The Singapore High Court has clarified the definition of “centre of main interests” in the context of a crypto exchange group seeking to restructure its collective debts in Singapore. The analysis has implications to any group business which has interconnected shared services provided by the group companies in a collective service “ecosystem” to customers.
On 15 August 2022, the Singapore High Court heard five applications by companies in the Zipmex Group for extension of their automatic moratoria under Section 64(1) of Singapore’s Insolvency, Restructuring and Dissolution Act 2018 (IRDA).
The applications were successful and the Zipmex companies were granted extensions of just over three months for their respective moratoria. In brief grounds of its decision, the Singapore High Court not only gave its reasoning for granting the extensions, but also clarified how the “centre of main interests” test is to be applied in a restructuring/scheme of arrangement context, and highlighted relevant factors that relate specifically to the cryptocurrency space.
In what is a recent trend involving large-scale cryptocurrency restructurings, with many unsecured creditors and customers, the hearing was held in open court and an audio recording of the hearing was also posted on YouTube for public viewing.
The Zipmex Group operates a cryptocurrency exchange platform. In addition to its holding company and one of its subsidiary operating companies being incorporated in Singapore, three of its subsidiaries had been incorporated in Australia, Thailand, and Indonesia to serve the local customers there. However, the subsidiaries all relied on and provided shared services to each other.
At the hearing, the first issue that came up for determination was whether the Indonesian, Thai, and Australian entities respectively had established a “substantial connection” to Singapore to enable them to choose to restructure their debts under Singapore’s jurisdiction and using Singapore’s insolvency framework.
Under Singapore’s IRDA, an unregistered foreign company (i.e., not registered in Singapore) can rely on Singapore’s restructuring regime if it is able to show that it has a substantial connection with Singapore. Such a substantial connection can be established by a number of factors, including the following:
Prior to the Zipmex Group’s applications, the concept of COMI had been considered primarily in the context of recognition of foreign proceedings through the UNCITRAL Model Law on Cross-Border Insolvency (Model Law). Specifically, in Re Zetta Jet Pte ltd and others (Asia Aviation Holdings Pte Ltd, intervener)  4 SLR 1343 (Zetta Jet), the Singapore High Court had set out various observations on factors that would determine a company’s COMI, opining that ultimately, the court will consider on a robust basis where, on balance, the centre of gravity of the various material factors is located.
At the hearing of the Zipmex Group’s applications, the Singapore High Court was satisfied that there is no reason to differentiate between the COMI test for the recognition of foreign proceedings under the Model Law (as in Zetta Jet) and the COMI test for determining if a company has a “substantial connection” to Singapore to enable it to choose Singapore as the hub of its restructuring. COMI was, the Singapore High Court observed, a useful concept in identifying the jurisdiction with the closest and most tangible or impactful connection to a company.
In the Zipmex Group’s case, the Singapore Court noted that the Group’s “on-exchange assets” were consolidated in a “hot wallet” hosted by Zipmex Asia in Singapore. This was determined to lie at the bottom of the business model and operations of the group, and pointed to a Singapore centre of gravity.
In addition, there were many users from Thailand that subscribed to Singapore’s ZipUp+ facility, following which of their cryptoassets were deposited in the “Z Wallet” and the Zipmex Group’s Singapore subsidiary were granted rights to use these assets as they saw fit.
Finally, the Singapore High Court determined that the locus of management was in Singapore, but that the strength of this factor was less than in cases such as Zetta Jet. On a holistic assessment, the Singapore High Court determined that the COMI for each of the foreign entities was Singapore and they were entitled to choose Singapore as the forum for their restructuring efforts.
In addition to the foregoing, the Singapore High Court also stressed that, in large-scale restructurings conducted in Singapore where there may be many unrepresented creditors, that creditor engagement is important. This would invariably be under scrutiny by the courts when an application to extend the moratorium is made.
The Singapore High Court outlined several tools for consideration by future applicants to engage with their creditors, including the following:
The overarching objective of these tools is to provide timely communications to creditors and to assist creditors in understanding what is happening, and to have some voice in the process.
The Singapore High Court considered that the proposed restructuring plan put forward by the Zipmex Group would work and that it would be acceptable to the general run of creditors and has therefore granted an approximately three-month extension to monitor progress and engagement.
In addition, the moratorium orders were granted extra-territorial effect, in that they operate against the acts of a person in Singapore or within the jurisdiction of the Court, regardless of whether that act occurs in Singapore or elsewhere.
This case provides clarity for foreign companies restructuring their debts in Singapore. The COMI test is materially similar to how Singapore has previously interpreted the COMI requirements under the Model Law, which is itself familiar to foreign restructuring lawyers, as these provisions have been repeatedly interpreted and tested in both the United States and the United Kingdom. In particular, where a group of companies is looking to restructure its operations, the Singapore Court would recognise Singapore as being the COMI when Singapore is seen as the centre of the group’s operations, and this can be determined by the manner in which the shared services of the group are provided—whether contractually or operationally.
Foreign companies seeking to conduct their restructuring here under Singapore’s debtor-friendly restructuring laws have greater certainty as to the factors that may work to establish a COMI here—especially in the case of cryptoassets where legal jurisprudence is still being incrementally evolved.
At the same time, the case is also a timely reminder as to the importance of creditor engagement, especially in large-scale restructurings, and how highly the Singapore court views creditor engagement.
Morgan Lewis Stamford LLC represented the Zipmex Group in its applications before the Singapore High Court and in its ongoing group restructuring efforts.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Ng Joo Khin*
Wai Ming Yap*
John C. Goodchild, III
*A solicitor of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated with Morgan, Lewis & Bockius LLP