Sapura Fabrication Sdn Bhd and others v GAS and another appeal

The appellants (the “Sapura Entities”) were part of the larger Sapura Group which had been engaging in restructuring proceedings in Malaysia, which were conducted across three consecutive reorganisation proceedings. Each reorganisation proceeding was recognised by the General Division of the High Court (“GDHC”) as a foreign main proceeding  under the UNCITRAL Model Law on Cross-Border Insolvency as adopted in Singapore (the “SG Model Law”).

The respondent filed proofs of debt in the first reorganisation proceeding against the Sapura Entities for claims under two contracts entered into with the Sapura Entities (the “Contracts”). The Contracts contained arbitration agreements providing for Singapore-seated arbitrations.

While the second reorganisation proceeding was ongoing, the respondent commenced arbitration against the Sapura Entities for claims under the Contracts (the “Arbitration Claims”). Following the recognition of a third reorganisation proceeding, the respondent applied for a carve-out to proceed with the arbitrations against the Sapura Entities under Art 20(6) of the SG Model Law.

The Court of Appeal upheld the decision below that the respondent be granted a crave-out from the automatic stay. It held that in deciding whether to grant carve-outs from moratoriums in restructuring proceedings, the court’s discretion remains guided by the non-exhaustive factors set out in Wang Aifeng v Sunmax Global Capital Fund 1 Pte Ltd [2023] 3 SLR 1604, including the nature of the claim; the merits of the claim and the existence of prejudice to the creditors or to the orderly administration of the restructuring proceedings. In considering the factors, the court could give effect to the rationale of the moratorium in the restructuring context by giving more weight to considerations that directly touch on the debtor company’s need for breathing room to put forward a proposal.

In the present case, the Arbitration Claims were vigorously disputed and factually complex which rendered them impracticable for a scheme adjudicator to meaningfully adjudicate. This was further supported by the lengthy delay in adjudicating the respondent’s proof of debts.  The grant of the carve-out also did not affect the Sapura Entities’ breathing space to propose an arrangement since the respondent’s vote on the scheme would be inconsequential given that the value of the Arbitration Claims was a small fraction of the overall debt being restructured. Whilst the Sapura Entities would suffer increased costs for the arbitration, this was an inevitable consequence of their decision to dispute and then delay adjudicating the respondent’s proofs of debt.

Read the full judgment here