Amendments to Companies Act Aim to Transform Singapore into Debt Restructuring Hub

by Morgan Lewis
Contact

Morgan Lewis

Singapore’s firm trajectory towards becoming an international hub for debt restructuring received a boost with the Companies (Amendment) Act 2017 coming into force on 23 May 2017.

The Companies Act was updated to address perceived weaknesses in the existing legislation which impeded efforts to make Singapore a more attractive forum for restructuring. These amendments—which take cues from the US Chapter 11 regime—are the first in a series of legal reforms in line with the recommendations made by the Insolvency Law Review Committee and the Committee to Strengthen Singapore as an International Centre for Debt Restructuring.

This LawFlash discusses the amendments, which focus on four main areas of insolvency—schemes of arrangements, judicial management, winding up, and cross-border insolvency.

Schemes of Arrangement

A scheme of arrangement is a company-controlled, court-supervised debt restructuring regime, which is similar to schemes of arrangement available in other Commonwealth jurisdictions where—unlike a full insolvency—not all classes of creditors are affected.

Under a scheme of arrangement, the rights of the company and its creditors (or class of creditors) and shareholders are proposed to be restructured to allow the company to survive a period of distress and to emerge as a going concern. A majority in number representing at least three-fourths in value of each class of creditors must provide consent to a scheme at a specially convened meeting. If such majority is obtained and the approved scheme is subsequently sanctioned by the Singapore court, the scheme and its terms bind all scheme creditors. The operation of the scheme is administered by a court-appointed scheme manager and is supervised by the court.

Under the new rules, foreign companies that have a substantial connection with Singapore are now able to avail themselves of the scheme of arrangement regime. The amendments also introduce provisions that allow the court to grant a worldwide moratorium (including against enforcement of secured rights and interests), prioritize rescue funding to the level of a “super security”, and allow for the “cram down” of certain dissenting classes of creditors (i.e., the court may approve a scheme with multiple classes of creditors even if a class of creditors objected to the scheme, if certain conditions are met). These are in part similar to the worldwide stay, prioritization of post-filing credit, and cram down provisions available to debtors under the US Chapter 11 regime.

The amendments also will provide for a fast-track negotiation scheme that will allow the court to approve a scheme of arrangement without holding a meeting of creditors, and for a different and more detailed and transparent process by which creditors should establish their claims for purposes of voting in a scheme.

Judicial Management

Judicial management is an insolvency regime under which judicial managers are appointed by the court (thereby replacing the company’s management) to manage and resuscitate an ailing Singapore company. The company is given respite from creditors through a moratorium to allow the judicial managers breathing room to reorganize the company’s affairs with the aim of restoring the company to a going concern. The judicial managers are required to present, for approval at a creditors’ meeting, a statement of proposal for achieving the objectives of the judicial management, and also can establish a committee of creditors to assist the judicial managers in the discharge of their functions. With the moratorium, the company may then trade out of its financial difficulties and repay its creditors in full over time; a scheme of arrangement also can be applied for during the judicial management period should the judicial managers deem it necessary to compromise and restructure certain debts.

As with the changes to the scheme of arrangement regime, the amendments now allow judicial management to be made available to foreign companies and provide for the prioritization of rescue funding ahead of all other secured debt.

With the changes, a company will be able to apply for judicial management more easily, as it will only need to show that it is likely to become unable to pay its debts as they become due in the future; the company no longer needs to show that it is actually and currently unable to pay its debts.

Winding Up

The primary change in respect of winding up proceedings (liquidation of a company where a court-appointed liquidator administers the preservation and sale of the company’s business and assets and distributes its proceeds to creditors) is that it is now clarified that the court will be able to assume winding up jurisdiction over foreign companies that can demonstrate a “substantial connection with Singapore”.

The previous ring-fencing rule in the winding up of foreign companies—that a Singapore liquidator could only remit funds to the foreign jurisdiction after all Singapore debts had been paid—is abolished by the new amendments.

Cross-Border Insolvency

Singapore has adopted the UNCITRAL Model Law on Cross-Border Insolvency to mutually recognise insolvency orders and render reciprocal aid in insolvency proceedings. Singapore is the most recent addition to the list of 42 signatory countries, including the United States, United Kingdom, and Japan, which have already adopted this Model Law.

Conclusion

These amendments are a quantum leap in the evolution of Singapore’s insolvency laws and regime, bringing the country more in line with the US Chapter 11 bankruptcy regime. This is a key step in Singapore’s vision to be at the forefront of developments in insolvency laws and to become a choice forum in handling cross-border insolvency issues.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis
Contact
more
less

Morgan Lewis on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.