The Singapore International Commercial Court ("SICC") has handed down its first insolvency-related ruling. The court granted recognition and full force and effect to Indonesia's flagship airline's restructuring plan. That plan had been approved in accordance with Indonesian law. In granting recognition to the Indonesian plan under Singapore's version of the UNCITRAL Model Law on Cross-Border Insolvency, the SICC overruled objections to recognition from aircraft lessors.
The objections asserted that recognition of the Indonesian proceeding would violate Singapore's public policy because, among other things, the Indonesian plan set forth a different classification regime than would be permitted under Singapore law, and the debtors did not negotiate with all unsecured creditors regarding alternative aircraft leasing arrangements. The court held that the public policy exception to recognition under the Singapore Model Law should be narrowly construed and that courts should not refuse to recognize a foreign insolvency proceeding merely because the restructuring laws of the foreign court and the recognizing court differ.
Importantly, the decision addressed the Gibbs rule, an English law precedent that forms part of the case law of many Commonwealth countries, including Australia. The Gibbs rule provides that debt must be restructured in accordance with its governing law. While there is lack of modern Australian precedent concerning the application of the Gibbs rule, its historical recognition creates uncertainty and execution risk with respect to the ability to enforce a foreign restructuring plan in Australia.
In addressing this issue in the Singapore context, Christopher Sontchi (who is a former U.S. bankruptcy judge currently serving on the SICC panel) upheld an existing exception to the Gibbs rule, finding that the rule did not bar recognition of the Indonesian plan, as the creditors had submitted to the jurisdiction of the Indonesian court by filing proofs of claim in the Indonesian proceeding. Judge Sontchi also expressed skepticism regarding the soundness of the Gibbs rule in the context of modern cross-border insolvency. The decision tracks key aspects of the analysis that has been developed in the United States under chapter 15 of the U.S. Bankruptcy Code, which contains the United States' version of the UNCITRAL Model Law on Cross-Border Insolvency.
The decision brings Singapore one step closer to its goal of establishing itself as a regional restructuring hub and may be cause for reflection on whether Australia should modernize its approach to the Gibbs rule.
A more-detailed discussion of the SICC's decision is available in the March–April issue of our Business Restructuring Review.
