A Singularis Approach to Cross-Border Insolvencies

[Originally published in Skrine Legal Insights Issue 1/2015]

The Privy Council in Singularis Holdings Ltd v Pricewaterhouse Coopers [2014] UKPC 36 (“Singularis”) has clarified the extent to which courts can render common law assistance for cross-border insolvencies.

In summary, there is a limited common law power to assist a liquidator appointed by a foreign court by ordering the production of information. Such information must be necessary for the administration of the foreign winding up and this power is only exercisable if the foreign court could have made such an equivalent order.

BACKGROUND: MODIFIED UNIVERSALISM

In a cross-border insolvency, courts may be faced with difficult questions. Should a domestic court apply its domestic laws as if the case had no international aspects or should a domestic court defer to the foreign laws of the main jurisdiction of incorporation of the wound up company?

In other words, should a ‘territorialist’ approach be applied where the domestic court only applies its domestic laws? Alternatively, should a ‘universalist’ approach prevail in allowing a single set of the foreign laws of the main winding up jurisdiction to govern all of the global winding up proceedings?

A middle ground between these two concepts is that of ‘modified universalism.’ The courts of all countries should cooperate, as far as possible, with the laws of the main jurisdiction, except where the domestic jurisdiction has a compelling reason to apply its domestic laws.

It is against this backdrop of the increasing recognition of modified universalism that the facts of Singularis are set out below.

BRIEF FACTS OF SINGULARIS

Singularis Holdings Limited (“Singularis”) had been wound up in its place of incorporation, the Cayman Islands. The liquidators of Singularis (“Liquidators”) obtained court orders in the Cayman Islands against the company’s former auditors, PricewaterhouseCoopers (“PwC”) in Bermuda, to deliver up to the Liquidators certain documents. This was in order to facilitate the Liquidators’ investigations to trace certain assets. However, the law of the Cayman Islands only provided for documents “belonging to” a company to be delivered up to a liquidator. There was no dispute that this would not include material belonging to PwC itself, principally their audit working papers.

Subsequently, in Bermuda, while there was no ancillary liquidation of Singularis, the Liquidators obtained an order from the Bermudan court recognising their status as liquidators. Where a company is wound up in Bermuda, Bermudan law had a wider provision where documents “relating to” a company are to be delivered up to the liquidator of the wound up company. Relying on this Bermudan provision, the Liquidators applied for a Bermudan court order for PwC to deliver up its audit working papers.

At first instance, the Bermudan court allowed the Liquidators’ application and relied on the principle of modified universalism. The Bermudan court exercised a common law power to order PwC to produce the same documents which they could have been ordered to produce under the relevant Bermudan provision.

PwC appealed the decision and on appeal, the Bermudan Court of Appeal set aside the first instance decision. The Liquidators appealed to the Privy Council.

PRIVY COUNCIL DECISION

The Privy Council, by a three to two majority decision,  dismissed the appeal on grounds that the Liquidators would not have had the power to require PwC to produce the documentation under the laws of the Liquidators’ main winding up jurisdiction i.e. Cayman Islands law. While the Privy Council was deciding on Bermuda law, the common law of Bermuda is the same as that of England.

The Privy Council had to consider two issues:

(1)    Whether a common law power existed to assist foreign liquidators by ordering parties to provide information in circumstances where the equivalent statutory power did not apply to foreign liquidators; and

(2)    Whether, if such a power existed, it should be exercised where an equivalent order could not have been made by the court in the main winding up proceedings.

Firstly, the Privy Council upheld the general principle of modified universalism as set out in the Privy Council case of Cambridge Gas Transport Corp v Navigator Holdings plc Creditors’ Committee [2006] UKPC 26 (“Cambridge Gas”). At common law, the Court has power to recognise and grant assistance to foreign insolvency proceedings. However, the Privy Council overruled some of the other wider principles set out in Cambridge Gas and held that a domestic court does not have the common law power to assist the foreign court by doing whatever it could have done in a domestic insolvency.

In dealing with the issues in the appeal, the majority decision held that there is a common law power to assist a foreign insolvency court by ordering the production of information, whether oral or documentary, which is necessary for the administration of a foreign winding up.

However, this common law power is subject to the following five limitations:

(i)    It is only available to assist the officers of a foreign insolvency court. It would not be available, for example, to assist a voluntary winding up, which is essentially a private arrangement and is not conducted by or on behalf of an officer of the court.

(ii)    It is a power of assistance and exists to enable courts to surmount the problems posed for a world-wide winding up of the company’s affairs. It is therefore not available to enable foreign liquidators to do something which they could not do under the law by which they were appointed.

(iii)    It is available only when it is necessary for the performance of the office-holder’s functions.

(iv)    Such an order must be consistent with the substantive law and public policy of the assisting domestic court, in this case that of Bermuda. Following from this, it is not available to exercise such a common law power to obtain material for use in actual or anticipated litigation. Further, in some jurisdictions, it may be contrary to domestic public policy to make an order which there would be no power to make in a domestic insolvency.

(v)    The exercise of this power is conditional on the applicant being prepared to pay the third party’s reasonable costs of compliance.

Therefore, the Bermuda court had both the right and the duty to assist the Cayman court in so far as it properly could within the limits of its own inherent powers. This was to enable the officers of the Cayman court to do in Bermuda that which they could do in the Cayman Islands.

However, the Bermuda court could not exercise a common law power which was not exercisable by the Cayman court and could not apply the legislation applicable to its domestic winding up by analogy ‘as if’ the Cayman winding up was a domestic (i.e. Bermudan) winding up. It was not a proper use of the Bermuda court’s common law power of assistance for it to purport to use a power analogous to the Bermudan statutory provision to compel disclosure and production of information which belonged to PwC rather than the company.

LOCAL APPLICATION

In Malaysia, the Privy Council decision would not be binding but would be persuasive. Where a foreign company is wound up by the court of its main jurisdiction, and there is no ancillary winding up in Malaysia, the foreign liquidator would likely be able to obtain a Malaysian order recognising its status as a liquidator and possibly obtain an order for the production of information which is necessary for the administration of the foreign winding up.

Similarly, a local court-appointed liquidator of a Malaysian company with worldwide links may also apply for such orders for production of information in other common law jurisdictions.

It appears that this broad principle of allowing a production of information, both oral and documentary, would allow a foreign liquidator to also apply for orders allowing for private or public examination of persons in connection with the affairs of the company in winding up (assuming that there are such equivalent provisions in the foreign liquidator’s main jurisdiction).

Decades ago, the Singapore High Court in Re China Underwriters Life and General Insurance Co Ltd [1988] 1 MLJ 409 held that the court had no inherent jurisdiction or power to order the private or public examination of persons and dismissed the Hong Kong liquidator’s application. It was recognised in that case that such a power of examination was an extraordinary one which invoked images of the Inquisition and of the Court of Star Chamber. This decision was upheld by the Singapore Court of Appeal in Official Receiver of Hongkong v Kao Wei Tseng & Ors [1990] 2 MLJ 321. At that time, it was held that it was only a statutory power available in a domestic winding up.

As a result of Singularis, we may now have a broadening of the courts’ power in Malaysia to assist foreign court-appointed liquidators.

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