16 Jan Armada (Singapore) Pte. Ltd. Seeks Chapter 15 Recognition
Citing a collapse of the global dry bulk markets as the precursor of an anticipated $395 million loss for FY 2008, Singapore-based bulk shipper Armada (Singapore) Pte. Ltd. sought recogniition and ancillary protection last week in the US in furtherance of a proposed scheme of arrangement commenced under Section 210 of the Singapore Companies Act.
The company’s petition for recognition under Chapter 15 of the US Bankruptcy Code highlights the destruction visited upon certain portions of the shipping industry late last year as a result of the global economic crisis. According to filings made by the company concurrent with its January 7, 2009 petition filed in the Southern District of New York:
Since Summer 2008, the charter industry has faced a[n] historic drop in freight rates, particularly with respect to the very large . . . vessels that Armada Singapore charters. In June, a typical charter for a Cape size vessel was $233,988 per day. In early December of 2008, the market rate hit a bottom of $2,316 a day, representing a 99% drop in the market value of Armada Singapore’s contracts.
That’s quite a drop.
In larger terms, the company’s filing also offers a glimpse into some of the contrasts between the insolvency schemes and corporate rescue provisions currently prevalent in Pacific Rim jurisdictions.
Here, Armada faced significant financial difficulties in Singapore and litigation in the US. In response, it petitioned for a scheme of arrangement – a procedure roughly equivalent to that of a voluntary US Chapter 11 proceeding – in Singapore. Importantly for Armada, such schemes permit the Singapore court overseeing the proposed arrangment to impose a moratorium on litigation against the debtor. The language of the Singapore statute suggests that such relief is universal in nature (“the Court may, . . . on [summary] application . . . restrain further proceedings in any action or proceeding against the company except by leave of the Court and subject to such terms as the Court imposes.”). Following its arrangement petition in Singapore and in furtherance of that relief, Armada sought corresponding protection in the US under Chapter 15.
By contrast, the insolvency scheme of Hong Kong – which, like Singapore, was a former British colony and which likewise retains the basic framework of English insolvency law – offers no moratorium on litigation during schemes of arrangement. Such protection is available only in connection with a “winding up” – i.e., a dissolution proceeding. Cf. Hong Kong Companies Act Sections 166 (governing arrangements); 180 (powers of court in winding up). In fact, as described in a 2006 INSOL Journal article, relatively recent jurisprudence in Hong Kong has foreclosed a locally developed “work-around” for the lack of such protection. According to local practitioners, these decisions effectively leave troubled companies in Hong Kong with no respite from litigation during an attempted corporate rescue.
Had Armada’s “home” jurisdiction been Hong Kong, rather than Singapore, might its efforts to protect US-based assets during its attempted reorganization require a different approach within the US (not to mention Hong Kong)? Would the company’s efforts to enjoin further litigation in the US under Chapter 15 ultimately be successful if no such injunction was available in its “foreign main proceeding?”
Armada’s proceeding highlights an important reality of US Chapter 15 practice: Although Chapter 15 makes certain relief “automatic” upon recognition of a foreign proceeding and further provides for interim relief while a petition for such recognition remains pending, it is frequently the law of the anticipated “foreign main proceeding” that drives tactical decisions as to whether, and how, to deploy the cross-border recognition and relief afforded by US law.
To anticipate and and offer effective cross-border guidance in such circumstances, US insolvency counsel do well to familiarize themselves with the insolvency law of the debtor’s “home” jurisdiction.