10/9/2017 Edge of Tomorrow: Singapores Debt-Restructuring Regime Revised

FEATURE

Edge of Tomorrow: Singapores Debt-Restructuring Regime

Revisedi

Singapores revisions to its insolvency and debt-restructuring regimes aims to challenge traditional jurisdictions such as the United States
and England as a centre for international debt-restructuring. The revisions include the adoption of the UNCITRAL Model Law on Cross-
Border Insolvency, embracing the principles of modified universalism.

Summary
1. The Companies (Amendment) Bill 20171 (the Bill) passed into law on its second reading on 10 March 20172 intends to introduce four sets of wide-ranging
amendments3 to the Companies Act (Cap. 50) (the Act).4 One such set involves a significant overhaul of Singapores debt-restructuring and insolvency regime
provisions. These changes have come into effect as of 23 May 2017.5 This article examines these changes to the status quo and what they mean for Singapores
push to become an international centre for debt-restructuring.

2. The envisaged changes include:

2.1 enhanced cram-down provisions which enable the Singapore Court to cram down a group of dissenting creditors in the context of voting to approve a
scheme of arrangement (a scheme) in certain, limited circumstances;

2.2 enhanced, extra-territorial moratorium provisions in both judicial management and scheme applications, similar to those imposed in US-style Chapter
11 proceedings;

2.3 the availability of the judicial management regime to foreign companies (provided they meet the criteria set out in the revised Section 351);

2.4 the abolishment of the ring-fencing rule in the winding up of foreign companies;6

2.5 the ability of the Singapore Court to order that any rescue financing provided in a restructuring (whether effected via a scheme or a judicial management)
will have super priority status, discussed at paragraphs 9 and 10 below;

2.6 the availability of pre-packaged sales in schemes, discussed at paragraphs 14 and 15 below;

2.7 the enactment of the UNCITRAL Model Law on Cross Border Insolvency (the Model Law); and

2.8 the statutory codification of certain common law principles and concepts such as a companys centre of main interests (COMI) in determining whether
the Singapore Court ought to invoke its jurisdiction over a foreign company to make orders relating to judicial management or schemes.

3. The relevance of these changes cannot be overstated, particularly given the wall of maturing corporate debt that Singapore will have to contend with in the near
future S$38 billlion of local bonds are set to fall due from the time of writing through to 2020.7 Should any issuers default on repayment of these debts, these new
provisions may be tested. This may indeed be a likely eventuality given the current complexion of the oil, gas and shipping landscapes, and the financial headwinds
expected over the next few years.

Statutory Codification of COMI Principles

4. The COMI principles are relevant to the amendments to Section 351, which provide that a foreign company may only be wound up in the following circumstances:

Either

4.1 the foreign company is dissolved, has ceased to have a place of business in Singapore or has a place of business in Singapore only for the purpose of
winding up its affairs or has ceased to carry on business in Singapore;

4.2 the foreign company is unable to pay its debts; or

4.3 the Singapore Court is of the opinion that it is just and equitable that the foreign company should be wound up;

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And

4.4 the foreign company has a substantial connection with Singapore, for which determination the Singapore Court may take into account the presence of the
following factors in respect of the foreign company:

(a) Singapore is the COMI of the foreign company;

(b) The foreign company is carrying on business in Singapore or has a place of business in Singapore;

(c) The foreign company is a foreign company that is registered under Division 2 of Part XI of the Act;

(d) The foreign company has substantial assets in Singapore;

(e) The foreign company has chosen Singapore law as the law governing a loan or other transaction or the law governing the resolution of disputes arising
out of or in connection with a loan or other transaction; and/or

(f) The foreign company has submitted to the jurisdiction of the Singapore Court for the resolution of disputes relating to a loan or other transaction.

5. Consequently, if the foreign company is able to persuade the Court that it meets the requirements set out at paragraph 5 above, the Singapore Court may, in the
exercise of its discretion,8 make orders relating to schemes and/or judicial management in respect of that foreign company.

6. Local companies, on the other hand, as creatures of the Act, will generally always be in a position to invoke the provisions of the Act.

Schemes of Arrangement (Sections 211A to 211I)

7. The four main changes to the scheme regime are:

7.1 the extension of the scope of the moratorium which the Singapore Court may order (which brings the moratorium in line with the automatic stay
procedures applicable in judicial management, including a stay of realisation of security interests);

7.2 an automatic 30-day moratorium arising once an application for leave to convene a meeting of creditors is made (or is intended to be made);

7.3 the power of the Singapore Courts to cram-down a dissenting group of creditors in certain circumstances; and

7.4 new provisions relating to rescue-financing and the priority given to such individuals or institutions providing rescue finance.

Enhanced Moratorium Provisions

Enhanced Cram-Down Provisions

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Rescue Financing
8. The introduction of super priority provisions for rescue financing is intended to incentivise and protect both existing and/or new investors seeking to inject fresh
capital into the distressed company.

9. In general terms, where such an existing or new investor comes forward to inject fresh capital and/or relieve the company from its liabilities under a proposed
scheme, the Singapore Court may order that the new investor enjoy super priority in respect of such funds injected or obligations incurred, and may do so by:

9.1 treating the debt as a cost or expense of winding up;

9.2 giving the debt priority over all other preferential debts;

9.3 securing the debt with a security interest over the companys property, whether subject to an existing interest or not; or

9.4 where the property in question is already subject to a security interest, granting the rescue financier security that is subject to, equal or superior to an
existing security interest.14

10. It can, therefore, be anticipated that the creation of the super priority status of rescue finance may open up new markets and/or business opportunities for
banks, financial institutions, private equity and/or distressed debt funds to invest in economically sound, but financially strapped companies, safe in the knowledge
that their rescue capital would be accorded priority.

Expedited Scheme Approval

11. The newly-introduced Section 211I grants the Court the power to sanction a proposed scheme without the applicant having to apply for leave to call for a
meeting of creditors. Further, the Singapore Court may even sanction a proposed scheme without an actual meeting, provided that the Court is satisfied that, had a
meeting been held, it would have obtained the relevant approval of the applicants creditors.

12. The burden of proof in invoking this provision is likely to be highly onerous. However, in appropriate cases (an obvious example being in situations where the
supporting creditor or creditors, representing a majority in number, clearly have more than 75% in value support the scheme), this new provision is highly likely to
result in significant savings of both time and costs.

13. Where the scheme in question concerns a sale of all or substantially all of the companys assets, and qualifies for the expedited scheme approval procedure, this
will essentially facilitate the pre-pack sale of the scheme companys assets to a previously identified buyer.

14. This arrangement is common in England, where pre-pack sales often occur in administration, the English equivalent of Singapores judicial management
regime. If successful, an expedited scheme could save significant costs and time, and possibly result in greater preservation of value of the relevant assets.

Enhanced Creditor Protection and Flexibility

Various principles enshrined in the common law have now been codified in the revised Act. Further amendments and changes have also been introduced to deal
with difficulties which previously arose in scheme applications.

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Revisions to the Judicial Management Regime

16. The changes to Singapores judicial management regime chiefly relate to:

16.1 the availability of judicial management to foreign companies;

16.2 the solvency threshold for the revised judicial management regime to apply;

16.3 the availability of super priority for rescue financing; and

16.4 the right of a creditor having fixed and floating security over all (or substantially all) the companys assets to object to a company being placed under
judicial management.

The status quo will be altered as follows:

18. These key changes are likely to result in:

18.1 foreign companies opting to undergo judicial management here instead of pursuing parallel proceedings in their home country. This would likely be
appropriate where such companies have significant assets and/or interests in Singapore, whether directly or otherwise.

18.2 more rescue financing arrangements being entered into, given the greater incentive for interested parties to put judicial managers in funds where super
priority is available. This would, in turn, result in more robust efforts to rescue companies and/or enforce their legal rights.

18.3 greater protection of the interests of the companys general body of unsecured creditors, with the ability of particular secured creditors to veto a judicial
management application curtailed.

The Model Law

19. Finally, Singapore has adopted the Model Law via the introduction of Section 354B, and abolished the oft-criticised ring-fencing provision in respect of the
liquidation of foreign companies under Part XI of the Act.

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20. The formal adoption of the Model Law will have the effect of codifying international cooperation with other member states in parallel insolvency proceedings. For
example, the Model Law provides the basis for:

20.1 the recognition of the ongoing insolvency process in one jurisdiction as being a foreign main (or non-main) proceeding as the case may be, with other
jurisdictions either facilitating or taking the lead of the insolvency process;

20.2 a step towards globalising the compulsory, collective process to maximise value in cross-border insolvency scenarios, with the appropriate liquidator /
administrator / representative taking charge of the insolvency process and getting in the insolvent companys assets from and enforcing its rights in ancillary
jurisdictions;

20.3 a statutory basis to repatriate locally-based assets to the principal place of liquidation (the jurisdiction of the main proceeding), subject to the protection
of certain statutory rights accruing to the creditors of the jurisdiction from which the assets are repatriated; and

20.4 the necessary infrastructure for communication between the respective courts and/or insolvency professionals engaged in the various jurisdictions
involved in the cross-border insolvency, to ensure a smooth and orderly realisation of assets on a regional, international or global scale.

21. Such cooperation will be facilitated by provisions such as the newly-introduced Section 354B(2), which specifically provides that, in interpreting the Model Law,
the following documents are relevant:16

(a) Documents relating to the Model Law, issued or prepared by the United Nations Commission on International Trade Law and its working group; and

(b) The Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency (UN document 15 A/CN.9/442).17

22. Taken together with the abolishment of the ring-fencing provision, the long-awaited18 introduction of the Model Law marks a departure from Singapores
traditional territorial approach to cross-border insolvency proceedings, and a shift towards modified universalism. The Honourable Judicial Commissioner Aedit
Abdullah observed:19

In cross-border insolvency, there has been a general movement away from the traditional, territorial focus on the interests of the local creditors, towards
recognition that universal cooperation between jurisdictions is a necessary part of the contemporary world. Under a Universalist approach, one court takes
the lead while other courts assist in administering the liquidation. This is the most conductive to the orderly conduct of business and resolution of business
failures across jurisdictions. The tone of the approach in Beluga and the telegraphed adoption of the UNCITRAL Model Law on Cross-Border Insolvency (30
May 1997) (the Model Law) in Singapore are indicators that Singapore is warming to Universalist notions in its insolvency regime.

[emphasis added]

23. This emerging approach to cross-border insolvency is demonstrated in recent Singapore High Court decisions20 embracing such principles.

24. Given this general trend, it is likely that this approach will be embraced by the Singapore Courts even for cross-border insolvency issues involving jurisdictions
which have not adopted the Model Law.

25. Such an approach would be consistent with that at common law, as set out by Lord Hoffmann in Re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852
(Re HIH)21, and endorsed by the Singapore High Court in Re Opti-Medix:

The primary rule of private international law which seems to me applicable to this case is the principle of (modified) universalism, which has been the
golden thread running through English cross-border insolvency law since the eighteenth century. That principle requires that English courts should, so far as
is consistent with justice and UK public policy, co-operate with the courts in the country of the principal liquidation to ensure that all the companys assets are
distributed to its creditors under a single system of distribution ...

Concluding Remarks
26. Given the scale of the amendments, this commentary is by no means an exhaustive guide to the changes and amendments to Singapores debt-restructuring
and insolvency regimes. Instead, it seeks to identify and explain the key changes to the extent possible at this preliminary stage. Indeed, only time will tell how the
Singapore Court will interpret these new amendments.

27. Distressed companies within the region (or with interests in the region) may now look to Singapore as a debt-restructuring hub with the relevant infrastructure in
place to secure a successful debt-restructuring. It is also envisaged that it will be easier for debtor companies (whether foreign or local) to seek interim protection
from the Singapore Courts in respect of prospective or ongoing claims against them, whether in Singapore or elsewhere.

28. It is hoped that the Singapore Courts will remain vigilant, however, against the potential abuse of the amended provisions by wrongdoers seeking to remain in
situ to, for example, hide their wrongdoings or asset-strip the company, despite inevitable insolvency a matter which the Courts must be alive to

29. Further, and as mentioned above, the introduction of the super priority provisions in respect of rescue financing may have the effect of being a market maker
insofar as it may open up new markets and opportunities for the financially-savvy investor who is willing to fund a turnaround.

30. Finally, what is evidently clear is that, by the amendments into law, Singapore has backed up its express aspirations to be a debt-restructuring destination, and
positioning itself to challenge the United States (where restructuring is far more expensive) and England (which does not have moratorium proceedings as part of its
scheme provisions) as the destination of first choice for restructuring.

31. Singapores track record in establishing itself as a go to jurisdiction in the fields of international arbitration, banking and financial services bodes well for its bold
move to develop itself as an international debt-restructuring hub. Though only time will tell how successful this particular endeavour will be, we believe that
Singapore will rise to the occasion.

Thio Shen Yi, SC

Joint Managing Partner
TSMP Law Corporation
E-mail: shenyi.thio@tsmp.com.sg

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Alexander Pang
Associate Director
TSMP Law Corporation
E-mail: alexander.pang@tsmp.com.sg
Notes

i The contents of this update are owned by TSMP Law Corporation and subject to copyright protection under the laws of the Republic of Singapore (as may from time to time be amended). No part
of this update may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not
transiently for any purpose save as permitted herein) without the prior written permission of TSMP Law Corporation. Please note that whilst the information in this Update is correct to the best of
our knowledge and belief at the time of writing, it is only intended to prove a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any
particular course of action as such information may not suit your specific business, operational and/or commercial requirements. You are therefore urged to seek legal advice for your specific
situation.

1 Last accessed on June 15, 2017.

2 Last accessed on June 15, 2017.

3 Last accessed on June 15, 2017.

4 References to Sections shall refer to Sections in the Act, as amended in or introduced by the Bill.

5 See the Government E-Gazette notification dated 22 May 2017 available online at http://www.egazette.com.sg/pdf.aspx?ct=sls&yr=2017&filename=17sls244.pdf .

6 c.f. Legislative ring-fencing will remain in effect in the case of specific classes of financial institutions (specified by MAS), such as banks and insurance companies.
7 See Singapores looming debt wall fuels concern after Ezra stumbles (The Business Times, 20 March 2017) (last accessed on June 15, 2017).

8 See Re Pacific Andes Resources Development Ltd and other matters [2016] SGHC 210 (Re PARD) at [33], per the Honourable Judicial Commissioner Kannan Ramesh (as his Honour then was).

9 In Re Conchubar Aromatics Ltd [2015] SGHC 322 (Re Conchubar) at [12], the Honourable Judicial Commissioner Aedit Abdullah held that the proposal had to be sufficiently particularized such
that the Court could consider whether on the face of the proposal the Court could conclude that there was a reasonable prospect of the scheme working and being acceptable to the general run
of creditors.
10 See Re PARD at [16] to [17].

11 See Re PARD at [10].

12 See The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal [2012] 2 SLR 213 (Re TT International) at [178].

13 In determining what is fair and equitable, the Singapore Court must be satisfied, inter alia, that no creditor in the dissenting class receives under the terms of the scheme an amount that is lower
than what he is estimated to receive in the event that the company is wound up (Section 211H(4)(a)). Other requirements are imposed by Section 211H(4)(b) as may be applicable.

adequate protection provided for the existing security

14 The Court will only order the creation of a security interest equal or superior to an existing security interest over property where there is
holder (Section 211E(1)(d)(ii)). The meaning of adequate protection is explicated in Section 211E(6)(a) to (c).

15 A statutory codification of, amongst other things, the principles enunciated in the Court of Appeal decision in Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd
[2003] 3 SLR(R) 629 at [24].

16 Note that nothing in Section 354B(2) affects the Courts power to adopt a purposive interpretation of any written law in accordance with Section 9A of the Interpretation Act (Cap. 1).

17 Last accessed on June 15, 2017.

18 See the Summary of the Recommendations by the Insolvency Law Reform Committee, 2013 at [26] (last accessed on June 15, 2017).

19 See Re Opti-Medix Ltd (in liquidation) and anor matter [2016] SGHC 108 (Re Opti-Medix) at [17].
20 See Re Taisoo Suk (as foreign representative of Hanjin Shipping Co Ltd) [2016] SGHC 195; and Re Gulf Pacific Shipping Ltd (in creditors voluntary liquidation) and others [2016] SGHC 287.

21 Re HIH at [30].

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