Case Details
- Citation: [2023] SGHC 98
- Court: General Division of the High Court of the Republic of Singapore
- Decision Date: 17 April 2023
- Coram: Aedit Abdullah J
- Case Number: Originating Application No 192 of 2023; Originating Application No 193 of 2023; Originating Application No 194 of 2023; Originating Application No 195 of 2023; Originating Application No 196 of 2023; HC/SUM 681 of 2023; HC/SUM 899 of 2023
- Hearing Date(s): 31 March 2023
- Claimants / Plaintiffs: Babel Holding Limited (Applicant); Babel Asia Asset Management Private Limited; Babel Block Limited; Moonalpha Financial Service Limited; Shinar Trading Services Private Limited
- Respondent / Defendant: DRB Panama Inc (First Non-party)
- Counsel for Claimants: Yeo Alexander Lawrence Han Tiong, Ang Ann Liang, Yeoh Tze Ning and Edwin Teong Ying Keat (Allen & Gledhill LLP)
- Counsel for Respondent: Abraham S Vergis SC, Mohamed Nawaz Kamil, Alston Yeong and Daniel Huang Xinli (Providence Law Asia LLC)
- Practice Areas: Insolvency Law — Schemes of arrangement — Extension of Moratoria
Summary
The decision in Re Babel Holding Ltd and other matters [2023] SGHC 98 represents a significant judicial examination of the moratorium framework under Section 64 of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) within the context of the volatile cryptocurrency sector. The case involved five companies affiliated with the "Babel Finance" brand (the "Babel Finance Group") seeking extensions of existing moratoria to facilitate a complex multi-jurisdictional restructuring. The proposed restructuring was notable for its intended use of "substantive consolidation" or "pooling" of assets and liabilities across the group, alongside a novel "deed poll" structure and the issuance of "Babel Recovery Coins" to creditors.
The High Court, presided over by Aedit Abdullah J, was tasked with determining whether the statutory requirements for a moratorium extension were met, particularly for the foreign-incorporated entities within the group. A central point of contention was whether these foreign applicants possessed a "substantial connection" to Singapore as required by Section 246 of the IRDA. Furthermore, the Court addressed the "Skaugen requirements"—derived from [2018] SGHC 259—which mandate that such applications be made in good faith and demonstrate a reasonable prospect of a successful scheme of arrangement.
The Court ultimately granted the extensions for a period of approximately three months, finding that the applicants had sufficiently demonstrated a substantial connection to the jurisdiction and that the proposed scheme was not inherently unworkable. Crucially, the Court also allowed sealing applications to protect the identities of certain creditors, accepting the "contagion effect" argument—that public disclosure of creditor identities could lead to adverse financial consequences for those parties and further destabilize the restructuring efforts.
This judgment reinforces Singapore's position as a pragmatic and sophisticated hub for international debt restructuring, particularly for digital asset firms. It clarifies that while the Court will scrutinize the commercial merits of a proposed scheme, the threshold at the moratorium extension stage is focused on whether the scheme is "not unworkable" rather than a definitive finding on its eventual sanction. The decision also highlights the Court's willingness to accommodate innovative restructuring mechanisms like substantive consolidation where they appear necessary for the preservation of value across a corporate group.
Timeline of Events
- 6 March 2023: The Babel Finance Group applicants filed the Moratoria Extension Applications under Section 64 of the Insolvency, Restructuring and Dissolution Act 2018.
- 27 March 2023: Filing of the 4th Affidavit of Yang (Yang-4) in support of the applications, detailing the proposed restructuring mechanisms including the deed poll structure.
- 29 March 2023: The first non-party, DRB Panama Inc (Deribit), filed an affidavit through its representative, AJWS, objecting to the extension of the moratoria.
- 31 March 2023: Substantive hearing of the Moratoria Extension Applications and the Sealing Applications before Aedit Abdullah J.
- 5 April 2023: Further submissions or clarifications provided following the substantive hearing (as referenced in the procedural context).
- 17 April 2023: Judgment delivered by Aedit Abdullah J, granting the sealing orders and extending the moratoria for approximately three months.
What Were the Facts of This Case?
The Babel Finance Group is a prominent player in the cryptocurrency industry, engaging in diverse business activities including crypto-lending and asset management. The group structure involved several entities across multiple jurisdictions: Babel Holding Limited ("BHL"), the group holding company incorporated in the Cayman Islands; Babel Block Limited, a British Virgin Islands subsidiary; Moonalpha Financial Service Limited, a Hong Kong-incorporated entity; and two Singapore-incorporated subsidiaries, Babel Asia Asset Management Private Limited and Shinar Trading Services Private Limited. Collectively, these entities sought the protection of the Singapore courts to restructure their significant liabilities following the downturn in the digital asset markets.
The core of the restructuring proposal was a scheme of arrangement that contemplated the "substantive consolidation" or "pooling" of the assets and liabilities of the entire Babel Finance Group. This is a relatively rare and complex mechanism in insolvency law where the separate legal personalities of group companies are effectively ignored for the purpose of distributing assets to a combined pool of creditors. The applicants argued that such a measure was necessary because the group's operations were so intertwined that identifying the specific assets and liabilities of each individual entity would be prohibitively difficult and would not reflect the economic reality of the group's business.
To implement this consolidation, the applicants proposed a "deed poll" structure. Under this arrangement, one of the Singapore subsidiaries would execute a deed poll, becoming a primary co-obligor for the scheme claims of the entire group. This would theoretically allow all creditors of the various group entities to participate in a single scheme of arrangement governed by Singapore law. A further innovative feature of the plan was the conversion of customer deficits into "Babel Recovery Coins," a form of digital token intended to represent a claim on the future recovery or profits of the restructured group. The plan also relied on the prospect of securing new investments to recapitalize the business.
The applications were vigorously opposed by DRB Panama Inc (Deribit), a creditor and the first non-party in the proceedings. Deribit raised several fundamental objections. First, it alleged that the applications were not brought in good faith, pointing to potential breaches of statutory licensing requirements under the Payment Services Act 2019 and the Securities and Futures Act 2001. Deribit argued that the Babel Finance Group had been operating without the necessary regulatory approvals from the Monetary Authority of Singapore (MAS), which should preclude them from seeking the Court's assistance in restructuring.
Second, Deribit challenged the jurisdiction of the Singapore Court over the foreign applicants (BHL, Babel Block, and Moonalpha). It contended that these entities lacked a "substantial connection" to Singapore, arguing that the factors cited by the applicants—such as the presence of a management team in Singapore—were tenuous and insufficient to meet the requirements of Section 246 of the IRDA. Third, Deribit attacked the commercial viability of the proposed scheme, characterizing the substantive consolidation as lacking merit and the "Babel Recovery Coins" as an unworkable solution that would not be acceptable to the general body of creditors. Deribit further argued that the lack of transparency regarding the group's financial position and the identity of its creditors made it impossible for creditors to properly assess the proposal.
Parallel to the moratorium applications, the Babel Finance Group sought sealing orders to keep certain documents, particularly those identifying their creditors, confidential. They argued that the cryptocurrency market is highly sensitive to "contagion," and that revealing the identities of creditors who were themselves significant players in the crypto ecosystem could trigger a chain reaction of financial distress, ultimately harming the restructuring prospects of the Babel Finance Group itself.
What Were the Key Legal Issues?
The Court was required to resolve three primary legal issues, each involving a mix of statutory interpretation and the application of established insolvency principles to the novel context of digital assets.
- The Sealing Applications: Whether the Court should exercise its discretion to seal documents containing creditor information. This required balancing the fundamental principle of open justice and the need for creditor transparency in a scheme of arrangement against the risk of "contagion" and commercial harm to the creditors and the restructuring process.
- Jurisdiction and Substantial Connection: Whether the foreign applicants (BHL, Babel Block, and Moonalpha) had established a "substantial connection" to Singapore under Section 246 of the IRDA. This is a jurisdictional gateway for foreign companies seeking to utilize Singapore's restructuring tools. The issue was whether the presence of a "Babel Finance team" and certain assets in Singapore constituted a sufficient nexus.
- The Merits of the Moratoria Extension (Skaugen Requirements): Whether the applicants had satisfied the requirements for an extension under Section 64 of the IRDA, as interpreted through the Skaugen framework. Specifically:
- Were the applications made in good faith, notwithstanding the allegations of regulatory breaches?
- Was there a reasonable prospect of the proposed scheme—including the substantive consolidation and the deed poll structure—working and being acceptable to creditors?
These issues mattered because they defined the boundaries of the Court's power to assist foreign-incorporated crypto firms and the level of scrutiny the Court will apply to innovative restructuring mechanisms at an early stage of the proceedings.
How Did the Court Analyse the Issues?
The Court’s analysis proceeded systematically through the jurisdictional, procedural, and substantive requirements for the relief sought.
1. The Sealing Applications
Aedit Abdullah J began by addressing the Sealing Applications. The applicants argued that confidentiality was essential to prevent a "contagion effect." The Court accepted this rationale, noting at [10] that the cryptocurrency industry is particularly susceptible to such risks. The Court distinguished the current stage of the proceedings—a moratorium extension—from the later stage of sanctioning a scheme under Section 210 of the Companies Act 1967. At [11], the Court observed:
"At the present stage, where the focus is on the extension of the moratoria rather than the calling of a meeting or the sanctioning of a scheme under s 210 of the Companies Act 1967 (2020 Rev Ed) (“CA”), the need for transparency and the ability of the Scheme creditors to consult with one another is less pressing."
The Court concluded that the risk of commercial harm outweighed the immediate need for transparency, provided that the creditors would eventually receive the necessary information to vote on the scheme once it was fully formulated.
2. Substantial Connection under Section 246 IRDA
For the foreign applicants to qualify as "foreign companies" capable of being wound up (and thus eligible for a moratorium) in Singapore, they had to demonstrate a "substantial connection" under Section 246(3) of the IRDA. The Court applied the factors set out in [2022] SGHC 196, which emphasize that the connection must be more than transient.
The Court found that Moonalpha and the other foreign applicants had established this connection. Key factors included:
- The presence of a "Babel Finance team" of approximately 10 to 11 employees working out of the registered office of the Singapore subsidiary (Babel Asia).
- The existence of substantial assets within the jurisdiction.
- The fact that Singapore was the center of the group's management activities.
The Court rejected Deribit's argument that these connections were "tenuous," finding that the operational reality of the group centered on its Singapore presence.
3. The Skaugen Requirements: Good Faith and Workability
The Court then turned to the requirements for extending a moratorium as set out in [2018] SGHC 259. The two critical prongs are good faith and a reasonable prospect of success.
A. Good Faith and Regulatory Breaches
Deribit argued that the applicants lacked good faith because they had allegedly operated in breach of the Payment Services Act 2019 and the Securities and Futures Act 2001. The Court held that while regulatory breaches are relevant, they do not automatically disqualify an applicant from seeking a moratorium. At [18], the Court noted that the Monetary Authority of Singapore (MAS) was aware of the situation and had not taken steps to shut down the operations. The Court found that the primary focus of the "good faith" inquiry in a moratorium application is whether the applicant is genuinely attempting to restructure for the benefit of creditors, rather than seeking to evade liabilities or hide assets.
B. Workability of the Scheme
The Court addressed the "workability" of the proposed scheme, which included substantive consolidation and the deed poll structure. Deribit argued these were legally and commercially flawed. The Court, however, adopted a pragmatic stance. It noted that substantive consolidation, while exceptional, is a recognized mechanism in insolvency law (citing Dean-Willcocks v Soluble Solutions Hydroponics Pty Ltd (1997) 24 ACSR 79). The Court also noted that the use of a deed poll to create co-obligors had been accepted in [2021] SGHC 209.
Crucially, the Court emphasized that at the moratorium stage, it does not need to be certain that the scheme will be sanctioned. It only needs to be satisfied that the scheme is "not unworkable." The Court found that the applicants had provided sufficient detail to show that the plan was a serious attempt at restructuring. The "Babel Recovery Coins" and the pooling of assets were deemed sufficiently plausible to allow the moratorium to continue so that the details could be refined and presented to creditors.
What Was the Outcome?
The Court granted the Sealing Applications and the Moratoria Extension Applications. However, rather than the longer period requested by the applicants, the Court granted an extension of approximately three months to ensure that the restructuring process maintained momentum and that the Court could monitor progress.
The operative order of the Court was stated at [25]:
"The Sealing Applications are allowed, and the Moratoria Extension Applications are granted for a period of about three months."
The Court's decision resulted in the following specific outcomes:
- Sealing: Documents containing sensitive creditor information were sealed to prevent the "contagion effect" in the cryptocurrency market.
- Moratorium Extension: The protection against legal proceedings was extended for all five applicants, providing them with the necessary "breathing space" to finalize the scheme of arrangement.
- Jurisdictional Affirmation: The Court confirmed its jurisdiction over the foreign entities (BHL, Babel Block, and Moonalpha) based on their substantial connection to Singapore.
- Validation of Mechanisms: The Court signaled that substantive consolidation and deed poll structures are, in principle, acceptable tools for restructuring in Singapore, subject to the eventual approval of creditors and the Court's sanction.
No specific order as to costs was detailed in the judgment, following the typical practice in such originating applications where costs may be dealt with at a later stage or as part of the scheme's administration.
Why Does This Case Matter?
The Re Babel Holding Ltd decision is a landmark for several reasons, particularly for practitioners involved in cross-border insolvency and the burgeoning field of digital asset restructuring.
First, it provides a robust application of the "substantial connection" test under Section 246 of the IRDA. By recognizing that a management team and operational presence in Singapore can ground jurisdiction for a foreign group holding company, the Court has lowered the barrier for international firms to seek restructuring relief in Singapore. This is especially relevant for "asset-light" technology and crypto firms whose physical presence may be limited but whose management and operational core are centered in the Republic. It follows the trajectory set by [2022] SGHC 196, further cementing Singapore's role as a restructuring hub for the global crypto industry.
Second, the judgment offers critical guidance on the use of substantive consolidation and deed poll structures in schemes of arrangement. While these mechanisms are complex and potentially controversial—as they interfere with the principle of separate legal personality—the Court's willingness to entertain them at the moratorium stage shows a high degree of commercial pragmatism. For practitioners, this means that innovative "pooling" arrangements are "on the table" in Singapore, provided there is a clear economic justification and a pathway to creditor approval.
Third, the Court's analysis of the "good faith" requirement in the face of alleged regulatory breaches is highly significant. The ruling clarifies that the insolvency court is not a regulatory enforcement body. While a total disregard for the law might indicate a lack of good faith, the mere existence of potential licensing issues (under the Payment Services Act 2019 or Securities and Futures Act 2001) does not automatically bar a company from restructuring. This distinction is vital for companies in rapidly evolving sectors where regulatory compliance may be a matter of ongoing discussion with authorities like MAS.
Fourth, the decision on sealing orders highlights the Court's sensitivity to the unique risks of the cryptocurrency market. The acceptance of the "contagion effect" argument demonstrates that the Court will adapt procedural rules to protect the economic value of a distressed group when traditional transparency might be counterproductive. This provides a precedent for other crypto-firms to seek similar protections during the sensitive early stages of a restructuring.
Finally, the case reinforces the Skaugen framework's "low bar" for workability at the moratorium stage. By emphasizing that the Court only needs to find the scheme "not unworkable," Aedit Abdullah J has ensured that the moratorium remains a tool for exploration and negotiation, rather than a mini-trial on the final merits of the restructuring plan. This approach preserves the "breathing space" that is the fundamental purpose of Section 64 of the IRDA.
Practice Pointers
- Substantial Connection Evidence: When representing foreign applicants, practitioners should provide detailed evidence of the "management core" in Singapore. This includes the number of employees, the nature of their work, and the specific management functions performed within the jurisdiction.
- Sealing Applications and Contagion: In crypto-related restructurings, specifically plead the "contagion effect" if seeking to seal creditor lists. Evidence should show how disclosure could harm the creditors themselves or lead to a run on the group's remaining assets.
- Addressing Regulatory Breaches: If an applicant faces allegations of regulatory non-compliance (e.g., PSA or SFA licensing), focus the "good faith" argument on the genuine intent to maximize creditor recovery rather than the legality of past operations.
- Workability Threshold: At the moratorium stage, the burden is to show the scheme is "not unworkable." Detailed term sheets, evidence of investor interest, and a clear explanation of mechanisms like "Babel Recovery Coins" are essential, even if they are not yet in final form.
- Substantive Consolidation Justification: If proposing to pool assets and liabilities, practitioners must demonstrate that the group's affairs are so inextricably intermingled that separate accounting is impossible or would result in unfairness to the general body of creditors.
- Deed Poll as a Jurisdictional Tool: Consider using a Singapore subsidiary to execute a deed poll as a co-obligor to anchor a group-wide scheme in Singapore, as supported by the Court's reference to [2021] SGHC 209.
- Short Moratoria for Momentum: Be prepared for the Court to grant shorter extensions than requested (e.g., 3 months instead of 6) to maintain pressure on the applicants to progress the restructuring.
Subsequent Treatment
The decision in Re Babel Holding Ltd has been viewed as a consistent application of the principles established in Re Zipmex and Re IM Skaugen. It reinforces the Singapore Court's flexible and pro-restructuring stance toward the digital asset industry. While the ratio focuses on the "substantial connection" and "workability" tests at the moratorium stage, the case is frequently cited in subsequent insolvency proceedings involving crypto-assets to justify the use of sealing orders and to argue for the viability of novel token-based recovery mechanisms. It stands as a key authority for the proposition that the Court will not allow unproven regulatory allegations to derail a restructuring process that is otherwise being pursued in good faith for the benefit of creditors.
Legislation Referenced
- Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed), Sections 63, 63(3), 64, 246, 246(1)(d), 246(3)
- Companies Act 1967 (2020 Rev Ed), Section 210
- Payment Services Act 2019 (Act 2 of 2019)
- Securities and Futures Act 2001 (2020 Rev Ed)
Cases Cited
- Applied: Re IM Skaugen SE and other matters [2018] SGHC 259
- Referred to: Re Zipmex Co Ltd and other matters [2022] SGHC 196
- Referred to: Re DSG Asia Holdings Pte Ltd [2021] SGHC 209
- Referred to: Dean-Willcocks v Soluble Solutions Hydroponics Pty Ltd (1997) 24 ACSR 79
- Referred to: Re Hunter Valley Gravel Supplies Pty Ltd (2006) 59 ACSR 559