Garuda Indonesia’s restructuring recognised in Singapore

The Singapore International Commercial Court (SICC), which officially launched in January 2015, has released its first insolvency-related judgment. The matter of PT Garuda Indonesia (Persero) Tbk and another matter [2024] SGHC(I)1 is the latest in a series of international cases relating to the restructure of Garuda Indonesia, an Indonesian state-owned airline, and provides a range of insights into Singapore’s application of the UNCITRAL Model Law on Cross-border insolvency (Model Law) that holds lessons in Australia and elsewhere.

In the matter, International Judge Christopher Sontchi, in agreement with International Judge Anselmo Reyes and Singapore Appellate Judge Kannan Ramesh, granted recognition of Garuda Indonesia’s Indonesian restructuring as a foreign main proceeding and consequently, that recognition and enforcement of their restructuring plan occur in Singapore.

The application was objected to by two non-parties, entities within the Greylag Goose Leasing group of companies (Greylag Entities) that are the lessors of two aircraft to an entity within the Garuda Indonesia group. The Greylag Entities did not challenge that the Indonesian restructuring was a foreign main proceeding; however, they argued the application was filed prematurely due to pending proceedings before the Indonesian Courts, which would lead to the annulment of the restructuring plan and secondly that it would be contrary to the public policy of Singapore under Article 6 of the Third Schedule that implements the Model Law.

Was the recognition application premature?

The Court confirmed that recognition of foreign proceedings can occur even if they are ongoing. The SICC Judges noted that in fact there was no legal basis under Singapore’s insolvency law to support that objection and it would be counter to the requirements in Article 17 of the Third Schedule and the purpose of the model law to recognise foreign proceedings as expeditiously as possible. The Court found that Article 17(4), which wholly adopts the language from Article 17(4) of the Model Law, accounts for the above scenario by allowing for termination of recognition if the grounds for granting recognition were lacking or cease to exist.

Is there a public policy exception?

Singapore’s Article 6 of the Third Schedule differs from Article 6 of the Model Law in only one respect, which is the omission of the word “manifestly” before “contrary to public policy”. The Greylag Entities argued that the omission of the word “manifestly” creates a lower public policy standard to deny recognition, in line with the Singaporean High Court case of Re Zetta Jet Pte Ltd and others (Asia Aviation Holdings Pte Ltd, intervener) [2019] 4 SLR 1343. This was overwhelmingly rejected by the Court, which found that when the context of the Model Law, including its development and purpose of modified universalism were considered, the term “manifestly” was merely incorporated to emphasize the existing intention that public policy exceptions should be determined restrictively. The word was not meant to affect the standard of public policy but rather provide clarity on what the test already was.

The Court found this was supported by larger international interpretive trends which treat Article 6 restrictively, and within Singaporean case law in relation to other model laws such as the UNCITRAL Model Law on International Commercial Arbitration.

The Greylag Entities argued that recognition of the Garuda Indonesia Proceedings would be contrary to Singapore’s public policy as the restructuring plan was conducted without adequate disclosure of information and equitable treatment of creditors.

The Court reinforced that foreign insolvency laws and procedures that operate differently from the domestic insolvency regime cannot, without more, give rise to a finding that the foreign proceeding is contrary to public policy. Whilst the Court confirmed that a failure to accord due process to creditors and stakeholders would likely be a breach of public policy, this was focused on procedural fairness rather than the substantive law. Other examples where the Court found the public policy exception was likely to succeed included where:

• relief sought would open individuals to criminal prosecution in the forum state;
• where the foreign representative is acting in bad faith;
• if proceedings were commenced in breach of a moratorium; or
• where proceedings were tainted by fraud.

The Court found that the true nature of the Greylag Entities’ arguments was a criticism of the structure of the Indonesian insolvency regime, as opposed to an issue of equitable treatment of creditors and that the public policy exception did not apply. In addition, the Greylag Entities were not able to show how the requested documents were material to the issue of public policy and their request was dismissed.

Enforcement of foreign insolvency orders: UK v US approach

While examining the relevant jurisdictional requirements, the Court noted that the Indonesian restructuring plan compromised debts under the Greylag Entities’ leases that were governed by New York law. Whilst the Gibbs Rule typically creates a barrier against recognition of a foreign proceeding and/or a foreign restructuring plan, where such proceeding and the product of that proceeding involve the compromise or discharge of a debt governed by foreign law, the Court found that the principle did not apply in this case as the Greylag Entities had voluntary bound themselves to the restructuring plan by participating in the Indonesian proceedings and voting in relation to the restructuring plan.

Once the Court determined that the Indonesian restructuring was a foreign main proceeding, the question turned to whether relief sought in relation to the recognition and enforcement of the restructuring plan can and should be granted. Whether Article 21(1) of the Third Schedule permits the recognition and enforcement of a foreign insolvency order (including a court order sanctioning a restructuring plan) is an issue that has received diverging treatment in different jurisdictions.

The SICC distanced itself from the UK approach in Rubin v Eurofinance SA [2012] 3 WLR 1019, which found that the Model Law was not designed to provide for the reciprocal enforcement of judgments. Instead, the Court affirmed that a US style approach to recognition of foreign insolvency orders and judgments confirming foreign restructuring plans is preferable, as it greater reflected the intention of Singapore’s drafters, who specifically removed the qualifier seen in the UK that additional relief granted must be available under the laws of the jurisdiction in which enforcement is sought.

However, the Court made clear that it’s role is not merely to act as a “rubber stamp” for foreign orders. In granting “appropriate relief”, the Court must ensure that the interests of creditors and other stakeholders are protected. As such, the Court granted the relief sought by the applicants subject to two caveats, namely that the stay of proceedings under Article 20 of the Third Schedule would not extend to claims for the portion of the debts not admitted by Garuda Indonesia’s administrators during the Indonesian proceedings and the recognition would be without prejudice to ongoing arbitration proceedings between the non-party lessors and any Garuda subsidiaries in Singapore.

Public Policy Exception in Australia: Takeaways for Australian insolvency practitioners

The Public Policy Exception operates narrowly in Australia. The explanatory memorandum for the Cross Border Insolvency Bill 2008 (Cth) states the public policy exception should be interpreted restrictively and that Article 6 is only intended to be invoked under exceptional circumstances concerning matters of fundamental importance for the enacting state.

Whilst there has been little judicial consideration in Australia of the meaning of the phrase “manifestly contrary to public policy”, similarly to other countries that have adopted the model law, the Australian Courts have confirmed that the public policy exception is ‘narrow and reserved for the most serious of cases’ and the courts will be slow to invoke public policy as a reason for refusing recognition or enforcement of a foreign judgement.

In Indian Farmers Fertiliser Cooperative Ltd and Another v Legend International Holdings Inc [2016] VSC 308, the Supreme Court of Victoria determined that merely because a different approach or regime has been taken to a common issue in an overseas jurisdiction does not indicate an approach contrary to public policy in Australia. In the case, it was argued that the applicant was using Ch. 11 in the US to circumvent the winding up proceedings commenced in Australia, which should be considered contrary to public policy. However, the Court found that seeking the protection of Ch. 11 was not contrary to public policy as the purpose of Ch. 11 proceedings was protection that is not so dissimilar to Australia’s voluntary administration regime.

Rather than mere differences in substantive law, the Australian courts prefer the question of whether recognition would “impinge the value and import of the statutory rights” of the Australian company and its liquidator creditors. The Australian courts have implied that this could occur in situations where there is a basis for suspecting that the recognition of foreign proceedings had occurred with the intent to defraud or defeat its creditors.

This narrow approach has been said to be in the ‘interest of comity’ and that recognition and respect of other jurisdictions is important. However, comity is not limited to countries that have applied the Model Law. In Naumets (Trustee), Dorokhov (Bankrupt) v Dorokhov [2022] FCA 748, Russia’s lack of reciprocity when it comes to recognising cross-border insolvencies was not a factor relevant to the Court’s decision that the recognition of Russian proceedings would not be manifestly contrary to the public policy of Australia.

The explanatory memorandum to the model law provides that it is expected that Australian courts will make use of the international precedents in interpreting the provisions of the Model Law. Thus, it will be interesting to see whether the examples of situations where public policy exceptions would likely succeed that Justice Sontchi provided in the Garuda Indonesia decision, would be confirmed in Australia. 

Garuda Indonesia Australia proceedings

The Greylag Entities have opposed Garuda Indonesia’s restructuring in several countries, including the US, France, Indonesia, and Australia. To date only the Indonesian and Australian appeals remain outstanding.

In Australia, the New South Wales Court of Appeal recently dismissed the Greylag Entities’ proceedings to wind up Garuda Indonesia. The High Court of Australia has now granted special leave to hear an appeal, which will provide an interesting test as to whether Garuda Indonesia falls within an exception to foreign immunity that applies to winding up proceedings. The result of this application will provide clarity on a question of law not commonly considered and could provide a further step forward in Garuda Indonesia’s cross-border restructure.

The authors gratefully acknowledge the assistance of Erin Gordon, an associate in the global restructuring group in Sydney, for her assistance in preparing this article.