Case Details
- Citation: [2023] SGHC 98
- Court: High Court of the Republic of Singapore
- Date: 2023-04-17
- Judges: Aedit Abdullah J
- Plaintiff/Applicant: Babel Holding Limited, Babel Asia Asset Management Private Limited, Babel Block Limited, Moonalpha Financial Service Limited, Shinar Trading Services Private Limited
- Defendant/Respondent: DRB Panama Inc (Deribit)
- Legal Areas: Insolvency Law — Schemes of arrangement
- Statutes Referenced: Companies Act, Companies Act 1967, Insolvency, Restructuring and Dissolution Act 2018, Payment Services Act 2019, Securities and Futures Act 2001
- Cases Cited: [2018] SGHC 259, [2021] SGHC 209, [2022] SGHC 196, [2023] SGHC 98
- Judgment Length: 14 pages, 3,056 words
Summary
This case involves a group of companies affiliated with the "Babel Finance" brand ("the Babel Finance Group") seeking an extension of moratoria under the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) to formulate a restructuring plan to be implemented through a scheme of arrangement. The court granted the applications for moratoria extension and sealing orders, finding that the statutory requirements and the criteria set out in prior case law had been met.
What Were the Facts of This Case?
The Babel Finance Group, comprising several companies incorporated in different jurisdictions, engages in a range of cryptocurrency-related business activities including lending and asset management. The applicants - Babel Holding Limited (the group holding company), Babel Asia Asset Management Private Limited (a Singapore subsidiary), Babel Block Limited (a BVI subsidiary), Shinar Trading Services Private Limited (a Singapore subsidiary), and Moonalpha Financial Service Limited (a Hong Kong company) - sought moratoria extensions under the IRDA to secure a respite period to formulate a restructuring plan to be implemented through a scheme of arrangement.
The proposed restructuring plan involves the substantive consolidation or pooling of the assets and liabilities of the entire Babel Finance Group, as well as a deed poll structure where one of the Singapore subsidiaries would become a primary co-obligor for the scheme claims of the entire group. Other key features include the conversion of customers' deficits into "Babel Recovery Coins" and the contemplation of new investments into the group.
The first non-party, DRB Panama Inc (Deribit), objected to the applications, arguing that the moratoria extensions were not brought in good faith, the foreign applicants lacked a substantial connection to Singapore, the proposed substantive consolidation lacked commercial merit, and the scheme was unworkable and had no reasonable prospect of being accepted by creditors.
What Were the Key Legal Issues?
The key legal issues were:
- Whether the sealing applications to keep certain documents confidential should be granted;
- Whether the requirements for the extension of moratoria under the IRDA had been met, including:
- Whether the statutory requirements under sections 63 and 64 of the IRDA had been fulfilled;
- Whether the requirements set out in the case of Re IM Skaugen SE and other matters [2018] SGHC 259 ("Skaugen") had been met;
- Whether the proposed use of substantive consolidation and the deed poll structure were appropriate mechanisms for the scheme of arrangement.
- What the appropriate scope of the moratoria extension should be.
How Did the Court Analyse the Issues?
On the sealing applications, the court accepted the applicants' arguments that sealing the documents containing commercially sensitive information about the identity of creditors was necessary to prevent a "contagion effect" where those creditors would suffer adverse financial consequences from being associated with the Babel Finance Group. The court held that at this stage, where the focus was only on the extension of moratoria rather than the approval of a scheme, the need for transparency and creditor consultation was less pressing than the need to safeguard the commercially sensitive information.
Regarding the extension of moratoria, the court first examined whether the statutory requirements under sections 63 and 64 of the IRDA had been met. The court found that the foreign applicants (Babel Holding Limited, Babel Block Limited, and Moonalpha Financial Service Limited) had established a "substantial connection" to Singapore under section 246 of the IRDA, based on factors such as the presence of substantial assets in Singapore and the existence of a Babel Finance team working out of the registered office of the Singapore subsidiary.
The court then considered whether the Skaugen requirements had been satisfied, namely that the applications were made in good faith and there was a reasonable prospect of the intended scheme working and being acceptable to the general run of creditors. The court accepted the applicants' submissions on these points, rejecting the objecting creditor's arguments that the applications were not brought in good faith and that the scheme was unworkable.
On the use of substantive consolidation and the deed poll structure, the court found that these were not inappropriate mechanisms in principle to be utilized in the proposed scheme of arrangement.
What Was the Outcome?
The court granted the applications for moratoria extensions and sealing orders. The moratoria were extended for a period of six months to allow the Babel Finance Group to formulate and implement its restructuring plan through a scheme of arrangement.
Why Does This Case Matter?
This case is significant for several reasons:
Firstly, it provides guidance on the application of the "substantial connection" test under the IRDA for foreign companies seeking to access Singapore's insolvency and restructuring regime. The court's analysis of the various factors, such as the presence of assets and the location of the company's operations, offers a useful framework for assessing the jurisdictional reach of the IRDA.
Secondly, the court's endorsement of the use of substantive consolidation and the deed poll structure in the proposed scheme of arrangement is noteworthy. These mechanisms, while not uncommon in insolvency and restructuring proceedings, can be complex and their appropriateness is often heavily scrutinized. The court's acceptance of these features in this case suggests a willingness to consider innovative approaches to group restructurings.
Finally, the court's decision to grant the sealing orders, despite the objecting creditor's arguments for transparency, highlights the need to balance competing interests in insolvency and restructuring proceedings. The court's reasoning that the commercial sensitivity of the information outweighed the need for transparency at this stage of the proceedings provides useful guidance on when confidentiality may take precedence.
Legislation Referenced
- Companies Act
- Companies Act 1967
- Insolvency, Restructuring and Dissolution Act 2018
- Payment Services Act 2019
- Securities and Futures Act 2001
Cases Cited
- [2018] SGHC 259 (Re IM Skaugen SE and other matters)
- [2021] SGHC 209
- [2022] SGHC 196
- [2023] SGHC 98 (Re Babel Holding Ltd and other matters)
Source Documents
This article analyses [2023] SGHC 98 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.