The Court touched on some of the factors as to why it considered that the scheme was not feasible and this case demonstrates the power of the Singapore courts to test the feasibility of a scheme in light of the factual matrix surrounding the application and reject the scheme application even before it is put to creditors.
Facts of the Case
In December 2020, Kobian Pte Ltd (Kobian) applied to the Singapore High Court under section 64 of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) to propose a scheme of arrangement with its creditors. As held by the High Court in Re IM Skaugen SE  3 SLR 979;  SGHC 259, an applicant under section 64 may apply on either of the following bases:
- One is that it must have already proposed a compromise or arrangement to its creditors, in which case, it needed only to furnish evidence of creditor support and an explanation of the importance of that support to the proposed compromise or arrangement.
- The second basis is if it had not already made such a proposal to its creditors. Then it would need to:
- provide a brief description of the intended compromise or arrangement, containing sufficient particulars to enable the court to assess whether the intended compromise or arrangement is feasible and merits consideration by the company’s creditors; and
- show evidence of creditor support for and importance of the same.
Kobian had made its application on the second basis (i.e. it had not already made a proposal to its creditors). Where an applicant makes its application on this basis, it is now clear that the court will not only consider whether there is evidence of creditor support and whether the brief description of the intended compromise contains sufficient particulars, it will also separately assess at the stage of the application whether the intended scheme or arrangement is feasible and merits consideration by the creditors.
Court Denies the Application
In this case, it has been reported that the Court denied Kobian’s application as it found that, among other things, Kobian’s intended scheme of arrangement was not feasible.
As noted, the application was made by Kobian in December 2020. In deciding that the intended scheme or arrangement was not feasible, the Court noted that Kobian had run into financial difficulties much earlier, in January 2020. Accordingly, by the time the application was made in December 2020 and heard in January 2021, Kobian’s financing banks had already terminated their banking lines. In the view of the Court, Kobian’s financial position had deteriorated to the point that the intended proposal would not be feasible.
Ultimately, whether a proposed scheme is feasible is a question of fact and a court will therefore consider the entire factual matrix. There is not a clear legal test of feasibility – although it’s clear from this case that delaying a scheme application and allowing the financial position of the company to deteriorate can prove fatal to the application. It should also be noted that, in this case, the Court had also found that Kobian had not met the other two requirements for the grant of the application: evidence of creditor support and a sufficiently particularised description of the intended scheme or arrangement.
The requirement of feasibility may be usefully analogized as the scheme of arrangement equivalent of the assessment made by the court in considering an application for judicial management where, among other things, the court considers whether there is a reasonable probability of rehabilitating the company or of preserving all or part of its business as a going concern. Seen in this way, the requirement of feasibility performs a useful gatekeeper function of ensuring that time and resources are not spent on a scheme that even if approved will not actually save the company.