Outer House judge refuses petition for recognition of Singaporean moratoria on insolvent offshore companies
A petition for recognition of foreign legal proceedings under the Cross-Border Insolvency Regulations 2006 by the Director of Finance for a group of insolvent companies has been refused by a judge in the Outer House of the Court of Session.
Chang Chin Fen sought recognition of two orders from the Singapore High Court in relation to Prosafe Rigs Pte Ltd (PRPL) and Prosafe SE, both part of the Prosafe group of companies. The petition was opposed by Cosco Shipping (Qidong) Offshore Ltd, a creditor of both companies, which argued that the liabilities of both companies stood outside of the collective insolvency process.
The petition was heard by Lord Ericht. The petitioner was represented by Delibegovic-Broome QC and the respondent by Keen QC.
Governed by English law
Both PRPL and Prosafe SE owned and operated semi-submersible rigs used as adjuncts to offshore oil and gas installations. PRPL had entered into a contract in 2013 to construct an accommodation rig for Cosco, which under the terms of a promissory note dated 15 August 2016 was governed by the law of England and Wales.
Since 2019, the Prosafe group had been in financial difficulty, and there were not sufficient funds to pay securities it owed in respect of a number of secured debts ranked higher than the monies owed to Cosco. The group sought to effect a restructure in the Singapore courts, which would turn the seller’s credit owed to Cosco into equity. Order with the effect of moratoria were made in respect of both Prosafe and PRPL by the Singapore High Court on 27 May 2021.
Cosco did not submit to the jurisdiction of the Singapore court in respect of the restructure. Its position was that, because the debts Prosafe owed to it were governed by English law, any purported debt for equity swap would be ineffective to extinguish the debt. The petitioner was concerned that Cosco could seek to enforce the Prosafe debts against two oils rigs it owned in the North Sea near Scottish territorial waters.
The petitioner expressed concern that creditor action may be taken in Scotland against these rigs and sought to have the terms of the moratoria recognised in Scotland to prevent this. It was submitted that such potential action could prejudice the overall success of the restructuring plan. As there was no public policy reason not to do so, the court was obliged to recognise the Singapore orders.
Counsel for the defender submitted that it was not appropriate for Cosco to be prevented by any order of the Singapore courts from pursuing its ordinary remedies. Its interests would not be protected by the orders sought, and in any event, a foreign insolvency process was not capable of modifying or extinguishing liabilities under a contract governed by English law.
Will not be bound
In his decision, Lord Ericht began by noting: “The difficulties in these petitions lie not so much with recognition under the Model law but with the remedies that are sought.”
He explained further: “A debt under a contract whose proper law is the law of another jurisdiction may, for the purposes of Scots law, be discharged by insolvency proceedings in that other jurisdiction, but such proceedings will not, for the purposes of Scots law, discharge a debt where the proper law of the contract is not the law of the jurisdiction in which the proceedings are taking place.”
Addressing whether the moratoria were connected to the proposed restructuring scheme, Lord Ericht said: “I accept that Singapore law deals with a moratorium and a scheme as two separate procedures: they proceed under two separate statutes and under two separate court processes with separate court orders. However it would be too formalistic to take from this that the Schemes are not relevant to this court’s consideration of the Moratoria in the context of the Model Law.”
He continued: “The applications to the Singapore court for Moratoria in respect of Prosafe and PRPL were closely linked to, and dependent upon, the proposed Schemes. In her affidavit the Petitioner states that the Moratorium is an integral part of the overall restructuring. The Petitioner states that it will be necessary to bind dissenting creditors such as Cosco via the use of a Singapore scheme of arrangement. She makes it clear that the reason for the Scheme was to bind Cosco to the Scheme as Cosco would not agree to the Scheme.”
Turning to how this affected the present petition, he said: “The purpose of the Schemes is to bind dissenting creditors. That is not in itself objectionable. It is a common feature of insolvency and other company law procedures in this and other countries that a majority can, under the supervision of the court, impose the will of the majority upon a dissenting minority.”
However, he went on to say: “As a matter of English law, Cosco will not be bound by the Schemes and the Schemes will not extinguish the liabilities of PRPL and Prosafe under the Seller’s Credit and Guarantee. These liabilities do not, as far as English law is concerned, form part of the restructuring. Pursuing them will not, as far as English law is concerned, disrupt the implementation of the restructuring as they do not form part of that restructuring. Cosco is entitled to enforce its rights under English law, and is entitled to do so before or after the implementation of the Scheme.”
For these reasons, the petition was refused.
© Scottish Legal News Ltd 2021