Guidance from the General Division of the Singapore High Court on the extent to which the protections afforded by the statutory moratoria for schemes of arrangement conflict with the ability of maritime claimants to protect their interests.
Singapore’s scheme of arrangement provisions provide for an automatic moratorium period of up to 30 days for the applicant company to propose a scheme of arrangement to its creditors. In this automatic moratorium period, creditors are barred (except with the leave of court) from, among other things, (1) commencing proceedings against the company; (2) levying execution, distress, or other legal processes against the property of the company; and (3) enforcing any security over any property of the company.
Where a company is undergoing restructuring by way of a scheme of arrangement, the purpose of the statutory moratorium is to give the company breathing space to meaningfully engage with creditors and to devise a scheme proposal. This has to be balanced against the rights of creditors to take such steps as may be necessary to protect their interests in such situation where the company is insolvent. This tension was examined in the decision of the General Division of the Singapore High Court released on 15 January 2021 in The “Ocean Winner” and other matters  SGHC 8.
Ocean Tankers (Pte) Ltd (OTPL) applied to set aside or strike out admiralty in rem writs filed by PetroChina International (Singapore) Pte Ltd (PetroChina) against four vessels that OPTL asserts were demise chartered by them on the basis that it is prohibited under the automatic moratorium in Section 211B(8) of the Companies Act (Act) (which has since been repealed and substantially reenacted as Section 64(8) of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) effective 30 July 2020). The judge accepted PetroChina’s argument that the automatic moratorium did not prohibit the filing of the admiralty in rem writs and dismissed the applications.
On 17 April 2020, OTPL filed for moratorium relief pursuant to Section 211B of the Act. OTPL argued that by virtue of Section 211B(8) being read with Section 211B(13) of the Act, an automatic moratorium came into effect upon the filing of the application, which was to last for 30 days or until the application was heard and determined, whichever came earlier.
On 22 April 2020, PetroChina filed admiralty in rem writs against four vessels. None of the writs were served on the vessels.
On 8 May 2020, OTPL voluntarily entered appearances in the actions and filed applications to set aside or strike out the writs on the basis that the subsisting moratorium prohibited the filing of the writs without prior leave of court. Prior to the filing of these applications, OTPL had applied to withdraw its Section 211B moratorium relief application and sought judicial management and interim judicial management orders.
On 12 May 2020, OTPL’s withdrawal of the Section 211B moratorium relief application was granted subject to the creditors’ positions being reserved to argue, among other things, that the Section 211B automatic moratorium did not restrain the commencement of admiralty in rem proceedings.
Concurrently on 12 May 2020, interim judicial managers were appointed and on 7 August 2020, OTPL was placed under judicial management.
DECISION FOCUSED ON STATUTORY INTERPRETATION OF SECTION 211B
The judge summarized that there were two main issues of statutory interpretation for determination, and having disposed of these issues in favour of PetroChina, it was not necessary for him to determine the other issues raised in PetroChina’s arguments:
- Whether the filing of the admiralty in rem writs constitute the commencement of “proceedings” against OTPL under Section 211B(8)(c) of the Act (reenacted as Section 64(8)(c) of the IRDA).
- Whether the filing of the admiralty in rem writs constitute an “execution, distress or other legal process” against “property” of OTPL under Section 211B(8)(d) of the Act (reenacted as Section 64(8)(d) of the IRDA).
The judge answered both questions in the negative.
In finding that the filing of the admiralty in rem writs is not prohibited under Section 211B(8)(c) of the Act, the judge examined the nature of the filing of an admiralty in rem writ and an admiralty in rem action and held as follows:
- The filing of an admiralty in rem writ merely creates or crystallises the security interest for the plaintiff, i.e., a statutory lien. The admiralty jurisdiction of the court is not invoked and in that limited sense, the action does not substantively “commence” until service of the writ. The judge preferred a narrower interpretation of “proceedings” and held that the filing of the writ does not constitute the commencement of “proceedings” within the meaning of Section 211B(8)(c) of the Act. In coming to this conclusion, the judge considered the purpose of the Section 211B moratorium and held that while it is intended to protect companies from being distracted by having to defend legal proceedings while devising a scheme proposal, it could not have been intended to operate in such a way as to the defeat or deny the creation of substantive legal rights. It was highlighted that unlike the writ of summons in the case of civil proceedings or the admiralty in rem writ in the case of maritime liens, the plaintiff’s right to a security interest in the form of the statutory lien granted by Section 4(4) of the High Court (Admiralty Jurisdiction) Act is potentially at risk of being destroyed by the shipowners if it is unable to even file its admiralty in rem writ, as the shipowners can simply and effectively defeat the plaintiff’s in rem claim by terminating the bareboat charters with the charterers’ agreement and accept physical redelivery of the vessel before the writ is filed.
- The filing of an admiralty in rem writ is also not commencement of proceedings “against the company,” OTPL, since an action in rem is an action against the res. The action only transforms into a mixed action in rem and in personam after the owner or demise charterer enters an appearance. If no appearance had been entered, the actions would remain, at all times, actions in rem against the res and OTPL would not be personally liable at all.
Given the subsisting moratorium applicable in OTPL’s favour arising from the judicial management order that is in force, the judge was of the view that PetroChina would have to obtain leave of court if it wishes to proceed with the claims, including service of the writs on the vessels and arrest of the vessels. Such steps would amount to commencing and thereafter continuing with “proceedings” against OTPL, now that the admiralty actions have also been imbued with in personam claims against OTPL, which has entered appearances in the actions.
Turning to Section 211B(8)(d) of the Act, in finding that the filing of the admiralty in rem writs is not an “execution, distress or other legal process,” the judge held as follows:
- The mere filing of an admiralty in rem writ is not “execution” or “distress” because these were specific statutory proceedings.
- As for whether the filing of an admiralty in rem writ comes within the meaning of “other legal process,” an interpretation that furthers the purpose of Section 211B of the Act must be given to the phrase. In the context that the Section 211B moratorium is simply intended to provide “breathing space” for the company to develop its scheme proposal so that it can increase its chances of securing votes for approval of the scheme, “other legal process” was found to mean enforcement processes similar in nature to “execution” and “distress” proceedings, i.e., processes to seize the money or property of the company. There is no element of enforcement by the filing of an admiralty in rem writ, which merely creates the statutory lien andm thus, the security interest in the vessel.
While the above was sufficient to dispose of OTPL’s applications, the judge addressed the question of whether the vessels can be said to be OTPL’s “property” under Section 211B(8)(d) of the Act. The judge noted that the definition of “property” in Section 227AA of the Act does not apply to the Section 211B automatic moratorium, but found that in view of the specific purpose of the Section 211B automatic moratorium that was enacted to expand the scope of the moratorium from its predecessor, the word “property” is meant to cover types of property interest not previously covered. Since a leasehold interest is intended to be covered under the expanded scope of Section 211B, a bareboat charterer’s interest, which the judge considers to be akin to a leasehold interest, is similarly covered.
For completeness, while OTPL did not rely on Section 211B(8)(e) of the Act (now Section 64(8)(e) of IRDA), which restricts, among others, steps taken to enforce security, the judge agreed with PetroChina’s submission that the filing of the writs did not come within Section 211B(8)(e) of the Act, as the mere filing of the writs creates the security interest and is thus not a step taken to enforce that security.
The decision makes clear that the purpose of the statutory moratorium is to provide “breathing space” for applicant companies to devise or refine their scheme proposal, and was never intended to defeat or deny the creation of substantive legal rights (such as the creation of a security interest by the filing of an admiralty in rem writ)—it only acts to postpone the pursuit and/or enforcement of such legal rights. The statutory provisions were interpreted in the manner that further the purpose of Section 211B of the Act (now Section 64 of IRDA) and provides guidance on the scope of the statutory moratoriums and the acts that are prohibited without prior leave of court while the moratorium is in subsistence.
Morgan Lewis Stamford represented PetroChina in this matter.