30 November, 2016
- The insolvency scene in Singapore look set to change with the likely enactment of the Companies (Amendment) Bill 2017 (the “Bill”).
- Would the Bill have made any difference to the management of Hanjin Shipping Co Ltd's ("Hanjin") insolvency in Singapore? We explore this issue below as well as touch on certain key provisions of the Bill.
- On 1 September 2016, Hanjin, unable to sustain its mounting losses, obtained a rehabilitation order from the Korean court to protect itself from creditors and allow it to restructure its debts in accordance with a rehabilitation order approved by the creditors and the Korean court (“Rehabilitation Order”).
- Hanjin’s administrator sought to have the Rehabilitation Order recognised in a number of key jurisdictions around the world and on 14 September 2016, the Singapore High Court granted interim orders for the recognition of the Korean Rehabilitation order, which included a restraint of all pending, contingent or fresh proceedings against Hanjin and a stay of all pending, contingent or fresh proceedings against Hanjin (Re Taisoo Suk (as foreign representative of Hanjin Shipping Co Ltd)  SGHC 195 (“Re Taisoo Suk”). While not discussed here, there was a carve out from the interim orders in respect of the Hanjin Rome (as it was arrested prior).
- Re Taisoo Suk provides greater clarity as to the various factors that will be considered in deciding whether to grant recognition and/or give effect to foreign insolvency and rehabilitation proceedings. More importantly, it marks a conscientious shift towards a general direction where Singapore ‘becomes more accepting of recognising foreign insolvency proceedings’ (Re Taisoo Suk at ).
- By way of background, Singapore law does not yet provide for the recognition of foreign insolvency proceedings and has yet to adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (the “Model Law”) (which applies a ‘universalist’ approach to the area of cross-border insolvency by providing an international framework to facilitate the recognition of cross-border insolvency proceedings). In fact, as recent as two years ago, the Singapore Court in Beluga Chartering GmbH (in liquidation) and others v Beluga Projects (Singapore) Pte Ltd (in liquidation) and another (deugro (Singapore) Pte Ltd), non-party)  2 SLR 815 had taken the view that it was not automatically bound by a stay of proceedings imposed by a foreign court of legislature, and the decision to render assistance to recognise insolvency proceedings in foreign jurisdictions will depend largely on the particular circumstances of the case.
- Recognising that the insolvency scene was changing, the Ministry of Law formed the Insolvency Law Review Committee to review the bankruptcy and corporate insolvency regimes and in 2015, the Committee to Strengthen Singapore as an International Centre for Debt Restructuring was set up in order to consider ways in which Singapore could build up its reputation as a centre for debt restructuring. These recommendations and reviews have culminated in the proposals as reflected in the Bill which seeks, amongst others, to incorporate the Model Law.
- This leads one to wonder how the Hanjin fallout would have been managed differently in Singapore if the Bill was in place prior.
- There are 2 aspects in this regard.
- First, the recognition application would have likely been more straightforward. In Re Taisoo Suk, the foreign representative had to make an urgent ex-parte application, notify various interested parties of the hearing and at the hearing 6 days later, persuade the Singapore court that the application was "an essential part of the series of applications that Hanjin made across the world to prevent piecemeal and haphazard resolution of the company's difficulties" (Re Taisoo Suk at ).
- Assuming that the Model Law is incorporated in its entirety, the foreign representative would have simply needed to ensure that his application was accompanied by a certified copy of the decision commencing the foreign proceeding and appointing the foreign representative and a certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative (Article 15 of the Model Law). The aforesaid documents would, pursuant to Article 16, be presumed authentic, whether or not they had been legalised. Article 17 then provides that the recognition application "must be decided upon at the earliest possible time" and once certain requirements were satisfied (including satisfying Article 15), the foreign proceeding "must be recognised".
- Second, Hanjin could have, if it so wished, sought provisional relief prior to having the Rehabilitation Order recognised in Singapore, if it could have been shown that relief was urgently needed to protect its property or the interests of its creditors. Article 19 of the Model Law provides that from the time of filing the recognition application until the application is decided upon, the Court may, at the request of the foreign representative, grant relief of a provisional nature, including staying execution against the debtor's property; and entrusting the administration or realisation of all or part of the debtor's property located in Singapore to the foreign representative, in order to protect and preserve the value of property that, by its nature or because of other circumstances, is perishable, susceptible to devaluation or otherwise in jeopardy.
- Looking beyond the Hanjin situation, the Bill also will also impact on schemes of arrangement, judicial management and winding up of a foreign company.
- Section 2 of the Bill introduces new sub-provisions (to Section 211 of the Companies Act ("the Act")) in respect of schemes of arrangement. For instance, new Section 211B(8) provides an automatic 30-day moratorium from the day the application is made; new Section 211C provides that the moratorium may also be extended to subsidiaries which, amongst others, play a ‘necessary and integral role in the compromise or arrangement’; new Section 211C(5)(b) provides that the Court has the power to make ‘world-wide’ moratorium orders to apply to any person within Singapore’s jurisdiction, regardless of whether the act takes place in Singapore or elsewhere.
- As for judicial management, under Section 3 of the Bill (introducing a new Section 227AA to the Act), judicial management, a course of action currently only available to companies incorporated in Singapore, will be open to foreign companies.
- Insofar as the winding up of a foreign company is concerned, Section 6 of the Bill (amending Section 351 of the Act) adds an additional circumstance in which a foreign company may be wound up: if the Court is of the opinion that the foreign company has a "substantial connection" with Singapore taking into account the presence of one or more factors specified. In addition, Section 8 of the Bill (amending Section 377 of the Act) will abolish of the ring-fencing rule in the winding up of foreign companies, although the rule will be retained for banks, insurance companies and other specific financial institutions.
- The Bill therefore has the potential to significantly enhance Singapore’s corporate rescue and restructuring framework, and will no doubt widen the possible avenues that foreign companies, like Hanjin, can pursue in Singapore should they encounter insolvency issues.
- While the consultation exercise has only just come to a close, many eagerly anticipate that the Bill, or at least some modified version of it, will be introduced sometime next year. While the Singapore courts have been adaptive to some extent, it is about time for a structured framework for cross-border insolvency matters.
For further information, please contact:
Lauren Tang, Partner, Virtus Law LLP
(a member of the Stephenson Harwood (Singapore) Alliance)