Clarifying COMI Recognition: Burden, Standard of Article 16(3) in Cross-Border Insolvency

Overview

The key cross-border insolvency concept of centre of main interests (or “COMI”) has had a rare and important outing at appellate level – in the Singapore Court of Appeal. The ongoing liquidation in the British Virgin islands (BVI) of Fullerton Capital Limited (Fullerton) provided the occasion – with the BVI liquidators looking for recognition of that proceeding in Singapore as a foreign main proceeding under the UNCITRAL Model Law on Cross-Border Insolvency (the Model Law) – for the primary purpose of conducting examinations. The key issues addressed by the Singapore Court of Appeal were the determination of Fullerton’s COMI, the application of the public policy exception to recognition, and the appropriateness of disclosure and examination orders against certain individuals, including the appellant—a former director and shareholder of Fullerton.

Importantly for Australian practitioners, the Court of Appeal carefully considered burden and standard of proof issues in the context of determining COMI – something not often explored, especially at appellate level. The Court of Appeal affirmed the decision to grant recognition in Singapore of the BVI liquidation as a foreign main proceeding under the Model Law – and in doing so affirmed the ancillary relief as to disclosure and examination orders against the appellant. The significance of this decision is that previous cases have not provided a recognized standard of proof to evaluate when and whether there is 'proof to the contrary' to rebut the presumption under Article 16(3) of the Model Law, which places the debtor's COMI at its registered office.

Background

Fullerton, incorporated in BVI, entered into a loan agreement with Discovery Key Investments Ltd (DKI) under which Fullerton agreed to loan CAD 110 million to DKI against the security of shares in a Canadian company. DKI later alleged that it was induced into the contract by misrepresentations and that Fullerton breached the contract by selling the pledged shares and disbursing the proceeds. Fullerton underwent a voluntary solvent liquidation and was dissolved. DKI successfully applied to the BVI High Court to declare the dissolution void, as litigation in Singapore was ongoing. Fullerton was restored to the register and joint liquidators were appointed - Ms Hanrahan and Mr Kardachi of Kroll.

The liquidators successfully applied to the Singapore High Court for recognition of the BVI liquidation as a foreign main proceeding – and for disclosure and examination orders against various individuals believed to have knowledge of Fullerton’s affairs, including the appellant, a former director. Importantly, the Singapore Court recognised the BVI liquidation as a foreign main proceeding, relying on the presumption in Article 16(3) of the Model Law that a debtor’s COMI is presumed to be at its registered office absent proof to the contrary.

The former director – and target of the proposed examinations in Singapore – appealed that decision.

Issues and Decision on Appeal

COMI and the Presumption under Article 16(3)

Article 16(3) of the Model Law provides that "[i]n the absence of proof to the contrary, the debtor's registered office is presumed to be the debtor's centre of main interests". The former director challenged the High Court’s approach, arguing that the presumption under Article 16(3) should only be applied where other factors did not point clearly to a different COMI. He pointed to the location of Follerton’s controllers, creditors, and business operations linking Fullerton’s activities to China and Hong Kong. The Court of Appeal rejected this argument and held that Article 16(3) creates a rebuttable presumption that must serve as the starting point of the analysis. The Court cited with approval the English Court of Appeal’s decision in Inre Melars Group Ltd [2023] Bus LR 260 which held that the court has no discretion to disapply the presumption. The only instance in which the presumption would not apply is where the debtor has more than one registered office, as seen in the Australian decision Re Hydrodec Group Plc (monitor apptd) (2021) 152 ACSR 408.

Burden of Proof

The former director then submitted that the Liquidators, having applied for recognition, bore the burden of proving that Fullerton’s COMI lay in the BVI. The Court of Appeal rejected this, drawing a distinction between the burden to establish that the foreign proceeding is taking place at the COMI— which remains with the Liquidators — and the burden of displacing the COMI presumption under Article 16(3), which rests with the party asserting that COMI lies elsewhere.

A debtor may have connections to multiple jurisdictions, but it can only have one COMI, which is the jurisdiction with the strongest connection to the debtor. It could well be that the debtor bears no connection to the registered office other than the fact of registration, but if there is no sufficient evidence of a connection to any other jurisdiction, the registered office would be the debtor’s COMI even if the connection to it is objectively tenuous.

The former director therefore had to do more than discredit BVI as the COMI — he was required to affirmatively prove that Fullerton’s COMI was situated in another jurisdiction.

The Court likened this approach to the forum non conveniens test, where it is not enough to show that the presumptive forum is unsuitable; the applicant must show that another forum is clearly more appropriate. The Court emphasised that the COMI determination must focus on the quality, rather than quantity, of connecting factors - objectively ascertainable to third parties - that should guide the analysis. This requires the court to evaluate not how many links exist with a given jurisdiction, but how meaningful, sustained, and ascertainable those connections are in light of the debtor’s overall operations, public profile, and relationships with third parties.

Standard of Proof

In a critical clarification for practitioners, the Court then held that the standard to rebut the presumption in Article 16(3) is proof on the balance of probabilities, departing from the obiter remarks in Re Zetta Jet Pte Ltd and others (Asia Aviation Holdings Pte Ltd, intervener) [2019] 4 SLR 1343 - which had questioned the applicability of the balance of probabilities standard in this context and had appeared to endorse a more flexible evidential standard akin to that in US jurisprudence.

The Court stressed that the balance of probabilities is the well-entrenched civil standard of proof and using clear and certain standard aligns with the purpose of Article 16(3) to provide specificity in the COMI analysis. The Court did not have to choose between competing alternatives; if the party did not discharge its burden, the presumption would prevail, regardless of how many other parties contested the COMI.

As a matter of statutory construction, the Court held that the term “proof” in Article 16(3) of the Singapore enactment connotes legal proof, not mere evidentiary rebuttal. The Court distinguished this with the US legislative approach, which had substituted the word “proof” in Article 16(3) of the Model Law for “evidence” in § 1516(c) of the US Bankruptcy Code, such that it reads “in the absence of evidence to the contrary.” The Court agreed with the Australian decision in Akers v Saad Investments Co Ltd (in official liq) (2010) 276 ALR 508 that the presumption avoids the need for the court to examine the debtor's complex transnational dealings and delays recognition. The Court inferred that the Australian courts preferred the English approach over the US approach, which was consistent with the Model Law's policy of ensuring certainty and expediency in recognition application.

The Court acknowledged the trade-off between certainty and accuracy and the risk of the court being misled or the presumption becoming a rubber stamp in ex parte applications. However, it considered that this risk was mitigated by the foreign representative's duty of full and frank disclosure and the court's power to call for or assess other evidence in every case. Where the place of registration is just a "letterbox" office, the court would assess the evidence and determine if there was "proof to the contrary". The Court found that the appellant's assertions that the COMI was in Hong or China were equivocal and unsupported by documentary evidence. None of the factors identified by the appellant established a strong enough connection to displace the presumption in favour of the BVI.

Timing of COMI Assessment

The Court confirmed that the relevant date for assessing COMI is the date on which the application for recognition is filed. It rejected the previous proposition in Re Tantleff, Alan [2022] SGHC 147 that the court was required to focus on the debtor’s position “while it was alive and flourishing” which fostered uncertainty. Applying and furthering its view in British Steamship Protection and Indemnity Association Ltd and another v Thresh, Charles and another [2024] 2 SLR 317 (“British Steamship”) the court held that the actions of the foreign representative could be taken into account, subject to a sliding scale of relevance depending on the proximity of such actions to the relevant date. If the foreign representative’s activities had been undertaken over a long period of time—like in this case, where the respondents had been in control of Fullerton since the BVI Restoration Order of 10 October 2022—it was not clear why they should be artificially excluded from the COMI analysis.

Public Policy Exception

The former director then raised a public policy objection under Article 6 of the Model Law. He alleged that the Liquidators had acted in bad faith and failed to disclose material facts—specifically, that they had agreed to Fullerton bearing DKI’s restoration costs and that they had not disclosed the litigation funding arrangement with DKI. The Court reaffirmed that bad faith and material non-disclosure in principle can, if established, justify refusal of recognition on public policy grounds. However, it found no evidence of bad faith or impropriety. The litigation funding arrangement was not illegal or inherently improper, and disclosure of such arrangements is not required under Singapore law. The Liquidators’ conduct was found to be consistent with standard insolvency practice.

Disclosure and Examination Orders

The former director then opposed the disclosure and examination orders, claiming that they would be used to aid DKI’s separate litigation against him. The Court rejected this argument, noting that the orders were made subject to an undertaking by the Liquidators not to disclose any information to DKI without court approval. The former director, as a former officer of Fullerton, had a duty to assist the Liquidators and provide relevant information. The Court held that the orders were necessary and proportionate, and there was no basis to infer misuse. There was nothing that suggested that the respondents had breached or intended to breach their undertakings especially given the serious consequences of a breach.

Accordingly, the Court upheld the decision to recognise the BVI liquidation and the accompanying relief orders.

Judges
Steven Chong JCA, Kannan Ramesh JAD and Judith Prakash SJ

Counsel
Narayanan Sreenivasan SC, Muralli Rajaram and Sathya Justin Narayanan (Sreenivasan Chambers LLC) for the appellant
Yam Wern Jhien and Mah Hao Ran Ian (Setia Law LLC) for the respondent