Chapter 15 Case Demonstrates Its Effectiveness as an Expedient Judicial Solution for Singaporean Insolvencies in the United States[1]
The Bottom Line
Chapter 15 of the Bankruptcy Code (which is based upon the UNCITRAL Model Law on Cross-Border Insolvency) is designed to facilitate cross-border cooperation and coordination among courts during a pending bankruptcy or insolvency proceeding outside of the United States. Under Chapter 15, a foreign representative may file a petition for recognition of the foreign proceeding, thereby commencing an ancillary insolvency proceeding in the U.S. and enabling the foreign representative, foreign and domestic creditors, and other parties in interest to avail themselves of various forms of relief under Chapter 15, including regarding any property of the foreign debtor located in the United States.
A recent decision by Judge Kaplan of the Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”) demonstrates that Chapter 15 remains an effective – and expedient – judicial vehicle for a foreign representative in a Singaporean insolvency seeking relief in the United States. In Re: Wayne Burt Pte. Ltd. (In Liquidation), No. 24-19956 (MBK) (Bankr. D.N.J. Dec. 6, 2024). The decision involves the same parties and relates to the same dispute as a separate litigation where the Third Circuit had upheld enforcement of the orders of Singaporean insolvency on common law principles of comity rather than the framework established by Chapter 15.
Background
On Nov. 16, 2018, the High Court of the Republic of Singapore (the “Foreign Court”) entered an order winding up Wayne Burt Pte. Ltd. (the “Foreign Debtor”), a Singapore corporation, and appointing an individual (the “Foreign Representative”) as the sole liquidator (the “Foreign Liquidation Proceeding”). The Foreign Liquidation Proceeding remains ongoing under the direction of the Foreign Representative and subject to supervision by the Singapore High Court.
The dispute concerns efforts by Vertiv, Inc., and its affiliates, all Delaware corporations (“Vertiv”), to collect three loans from 2015, totaling $16 million (collectively, the “Loans”). As security for the Loans, the Foreign Debtor executed a stock pledge agreement in favor of Vertiv, pledging approximately 30 million shares of stock (the “Cetex Shares”) in Cetex Petrochemicals Ltd., an India corporation and subsidiary of the Foreign Debtor. The physical certificates for the Cetex Shares were subsequently delivered to Vertiv. Vertiv alleged that the Foreign Debtor subsequently defaulted on the Loans in January 2018.
U.S. District Court Enforcement Action
On Jan. 10, 2020, the Vertiv Creditors filed a complaint in the District Court for the District of New Jersey (the District Court), Vertiv, Inc., et al. v. Wayne Burt Pte, Ltd., et al., Civ. Action No. 3:20-cv-00363 (the “U.S. Enforcement Action”), seeking to enforce the loan documents and stock pledge agreement. On Nov. 30, 2022, the District Court granted the Foreign Representative’s motion to dismiss Vertiv’s amended complaint on international comity grounds. Vertiv appealed the dismissal to the Court of Appeals for the Third Circuit.
Foreign Turnover Order Regarding Cetex Shares
Back in Singapore, while the Third Circuit appeal was pending, the Foreign Representative commenced proceedings against the Vertiv Creditors in the General Division of the Foreign Court, Case No. HC/OC 409/2023, seeking return of the Cetex Shares to the Foreign Debtor’s estate. The Foreign Representative alleged that the pledge of Cetex Shares as security for the Loans was void against the Foreign Representative. The Vertiv Creditors did not appear in those Singapore proceedings to contest the Foreign Representative’s allegation. On Oct. 17, 2023, the General Division of the Foreign Court entered an order requiring the Vertiv Creditors to return the Cetex Shares to the Foreign Debtor (the “Foreign Turnover Order”).
Third Circuit Decision
On Feb. 1, 2024, the Third Circuit issued its decision on the dismissal appeal, Vertiv, Inc. v. Wayne Burt Pte, Ltd., 92 F.4th 169 (3rd Cir. 2024). The Third Circuit clarified that U.S. courts must apply a complex, multifactor test in determining whether to extend comity to a foreign bankruptcy or liquidation proceeding and in deciding whether to abstain from adjudicating (e.g., thereby dismissing) a civil proceeding in deference to a pending foreign bankruptcy, insolvency or similar proceeding. The Third Circuit’s newly clarified “comity” test requires a multistep analysis.
First, a court must make a threshold finding that the foreign bankruptcy or insolvency proceeding is “parallel” to the U.S. action at bar. The Third Circuit found this factor satisfied when “(1) the foreign bankruptcy proceeding is ongoing in a duly authorized tribunal while the civil action is pending before the United States court; and (2) the outcome of the United States civil action may affect the debtor’s estate.” Id., 92 F.4th at 179–80.
Second, if a foreign proceeding is parallel, the court must determine whether a prima facie case is made for the extension of comity by showing that “(1) the foreign bankruptcy law shares [the United States’] policy of equal distribution of assets, and (2) the foreign law mandates the issuance or at least authorizes the request for the stay.” Id., 92 F.4th at 180.
Upon finding a prima facie case for extension of comity, the U.S. court must proceed with a four-part inquiry into whether:
(1) the foreign bankruptcy proceeding is taking place in a duly authorized tribunal, (2) the foreign bankruptcy court provides for equal treatment of creditors, (3) extending comity would be “in some manner inimical to [the United States’] policy of equality,” and (4) the party opposing comity would be prejudiced.
Id. (quoting Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 44 F.3d 187, 194 (3d Cir. 1994)). The Third Circuit further elaborated on various factors when considering the four-part comity test.
Turning to the appeal, the Third Circuit concluded that the District Court completed the first part of the test (i.e., determining that the Foreign Liquidation Proceeding was parallel to the U.S. Enforcement Action). However, the District Court’s analysis stopped short of applying the four-part comity test; accordingly, the Third Circuit vacated the dismissal order and remanded the case to the District Court for further analysis under the clarified comity test.
U.S. Enforcement Action, Post-Remand
On remand to the District Court, the Foreign Representative renewed its motion to dismiss the U.S. Enforcement Action, protracted discovery ensued, and as a result, a ruling from the U.S. District Court applying the Third Circuit’s comity test was further delayed. In the interim, the Foreign Representative retained new counsel with a new strategy.
Commencement of the Foreign Debtor’s Chapter 15 Case
On Oct. 8, 2024, the Foreign Representative filed a voluntary petition for recognition of the Foreign Debtor’s Foreign Liquidation Proceeding under Chapter 15 with the Bankruptcy Court (the “Chapter 15 Case”). At the same time, the Foreign Representative filed a motion for recognition of the Foreign Turnover Order (the “Turnover Motion”). The Vertiv Creditors objected.
On Nov. 7, 2024, the Bankruptcy Court entered an order, among other things, recognizing the Foreign Liquidation Proceeding as a foreign main proceeding, and granting the protections set forth in section 1520(a) of the Bankruptcy Code, including imposition of the automatic stay under section 362(a). The Chapter 15 Case proceeded with briefing and oral argument on the Turnover Motion.
Less than two months after the Chapter 15 Case was commenced, on Dec. 6, 2024, the Bankruptcy Court ruled in favor of the Foreign Representative, granting the Foreign Representative’s Turnover Motion with respect to the Cetex Shares. On Dec. 12, 2024, the Bankruptcy Court entered an order granting the relief consistent with the Dec. 6, 2024, decision (the “Turnover Enforcement Order”).
Bankruptcy Court’s Decision
The Bankruptcy Court focused on whether recognizing and enforcing the Foreign Turnover Order would be appropriate under section 1521 or 1507 of the Bankruptcy Code, or in accordance with the principles of international comity, and held that doing so would be appropriate under each of those three bases.
Section 1521 of the Bankruptcy Code
Under section 1521, a Bankruptcy Court may grant at a foreign representative’s request any appropriate relief necessary to effectuate the purposes of Chapter 15 and protect the assets of the debtor or the interests of creditors. As the Bankruptcy Court noted, courts have “exceedingly broad” discretion to grant relief under section 1521, provided that the interests of the creditors, the foreign debtor and other parties in interest are sufficiently protected.
The Bankruptcy Court observed that the Singapore and United States insolvency systems share many similarities, including, among other features of the statutory framework of the Singapore Companies Act (Chapter 50) (the insolvency law in force prior to July 30, 2020), the following:[2](i) the principle of distribution of property of the debtor company on a pari passu basis, consistent with statutory priorities, is enshrined in section 300 of the Singapore Companies Act; (ii) liquidators are appointed by, officers of, accountable to and subject to the control of, the Singapore court; (iii) creditors are entitled to submit claims against the debtor company by filing proofs of debt with the appointed liquidator(s); and (iv) entry of a winding-up order imposes an automatic stay on all proceedings against the company, but creditors may request leave from the Singapore court to continue or proceed with any such proceedings. Therefore, the Bankruptcy Court found that all parties in interest are sufficiently protected in the Foreign Liquidation Proceeding.
Among other things, the Bankruptcy Court found that obtaining the Cetex Shares for distribution consistent with applicable foreign law served the interests of all creditors in the Foreign Liquidation Proceeding. Moreover, the Bankruptcy Court found that the Vertiv Creditors’ interests were sufficiently protected because they had notice of the Foreign Representative’s application for the Foreign Turnover Order, did not dispute such application, and retained the ability to appeal and pursue alternative remedies in the Foreign Liquidation Proceeding. Accordingly, the Bankruptcy Court concluded that enforcing the Foreign Turnover Order was appropriate relief under section 1521 of the Bankruptcy Code.
Section 1507 of the Bankruptcy Code
Under section 1507, a court may provide additional assistance to a foreign representative to the extent permitted under applicable U.S. law, as long as the court considers whether doing so will reasonably ensure certain core bankruptcy objectives are met, including the fair treatment of creditors and protection of estate property.
Given (i) the provisions of the Singapore insolvency regime, including the requirement that creditors receive equal treatment according to their respective priorities under the statute, (ii) that the foreign proceedings would be conducted under the supervision of the Singapore High Court and the Foreign Representative, and (iii) that enforcing the Foreign Turnover Order would prevent the preferential or fraudulent disposition of property from the estate while its ownership was being litigated, the Bankruptcy Court found that enforcement of the Foreign Turnover Order was appropriate “additional assistance” by the Bankruptcy Court under section 1507 of the Bankruptcy Code.
The Bankruptcy Court further reasoned that section 1507 supported enforcement of the Foreign Turnover Order because returning the Cetex Shares would (i) marshal that asset to the Foreign Debtor’s estate for the benefit – and equal treatment – of all creditors in the Foreign Liquidation Proceeding; and (ii) entrust them to the supervision of the Foreign Court pending further determination, thereby preventing potential preferential or fraudulent disposition of the Cetex Shares.
Principles of International Comity
Finally, the Bankruptcy Court concluded that enforcing the Foreign Turnover Order would be appropriate as a matter of comity, by applying the Third Circuit’s multistep analytical framework. Among other things, the Bankruptcy Court reasoned that “the Singapore insolvency laws are substantially similar to the U.S. bankruptcy system, provide comparable protections and are consistent with the Bankruptcy Code’s policy of equality.”
The Bankruptcy Court further noted that the Vertiv Creditors would not be prejudiced by being required to participate in the Foreign Liquidation Proceeding because doing so was reasonably foreseeable: the choice of law provision in the stock pledge agreement for the Cetex Shares provided for the laws of either New York state or Singapore, and Singapore law contains a statutory regime for insolvency proceedings.
On Dec. 17, 2024, the Vertiv Creditors appealed the Bankruptcy Court’s Turnover Enforcement Order to the New Jersey District Court.[3]
Why This Case Is Interesting
When the Foreign Representative initially proceeded, relief was sought in the context of the then-pending District Court action. No Chapter 15 case was commenced, thereby requiring both the District Court judge and the Third Circuit to address the authority of the Foreign Representative under Singaporean law without the benefit of the statutory regime under Chapter 15. In doing so, the Third Circuit’s ruling crafted a federal common law alternative to aid foreign insolvency proceedings based on principles of international comity. This process was far from expedited (spanning years).
By contrast, the subsequent (and intervening) Chapter 15 Case allowed for the relief to be assessed under an existing statutory framework under the Bankruptcy Code specifically in aid of foreign insolvency proceedings. The Chapter 15 Case resulted in a determination in mere months, underscoring how Chapter 15, when used correctly – and in aid of a recognized foreign insolvency regime such as Singapore’s insolvency process – remains an effective vehicle for obtaining relief in connection with cross-border insolvency proceedings.
However, the Bankruptcy Court’s decision presumes that the Foreign Debtor’s pledge of the Cetex Shares was invalid, and therefore treats the Vertiv Creditors as unsecured. The existence of an undisputed, validly perfected security interest in collateral located in the United States may have an impact on the Bankruptcy Court’s analysis, including the treatment of a secured creditor’s rights under the Bankruptcy Code (such as adequate protection) and “equality” of treatment. These factors were not addressed in the Wayne Burt decision (but may have been factors considered by the Singapore Court in issuing the underlying Foreign Turnover Order as a default judgment is not necessarily automatic and may have considered the validity of the alleged security interest). As noted, the Vertiv Creditors have appealed the Bankruptcy Court’s decision, so we will follow the progress of this decision.
[1] The authors thank Daniel Chia, Managing Director, Prolegis LLC (in a Formal Law Alliance with
Herbert Smith Freehills), Head of Litigation, Herbert Smith Freehills Prolegis, and Jonathan Tang,
Director, Head of Restructuring at Prolegis LLC, in Singapore for their insights under Singaporean
insolvency law.
[2] The Singapore Liquidation Proceeding at issue in Wayne Burt was based upon a prior insolvency
law in effect at the time that the Singapore Liquidation Proceeding was commenced – specifically, the
Companies Act (Chapter 50). In 2018, Singapore enacted the Insolvency, Restructuring and
Dissolution Act 2018 (the “IRDA”) to consolidate legislation for personal and corporate insolvency
under a single omnibus legislation, which came into effect on July 30, 2020. Prior to that, matters of
corporate insolvency and liquidation were largely set out in the Companies Act (Chapter 50) and in
related acts and legislation. With respect to the Singapore Liquidation Proceeding, the Chapter 15
Debtor was wound up under the Companies Act and its liquidation would primarily be governed by the
Companies Act (see Section 526(f) IRDA). For purposes of future Chapter 15 cases, the current law –
IRDA and its subsidiary legislation – similarly contains many of the same substantive and procedural
benefits highlighted by the Bankruptcy Court.
[3] On Dec. 18, the Vertiv Creditors filed a motion seeking to stay the Turnover Enforcement Order,
arguing, among other things, that the Vertiv Creditors (i) have since filed an application with the
Foreign Court in Singapore, seeking to set aside the default judgment that formed the basis for the
Foreign Turnover Order, and (ii) would suffer irreparable harm if the Turnover Enforcement Order is
not stayed pending the District Court’s decision on appeal, as the Cetex Shares are the only security for
the Loans. The hearing on the motion is scheduled for Jan. 9, 2025.
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