Singapore Court of Appeal rules on moratorium carve-outs and the interactions between arbitration and insolvency regimes

1. In Sapura Fabrication Sdn Bhd and others v GAS and anor appeal [2025] SGCA 13, the Singapore Court of Appeal made important findings on: 
   1. the test to be applied in determining whether to grant a carve-out for arbitration claims after a foreign insolvency proceeding is recognised as a foreign main proceeding under the UNCITRAL Model Law on Cross-Border Insolvency (Model Law), as implemented under Singapore’s Insolvency, Restructuring and Dissolution Act 2018 (SG Model Law); and
   2. the interplay between arbitration agreements and insolvency proceedings.
2. Brief facts: The appellants had commenced restructuring proceedings in Malaysia. They sought recognition of the Malaysian restructuring proceedings as a foreign main proceeding in Singapore under the SG Model Law. Such recognition would give rise to an automatic moratorium under Art 20(1) of the SG Model Law. The respondent sought a carve-out from the moratorium, i.e. permission from the Singapore Court to proceed with Singapore-seated arbitration proceedings against the appellants under Art 20(6) of the SG Model Law.
3. Decision: Even though the appellants withdrew the appeals following the parties’ settlement, the SGCA held that they would have dismissed the appeals but for their withdrawal, finding:
   1. The Court’s discretion to grant a carve-out from a moratorium arising from restructuring proceedings remains guided by the factors set out in Wang Aifeng v Sunmax Global Capital Fund 1 Pte Ltd and anor [2023] 3 SLR 1604 (Wang Aifeng), which are specific, non-exhaustive markers to guide the court in balancing the various considerations and interests involved. It is not necessary to adopt an “exceptional circumstances” test.
   2. The Wang Aifeng factors are: (a) the timing of the application; (b) nature of the claim; (c) existing remedies; (d) merits of the claim; (e) existence of prejudice to the creditors or to the orderly administration of the restructuring proceedings; and (f) other miscellaneous factors such as the potential of an avalanche of litigation being unleashed by the grant of permission, the proportionality of the cost of the proceeding to the scheme company’s resources, and the views of the majority of creditors.
   3. On the facts, the complexity of the case and of the dispute was the overriding consideration. The arbitration claims were vigorously disputed and factually complex, involving claims for damages for breaches of construction contracts of at least US$185 million. The appellants were also asserting rights of set-off. Such a dispute would be impracticable for an adjudicator to meaningfully adjudicate.
   4. There was already significant delay in the adjudication of proofs of debt submitted by the respondent in respect of a different set of claims. This strongly indicated that the scheme adjudication process was inadequate to deal with the arbitration claims, which arose from the same contracts and were similar (if not more) complex and disputed compared to the proofs of debt.
   5. The appellants could not show that they would suffer prejudice if the arbitration were to proceed. That they would have to expend time and costs to defend the arbitration was the inevitable consequence of their decision to dispute and then delay the adjudication of the respondent’s proofs of debt.
   6. A moratorium per se does not render all arbitration agreements ipso facto inoperative or incapable of being performed. Rather, the Court’s discretion to grant a carve-out that is sought to enforce an arbitration agreement will be guided by the Wang Aifeng factors.

The Norton Rose Fulbright Ascendant team, comprising Katie Chung, Eunice Chan and Jim Yang Teo, acted for the successful carve-out applicant in this dispute.