Empirical and Comparative Analysis of Singapore Schemes of Arrangement

In 2017, Singapore adopted sweeping reforms to its insolvency regime aimed at increasing Singapore’s attractiveness as a regional restructuring hub. Central to these reforms is the transplantation (with modification), of US Chapter 11 characteristics into the scheme framework aimed at equipping the flexible scheme regime with tools important to insolvent restructurings such as the moratorium, rescue financing and cross-class cramdown. Our paper ‘Schemes of Arrangement in Singapore: Empirical and Comparative Analyses’, recently published in the American Bankruptcy Law Journal, addresses the key question on how well the English-modelled scheme has served as an effective debt-restructuring tool in Singapore, both pre- and post-2017 reforms. Existing bankruptcy scholarship considers that the core of any corporate reorganization theory is how the value of the restructured enterprise should be divided among the various claims and interests, and there are several studies that examine how well the restructuring regime works in this context. In assessing how well the scheme has functioned, we make comparisons with the English schemes and Chapter 11 (from which the 2017 reforms have been derived). We evaluate the processes (such as the length of time for the restructuring to be approved by the court, costs and the information made available for the creditors to make voting decisions) and substantive outcomes (such as the haircut and dilution to shareholders’ interests) based on a mix of empirical and qualitative data.

Our paper is the first study to address these issues by using a mix of qualitative and quantitative data and case studies on Singapore schemes as debt restructuring tools that cover the 1996–2019 period, covering the impact of the 2017 reforms. Our study highlights the predictors of successful schemes in Singapore, including the presence of new financing and the support of controlling shareholders, which demonstrates the value of controlling shareholders in the zone of financial distress. Schemes are also largely completed within 12 months of filing, which is comparable to the market indicators. Insofar as disputes have arisen, the cases have centred on non-compliance with the disclosure requirements. We find that cases do not generally disclose the liquidation values of the companies assuming an insolvent liquidation or, if such values are disclosed, the comprehensive basis for such values is missing. This suggests that the (larger) financial creditors are likely to be privy to the information, since they are more likely to have access to management which is not the case for smaller creditors.

The reforms and preliminary data highlight the effectiveness of the Singapore scheme as a debt restructuring tool and the attractiveness of Singapore as a regional restructuring hub, a role further strengthened by the recent English High Court decision recognizing a Singapore scheme as an insolvency proceeding. These reforms, coupled with the adoption of the UNCITRAL Model Law on Cross-Border Insolvency and common law developments, maintain Singapore’s competitive advantage with respect to regional regulatory competition.  Singapore has opened its doors to foreign companies seeking to restructure and has moved to provide equal treatment to foreign enterprises by removing the previously existing ring-fencing provisions that gave priority to domestic creditors of foreign companies.  The move is appropriately internationalist and is contrary to the nationalist and protectionist trend currently experienced in many jurisdictions.

Wai Yee Wan is Associate Dean (Research and Internationalisation) and Professor at the City University of Hong Kong, School of Law.

Casey Watters is Assistant Professor at Bond University.

Gerard McCormack is Professor of International Business Law at the University of Leeds.