Reforms to Strengthen Singapore as an International Centre for Debt Restructuring

The scheme of arrangement has become an important tool for debt restructuring in UK and Singapore in recent years.  Professor Payne wrote on this blog on 14 June and 15 June on the Insolvency Services’ recent consultation on options to reform UK’s corporate insolvency framework.  Coincidentally, a somewhat similar consultation took place in Singapore at about the same time.  A draft Bill, the Companies (Amendment) Bill 2017, has since been published and it is expected that the Bill would become law in the second quarter of 2017.

The objective of this round of reforms is to strengthen Singapore as an international centre for debt restructuring.  That this is at the top of the legislative calendar can be seen from the speed of its progress – less than two years from the appointment of the Committee in May 2015 to the expected passing of the Bill, and also treating this separately from the larger project of reforming Singapore’s personal bankruptcy and corporate insolvency laws.  Drafting of the omnibus Insolvency Bill, which brings together personal bankruptcy and corporate insolvency laws in one piece of legislation for the first time, began in early 2014, after the report of another committee, the Insolvency Law Review Committee.  It is understood that a draft is currently being circulated amongst insolvency practitioners for consultation.

There are three major parts to the Bill.  The first major part is improving the attractiveness of schemes as a debt restructuring device in four ways.  First, unlike English law a Singapore court may grant a stay on creditor action under section 210(10) of the Companies Act (Cap 50, 2006 Rev Ed).  But the scope of the stay is unclear and much more limited than the moratorium in administration or judicial management, Singapore’s only formal rescue mechanism which is quite similar to the English pre-Enterprise Act 2002 administration.  The Bill introduces a moratorium of similar scope as that in administration.  The moratorium arises and continues for thirty days when the company applies to court for orders to hold scheme meetings, or intends to make such an application, applies for a moratorium and on the fulfillment of certain conditions designed to prevent abuse of the moratorium.  If the court approves the application for moratorium, it may grant a moratorium as broad as the initial moratorium.  Any creditor may apply to court to discharge the initial or subsequent court-ordered moratorium.

The second reform to schemes is to give the courts power to grant priority to rescue financing, including granting a ‘priming lien’ over assets already subject to securities.  The third reform is to allow the court to approve a scheme over the objection of a class of creditors, ie, cram-down, provided that such creditors would not be unfairly prejudiced by the scheme.  The fourth reform is the court’s power to fast-track pre-negotiated schemes between a company and its major creditors, ie, pre-packs.

The second major part of the Bill relates to judicial management (JM).  It gives the court power to make a JM order over the objection of a debenture holder entitled to appoint a receiver and manager over all or substantially all the company’s assets, except where the making of the order would cause prejudice to the debenture holder that is disproportionately greater than the prejudice that would be caused to unsecured creditors of the company if the JM order is not made.  The court is also given power to grant priority to rescue financing, identical to the provisions in schemes.

The third major part of the Bill is concerned with various reforms to facilitate the resolution of cross-border insolvencies.  (i) JM will be made available to foreign companies.  (ii) A list of non-exhaustive factors will guide the court on when it may assume jurisdiction over schemes proposed by foreign companies.  (iii) The UNCITRAL Model Law on Cross-Border Insolvency will be adopted.  (iv) The general rule ring-fencing assets in the winding up of foreign companies to pay debts incurred in Singapore will be deleted, to be replaced by ring-fencing for specific financial institutions, such as banks and insurance companies.

Perhaps the most interesting aspect of the draft Bill is the attempt to incorporate elements of the US Chapter 11 into a corporate insolvency regime with English roots and which is still based on the practitioner-in-possession philosophy.  It remains to be seen whether it has struck the right balance between encouraging rescue on the one hand and protecting the interests of creditors on the other.  Another interesting aspect is the reforms in the field of cross-border insolvencies.  The Committee was aware of the limitations of the UNCITRAL Model Law on resolving cross-border insolvencies. It recommended that other measures should be taken.  An initiative is the inaugural Judicial Insolvency Network (JIN) Conference held in Singapore in Oct 2016. Insolvency judges from ten jurisdictions (including Australia, the British Virgin Islands, Canada, the Cayman Islands, Britain, Hong Kong (as an observer), Singapore and the US) met in Singapore to discuss cooperation in cross-border insolvency matters.  Draft guidelines were prepared for consideration in the judges’ respective jurisdictions. 

Meng Seng Wee is Associate Professor of Law at the National University of Singapore.