Singapore Enacts New Corporate Bankruptcy Law to Promote International Debt Restructuring

Jones Day
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On March 10, 2017, Singapore's Parliament approved the Companies (Amendment) Bill 2017 ("Act") to enhance the country's corporate debt restructuring framework. The Act was assented to by President Tony Tan Keng Yam on March 29, 2017, and became effective after it was published in the Singapore Government Gazette on March 30, 2017.

The Act is a ground-breaking development in Singapore's corporate rescue laws and includes major changes to the rules governing schemes of arrangement, judicial management, and cross-border insolvency. The Act also incorporates several features of chapter 11 of the U.S. Bankruptcy Code, including super-priority rescue financing, cram-down powers, and prepackaged restructuring plans. The legislation may portend Singapore's emergence as a center for international debt restructuring. Its enactment was the initial phase in a series of law reforms intended to implement recommendations made by the Insolvency Law Review Committee and the Committee to Strengthen Singapore as an International Centre for Debt Restructuring.

Key Provisions of the Act

Easier Access to Judicial Management. Singapore's judicial management procedure is similar to the administration regimes enacted in the U.K. and Australia, which provide for the appointment of an independent manager to operate and run the company instead of a liquidator to wind it up. In Singapore, a judicial manager's mandates are rescuing the company, obtaining approval of a scheme of arrangement, and achieving a more advantageous realization of the company's assets than what would be realized in a winding-up proceeding.

The Act makes it easier for companies (other than certain excluded entities, such as banks) or creditors to obtain a judicial management order by lowering the threshold requirements for court approval. Previously, a company could apply for a judicial management order if it "is or will be" unable to pay its debts. Under the Act, the standard is modified to require that the company "is or is likely to become" unable to pay its debts. In addition, under previous law, a party with the ability to appoint a receiver for the company had the absolute power to prevent the appointment of a judicial manager. The Act now obligates any such party to demonstrate that the appointment of a judicial administrator would cause disproportionately greater prejudice than the prejudice to unsecured creditors if judicial management were denied.

Schemes of Arrangement. The Act modifies the rules and procedures governing schemes of arrangement proposed by a judicial manager of a debtor-company pursuant to section 210 of the Singapore Companies Act ("CA") to incorporate many of the features of chapter 11, including super-priority debtor-in-possession financing, a "world-wide" moratorium on debt collection efforts akin to the U.S. Bankruptcy Code's automatic stay, a mechanism permitting approval of nonconsensual ("cram-down") schemes of arrangement and procedures for court approval of prepackaged schemes.

Similar to "debtor-in-possession" financing under section 364 of the U.S. Bankruptcy Code, the Act introduces rescue financing provisions for schemes of arrangement. The court may, under certain conditions, including the unavailability of credit on less favorable terms and adequate protection of the interests of existing secured creditors, authorize the debtor to incur priority unsecured, secured, or super-priority secured financing, provided such financing is deemed necessary to enable the debtor to continue as a going concern. The rescue financing provisions do not preclude a debtor from obtaining secured or unsecured financing or credit in the ordinary course of business.

The Act introduces provisions authorizing the court to approve a scheme of arrangement over the objection of a class of dissenting creditors, provided: (i) creditors representing a majority in number and holding at least 75 percent in value of the claims in a class for which votes are actually cast vote in favor of a proposed scheme; (ii) creditors representing a majority in number and holding at least 75 percent in value of the total claims against the debtor for which votes are actually cast vote in favor of a proposed scheme; and (iii) the court is satisfied that the scheme is "fair and equitable" to dissenting creditors and does not "discriminate unfairly" between two or more classes of creditors. The Act provides guidance as to the meaning of "fair and equitable" (including the requirement that a dissenting creditor must receive at least as much under a scheme of arrangement as it would receive were the scheme not approved). It does not explain unfair discrimination. Both concepts, however, are based upon the cram-down provisions set forth in section 1129(b) of the U.S. Bankruptcy Code, for which there is a wealth of interpretive jurisprudence that can offer guidance as to their meaning and application.

The Act includes procedures to govern prepackaged schemes of arrangement, but only in cases involving consensual, as distinguished from cram-down, schemes. The court may approve a scheme of arrangement without any meeting of creditors if, among other things: (i) the debtor-company has provided creditors with a statement, accompanied by adequate information, explaining the effects of the scheme, the impact of the scheme on any material interest of the directors or indenture trustees and the effect of the scheme on such interests; (ii) notice of the application seeking approval of the scheme is provided to every affected creditor and properly published; and (iii) the court is satisfied that, had a meeting of creditors been convened, the scheme would have been approved by the required majorities at the meeting.

Enhanced Moratoriums. The Act introduces a series of "enhanced moratorium" provisions to augment the limited moratorium provisions contained in section 210(10) of the CA. Upon application of the debtor or a creditor and notice to, among others, each known creditor to be bound, the court may order a moratorium, provided the debtor has filed an application for court authority to call a meeting of creditors or represents that it intends to do so as soon as practicable. The application must be supported by evidence that a proposed compromise or arrangement is supported by: (i) affected creditors holding not less than one-third in value of claims against the debtor; or (ii) creditors whose support for the proposed compromise or arrangement is important for its prospects for successful implementation.

A moratorium order may be entered by the court to preclude, among other things: (i) commencement or continuation of proceedings against the company or its assets; (ii) appointment of a receiver or manager; (iii) repossession of goods under leases, hire purchases, or retention of title arrangements; (iv) re-entry or forfeiture under any lease; or (v) winding up of the company. The moratorium can apply extraterritorially, provided the court has jurisdiction over affected creditors or their assets. A moratorium order may be extended to include a debtor-company's domestic and foreign subsidiaries as well as holding companies if they play a "necessary and integral role" in the debtor's scheme of arrangement. Certain financial market transactions (e.g., certain set-off and netting arrangements) are also excluded from the scope of the moratorium.

Upon the filing of an application for a moratorium order, an automatic 30-day interim moratorium comes into effect with respect to creditor collection actions in Singapore. The automatic moratorium is available only once in a 12-month period to prevent abuse through repeated filings.

If the court grants a moratorium order, the Act provides that the debtor-company must provide certain financial information to creditors to allow them to assess the feasibility of a proposed scheme. A creditor may seek an order of the court modifying the scope of a moratorium order. A creditor may also apply to the court during the pendency of the moratorium for an order preventing the company from: (i) disposing of assets other than in good faith and inside the ordinary course of business; (ii) engaging in conduct in the ordinary course of business that materially prejudices creditors or significantly diminishes the company's assets; or (iii) changing the composition of the debtor-company's shareholders or members.

Claims Resolution Procedures. The Act establishes procedures governing the submission, objection to, and adjudication of creditor claims. The provisions include: (i) procedures for the filing of proof of creditor debts; (ii) permitting creditors who have filed proof of their debts to inspect and object to claims filed by other creditors; (iii) the appointment of an adjudicator nominated by the company to adjudicate the validity of every proof of debt; and (iv) the adjudication of disputes relating to claims by an independent assessor agreed to by the parties or appointed by the court following the application of a party to the dispute.

Cross-Border Insolvencies. Under previous law, only a company incorporated under Singapore law could apply for judicial management proceedings. The Act provides that "any corporation liable to be wound up under this Act" may apply for judicial management and expands the scope of the "liable to be wound up" test to include foreign companies with a "substantial connection" to Singapore because, among other things, a company: (i) has its centre of main interests in Singapore; (ii) carries on business in Singapore or has a place of business there; (iii) has substantial assets in Singapore; or (iv) has a Singapore choice of law provision or forum selection clause in a loan agreement or contract.

The Act formally adopts the UNCITRAL Model Law on Cross-Border Insolvency, a framework of rules and procedures governing cross-border bankruptcy and insolvency cases that has now been enacted in 42 countries. Its implementation is expected to make it significantly easier for foreign companies subject to bankruptcy or insolvency proceedings in other countries that have assets or operations in Singapore to obtain the assistance and cooperation of Singapore courts in administering their assets.

The Act abolishes the "ring-fencing rule," whereby the Singapore liquidator of a foreign company with assets in Singapore was obligated to pay the claims of local creditors before any of the debtor's assets could be turned over to be administered in the debtor's foreign bankruptcy or insolvency proceeding.

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