The Singapore Companies Act (Amendment) Bill 2017 is poised to revolutionise Singapore's restructuring and insolvency framework. Singapore has raced ahead to implement features from the debtor-in-possession model of Chapter 11 of the US Bankruptcy Code (US Chapter 11). Extensive changes to schemes of arrangement and judicial management include the automatic worldwide moratorium, moratoriums against holding companies and subsidiaries, super-priority rescue financing, and extending the Courts' jurisdiction over foreign companies. The Bill also intends to give full-scale effect to the UNCITRAL Model Law on Cross-Border Insolvency. These changes will strengthen Singapore's corporate rescue mechanisms, and make them viable options for local and foreign companies.
Changes at a glance
Schemes of Arrangement
Currently, Singapore's scheme of arrangement regime is similar to that in England and Hong Kong. Schemes are commonly used by companies to compromise their trade and financial debts. Schemes must be approved by each class of creditors, representing (in such class) 75% in value and a majority in number present and voting. Creditors are divided into separate classes if their rights are so dissimilar that they cannot sensibly consult together with a view to their common interest.
Singapore will be introducing the following changes adapted from the US Chapter 11:
- an automatic worldwide moratorium of 30 days, triggered upon applying to court for a creditors' meeting;
- the Court being able grant a moratorium on enforcement against subsidiaries, holding companies and the ultimate parent of a company undergoing restructuring;
- "cram-down" provisions empowering the Court to approve a scheme despite one or more dissenting classes of creditors, where at least one class of creditors has approved the scheme (therefore allowing the Court to push through a scheme even where there are hold out classes of creditors); and
- the option for pre-packaged restructuring plans that the Court can approve without convening meetings of creditors.
Judicial Management
Similar to the administration regime in England, Singapore's judicial management regime is a rehabilitative procedure that aims to achieve survival of the company or a more advantageous realisation of the company's assets than in a liquidation. A court-appointed judicial manager administers the company's operations and assets in place of the existing management.
The following changes will be introduced:
- removing the requirement that the company be insolvent;
- removing a significantly secured creditor's right to veto a judicial management order; and
- allowing foreign companies with a substantial connection with Singapore to resort to judicial management.
Rescue Financing
Changes to the current priority regime will be introduced to allow distressed companies to obtain fresh finance while undergoing re-organisation. Rescue financing can be provided on an unsecured or secured basis. Unsecured rescue funds can enjoy priority as an administrative expense or priority over preferential debts. For secured rescue funds, the Court may order that the funds be secured by a security interest on the company's unencumbered assets, or a security interest on encumbered assets that is subordinate, pari passu or superior to the pre-existing security interest.
Foreign companies with a Substantial Connection to Singapore can Seek Restructuring in Singapore
Foreign companies can now have access Singapore's restructuring regime if the company has a substantial connection to Singapore. Factors used to determine if the foreign company has a substantial connection to Singapore include:
- whether its centre of main interests is located in Singapore;
- whether the company carried on business in Singapore or has a place of business in Singapore;
- whether the company is registered as a foreign company under the Singapore Companies Act;
- whether the company has substantial assets in Singapore;
- whether the company has chosen Singapore law as the governing law of its loans or other transactions; and
- whether the company has submitted to the jurisdiction of the Singapore courts for the resolution of one or more disputes relating to a loan or other transaction.
Certain of these factors are malleable, and can be availed by foreign companies seeking refuge in Singapore's corporate rescue framework. For instance, a company could shift its centre of main interests to Singapore by moving its head office functions, notifying all suppliers, creditors and contractual counterparties of the move and moving its bank accounts1. A company could also stipulate or amend the governing law and jurisdiction clauses in its transactions in favour of Singapore2.
UNCITRAL Model Law
This is a significant development which will ensure mutual cooperation in the resolution of cross-border insolvencies between Singapore and other countries which have adopted the Model Law.
More details on the above changes are set out in the table which may be accessed here.
How these Changes affect you?
While these changes are primarily intended to enhance the restructuring processes available to Singapore corporates, and to improve the Singapore court's capability to deal with cross-border restructurings and insolvencies, they also present new opportunities for foreign corporates who wish to use the Singapore courts as their forum for restructuring.
In particular, the changes to the Companies Act will allow foreign companies to seek bankruptcy protection in the Singapore courts so long as they have a substantial connection to Singapore – which, as highlighted above, would be established not just by having assets or a registered office in Singapore, but also by governing their financing documents by Singapore law.
The amendments to the Companies Act are a significant part of an overall strategy by the Singapore government to promote Singapore as a centre for debt restructuring. Other related measures include setting up a specialist insolvency Bench (which will include international judges). The Government also hopes to attract distressed debt financiers and restructuring specialists.
How Can We Assist?
As a well-established specialist banking, finance and insolvency firm, Shook Lin & Bok LLP is ideally set up to provide Singapore law advice to you and your clients on the above matters. In particular, our experience includes:
- a specialist insolvency and restructuring litigation practice that regularly advises judicial managers, scheme managers, receivers, creditors (including bondholders), trustees and distressed corporates, in both domestic and cross-border insolvencies and restructurings; and
- a dedicated banking and debt capital markets practice that acts regularly for banks, funds and corporates in their loan and debt rescheduling and restructuring arrangements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
