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22 June, 2018
The one-year anniversary milestone has passed since Singapore's insolvency and corporate restructuring regime was overhauled with the coming into force of the new amendments on 23 May 2017. The reforms were part of the push to position Singapore as an international debt restructuring hub and a venue of choice for cross-border restructurings of distressed companies.
Notable companies that have benefitted from the new restructuring regime include Nam Cheong Limited, EMAS Offshore Limited, Hoe Leong Corporation Ltd, PT Bakrieland Development Tbk and China Sports International. Most recently, Hyflux Ltd and Pacific Radiance have also filed for court protection under this new restructuring regime to reorganise their debts and business. Going forward, we can expect to see even more Singapore and foreign companies utilising these rehabilitation tools.
This update provides a brief summary of some of the key developments in Singapore’s insolvency and corporate restructuring landscape over the past year.
Worldwide in personam moratorium & moratorium in respect of related entities
The court may now grant a moratorium extending to creditor actions outside of Singapore if the creditor is in Singapore or within the jurisdiction of the Singapore courts. Various companies that have applied for a scheme of arrangement under the new Companies Act have benefitted from such worldwide in personam moratoriums. For example, Hoe Leong Corporation Ltd, a company listed on the mainboard of the Singapore Exchange, successfully applied to pass a scheme of arrangement and a moratorium was granted to restrain all action or proceedings against the company in Singapore or elsewhere. It is also noteworthy that certain subsidiaries of Hoe Leong Corporation Ltd. also obtained worldwide moratoriums.
Another entity that has benefitted from this wide moratorium is offshore gas and oil services provider EMAS Offshore Limited. In August 2017, EMAS Offshore Limited, together with its wholly owned subsidiaries Emas Offshore Pte Ltd and Emas Offshore Services Pte Ltd, successfully applied for a moratorium that applied to the company and these subsidiaries.
Foreign entities have also expressed interest in using these new restructuring tools. Indonesian developer PT Bakrieland Development Tbk. is in the process of completing its group restructuring after its wholly-owned Singapore incorporated subsidiary BLD Investments Pte Ltd, successfully applied for a scheme of arrangement after it defaulted under its issued bonds. The cross-border moratorium gave the corporate group sufficient time to engage its various creditors and stakeholders, and garner support for the restructuring of its debt.
"Pre-packaged" scheme of arrangements
Section 211I of the Companies Act introduced a new mechanism known as a “pre-packaged” scheme of arrangements. A “pre-packaged” scheme allows the applicant company to pass schemes in a cost-efficient and timely manner by truncating the normal scheme of arrangement process by dispensing with the need for a court hearing to convene a meeting of creditors and the meeting itself.
Hoe Leong Corporation Ltd. utilised the fast-tracked pre-negotiated scheme of arrangement to restructure its debts of approximately S$80 million owed to bank creditors and its controlling shareholder. The accelerated timeline for the passing of the “pre-packaged” scheme is of significance, as the scheme documents were despatched to the relevant creditors on 17 November 2017, and the scheme was sanctioned by the court just two months later, on 22 January 2018.
Going forward, the cost and time savings and the ability to obtain speedy relief through "pre-packaged" schemes may see this restructuring tool become a popular restructuring choice for distressed companies.
Super priority rescue financing
Under section 211E of the Companies Act, the court may order that debt arising from any rescue financing obtained or to be obtained by the company in restructuring, be accorded super priority over the existing debts of the company.
There has been one reported decision involving rescue financing in Singapore. In November 2017, the Singapore High Court refused the first application for rescue financing by Attilan Group Limited, a Singapore incorporated company listed on the mainboard of the Singapore Stock Exchange. The company had applied for super priority status to be granted to the proposed rescue financing from an existing creditor of the company. The Singapore High Court in Re: Attilan Group Ltd [2017] SGHC 283 declined to exercise its discretion to grant super priority status to funds to be provided by the existing creditor, as the court was of the view that Attilan Group Limited had not discharged its obligation to use reasonable efforts at sourcing for financing without super priority. Drawing from US cases, the High Court set out a list of factors that it would consider when exercising its discretion to grant super priority for rescue financing. The undertaking of reasonable efforts did not require the debtor to show that he had sought credit from every possible source. The inquiry was a fact-sensitive one of reasonableness and no bright-line rule could be drawn.
Liberalising the judicial management regime
Further, in an effort to address the criticism that the judicial management process has historically been invoked at too late a stage for the intervention to result in successful rehabilitation of the company, the insolvency threshold for a judicial management application has been lowered from a company being “unable to pay its debts” to being “likely to become unable to pay its debts”. More significantly, the 2017 amendments now allow foreign companies to avail themselves of the judicial management regime. In April 2018, China Sports International, a Bermuda incorporated company listed on the mainboard of the SGX-ST became the first foreign company to be placed under interim judicial management in Singapore.
Recognition of foreign proceedings
The Companies Act incorporates the UNCITRAL Model Law on Cross-Border Insolvency, which aims to create a harmonised framework for cross-border insolvency proceedings. A foreign insolvency representative may apply for recognition of the foreign insolvency proceedings as a “foreign main proceeding” if the proceedings take place where the debtor has its centre of main interests or as a “foreign non-main proceeding”, if the proceedings take place where the debtor has an establishment. The Singapore courts may decline to recognise the foreign proceedings if certain statutory exceptions apply, including where such recognition would be contrary to the public policy of Singapore.
In Re: Zetta Jet Pte Ltd [2018] SGHC 16, the Singapore High Court gave the first judgment on the UNCITRAL Model Law in Singapore. The High Court declined to accord full recognition to US insolvency proceedings involving American luxury jet operator Zetta Jet, as such proceedings were commenced in breach of an injunction granted by a Singapore court.
Giving it full recognition would undermine the administration of justice in Singapore and would be contrary to the public policy of Singapore. The High Court granted the foreign representative limited recognition for the purpose of applying to set aside or appeal the injunction from the Singapore court, or for matters directly relating to such applications. The High Court also expressed some reservations about disregarding the separate legal personalities in a corporate group when determining the centre of main interests of an entity.
It remains unclear what would trigger the public policy considerations under Article 6 of the UN Model Law as adopted in Singapore by way of the Tenth Schedule of the Companies Act. However, this decision at least makes clear that any proceedings that is non-compliant with orders issued by a Singapore court would contravene Article 6.
Conclusion
Despite the initial reservations voiced by market participants, there appears to be a healthy enthusiasm from companies to use and benefit from the corporate restructuring tools under the new insolvency provisions in the Companies Act. With greater understanding of these new corporate restructuring methods, we can expect that more companies will use these tools to their benefit. Additionally, further reforms are expected by way of the Omnibus Insolvency Bill which will be unveiled in the second half of this year. These tools, coupled with a progressive judiciary that is cognisant of the commercial realities, would stand Singapore in good stead to becoming a global restructuring hub in the near future.
