Investment Holdings Pte Ltd, as well as ASDB Holdings Pty Ltd, an Australian company.

The Bankrupt was declared bankrupt in Singapore on application by BCG International Sdn Bhd, creditors of Bishwo. The Trustees were appointed as the Bankrupt’s trustees in bankruptcy by the High Court of the Republic of Singapore on 12 May 2022. Notwithstanding the appointment, the Bankrupt failed to file a statement of affairs as required by Singapore’s insolvency laws, limiting the ability of the Trustees to investigate and realise the Bankrupt’s assets.

As trustees of an uncooperative bankrupt’s estate, the Trustees applied to the Federal Court of Australia seeking orders recognising the Singaporean bankruptcy proceedings to assist with their investigation of any assets that the Bankrupt may have had, and not disclosed, in Australia.

Key takeaways

1. The Trustees sought recognition of Singaporean bankruptcy proceedings in Australia as a "foreign non-main proceeding" under the Cross Border Insolvency Act 2008 (Cth) (CBI Act) and the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (Model Law).

2. The Court found that the Trustees had satisfied the procedural requirements and the criteria for recognition of a "foreign non-main proceeding" pursuant to the Model Law.

3. The Court made orders sought by the Trustees, including a stay on the commencement of actions concerning the Bankrupt’s assets, rights, obligations or liabilities.

The Model Law

Section 6 of the CBI Act gives the Model Law the force of law in Australia. The Trustees applied for recognition of the foreign proceeding pursuant to Article 15 of the Model Law, which provides certification requirements for a foreign representative to apply to the court for recognition of a foreign bankruptcy proceeding.

Section 13 of the CBI Act sets out additional requirements, including providing that an application must be accompanied by a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative.

“Foreign main proceeding” or “foreign non-main proceeding”?

Article 17 outlines that a foreign proceeding may be categorised as either a “foreign main proceeding” if it takes places in the State where the debtor has its centre of main interest, or a “foreign non-main proceeding”, if the debtor has an “establishment” in that foreign State. The Trustees sought to establish that the Singaporean bankruptcy proceeding was a “foreign non-main proceeding”, rather than a “foreign main proceeding”.

The significance of the distinction between the two types of proceedings is the relief available following recognition. Recognition as a “foreign main proceeding” triggers an automatic stay of individual creditor actions or executions concerning the assets of the debt, and “freezes” the debtors assets (subject to certain exceptions). On other hand, recognition as a “foreign non-main proceeding” does not trigger any automatic relief, and instead enables discretionary relief to be sought under Article 19 and 21 of the Model Law.

Recognition as a foreign proceeding

The Court considered that the procedural requirements were satisfied as the application had been brought by the appointed trustees and had appropriately been accompanied by a certified copy of the Bankruptcy Order issued by the High Court of the Republic of Singapore. The Court also accepted the affidavit material filed by one of the Trustees which confirmed that there were no other insolvency proceedings on foot in relation to the Bankrupt.

The Trustees also had to satisfy the Court that the substantive criteria for recognition of a foreign proceeding, as set out in Article 17 of the Model law, had been met. In particular, the Trustees were required to demonstrate that:

1. the Singaporean bankruptcy proceeding was a “foreign proceeding”, defined as “a collective judicial or administrative proceeding in a foreign State... pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation”, under Article 2(a) of the Model Law;

2. the Trustees were a “foreign representative”, defined as “a person or body… authorised in a foreign proceeding to administer the reorganisation or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding”, under Article 2(3) of the Model Law; and

3. the application was made to a court of competent jurisdiction, as under Article 4 of the Model Law.

The Court was ultimately satisfied of the substantive requirements as there was no question that the Singaporean proceeding was a “foreign proceeding” or that the Trustees possessed the power to administer the Bankrupt’s estate, as they had been appointed by High Court of the Republic of Singapore. The Court was satisfied of these matters based on the expert evidence of an advocate and solicitor of the Supreme Court of Singapore, who gave evidence in relation to personal insolvencies under the Insolvency, Restructuring and Dissolution Act 2018 (Singapore).

Non-main proceedings

In this proceeding, the Trustees submitted evidence to establish that the Bankrupt has its centre of main interest in Australia and had an “establishment” in Singapore. As such, the Trustees sought to categorise the foreign proceeding as a “foreign non-main proceeding”.

The Court considered the presumption in Article 16(3) of the Model Law, and decisions of the High Court, that a debtor’s ‘habitual residence’ is presumed to be their centre of main interest in the absence of proof to the contrary. In considering submitted evidence that

• the Bankrupt owned property in Melbourne;
• had bank accounts in Australia (and not Singapore);
• owned property in Melbourne; and
• resided primarily in Melbourne,

the Court concluded that the Bankrupt’s centre of main interest was in Melbourne.

The Court also considered that the Bankrupt has an “establishment” in Singapore, defined as “a place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services”, on the basis of filed affidavit evidence to the effect that:

• the Bankrupt was a director of several Singaporean companies;
• Bishwo rented premises in Singapore; and
• the Bankrupt’s most substantial creditor’s (BCG) debt is governed by Singaporean law.

The Court accepted the submissions made on behalf of the Trustees, concluding that the foreign proceeding should be recognised as a “foreign non-main proceeding” under Article 17(2)(b) of the Model Law.

Relief sought

In the absence of a statement of affairs, the Trustees had been limited in their ability to investigate and realise assets of the Bankrupt. As such, the Trustees sought consequential relief under Article 21 of the Model Law, which enables the Court to grant “any appropriate relief” where necessary to protect the assets of the debtor or the interests of the creditors. The Trustees submitted that the following orders would assist them in carrying out their inquiries free from distraction and unnecessary expense:

1. staying the commencement or continuation of individual actions or individual proceedings concerning the Bankrupt’s assets, rights, obligations or liabilities;

2. staying execution against the Bankrupt’s assets;

3. suspending the right to transfer, encumber or otherwise dispose of any assets of the Bankrupt;

4. entrusting the administration or realization of all or part of the Bankrupt’s assets located in this State to the Trustees; and

5. granting any additional relief that may be available.

The Trustees referenced the decision in Wong (Trustee), in the matter of Mackellar (Bankrupt) v Mackellar (Wong) [2020] FCA 1151, submitting that the relief sought should be granted as it is “desirable in the interests of ensuring that the [Trustees] have sufficient ability to carry out their functions so that the creditors’ interests can be advanced”. The Court considered, as set out in Wong, that the orders sought protected the interests of the creditors, interested persons and the Bankrupt, and therefore should be granted.

Costs

The Trustees were also successful in seeking to have their costs and incidental costs of the proceedings be considered to be costs in the bankruptcy of the Bankrupt.