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03 Apr 2017

An update on the restructuring and insolvency regime in Singapore: amendments to the Companies Act and adoption of JIN guidelines

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The restructuring and insolvency scene in Singapore is set to change with the latest amendments to the Companies Act (Cap.322) ("the Act") and the adoption of the Judicial Insolvency Network ("JIN") guidelines.

1. Amendments to the Act

The amendments to the Act relate to schemes of arrangement (see ss. 211A-J); judicial management (see s. 227AA); winding up of a foreign company (see s.351) and cross-border insolvency (see ss. 354A-C and the 10th Schedule).

Schemes of Arrangement

With the new amendments, creditors and debtors enjoy enhanced protection, as follows:- 

(i) the new section 211B(6) incorporates debtor disclosure requirements on the company's financial affairs so as to enable creditors to make informed decisions in the restructuring process; 

(ii) new section 211D introduces provisions to safeguard against debtors dissipating assets during a moratorium;

(iii) new section 211B(8) provides an automatic 30-day moratorium from the day the application is made;

(iv) 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’, and where an action being taken against the subsidiary will frustrate the compromise or arrangement for the company; and

(v) 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.

The Singapore Court is also empowered to make orders notwithstanding opposition from certain creditors to better support the scheme of arrangement in appropriate circumstances.  In this regard:- 

(i) the new section 211E enables the Court to grant new financing priority over other creditors' claims to assist with the restructuring of the company, including amongst others, granting super priority over preferential debts, subject to certain safeguards which will ensure that existing secured creditors are not unfairly prejudiced; and

(ii) the new section 211H enables the Court to approve a scheme even if a class of creditors opposes the scheme, if such creditors will not be unfairly prejudiced by the same.

Judicial Management

The insertion of the definition for "company" in the new section 227AA extends the application of Part VIIIA (Judicial Management), a course of action currently only available to companies incorporated in Singapore, to unregistered/foreign companies.

Winding up of a foreign company

The inclusion of new sub-section 351(d) 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, the amendments to section 377 abolish 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.

Cross-border Insolvency

Singapore will be adopting the UNCITRAL Model Law on Cross Border Insolvency ("Model Law"). The Model Law (with certain modifications for application in Singapore) is set out in the 10th Schedule of the Act.

With the incorporation of the Model Law, the following benefits and reliefs are now available:

(i) Articles 9 and 15 allow foreign representatives and creditors to apply directly to the Singapore Courts for the recognition of a foreign insolvency proceeding upon satisfaction of simplified proof requirements;

(ii) Article 19 provides that the Court can grant interim relief upon request by the foreign representative until such time that the main application is decided upon; although such requests may be refused if the relief sought would interfere with the administration of a foreign main proceeding. The interim relief available includes 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;

(iii) Articles 28 to 30 makes provisions for dealing with concurrent insolvency proceedings so as to achieve consistency in the decisions made across jurisdictions;

(iv) Articles 25 to 27 authorize the local courts and local insolvency representatives to co-operate and communicate directly with foreign courts and foreign insolvency representatives.

In line with the provisions in Articles 25 to 27 of the Model Law, the courts in Singapore have recently adopted detailed guidelines from the JIN with the objective of facilitating more effective communication between courts which are dealing with concurrent proceedings in various jurisdictions, as elaborated below.

** For a summary of general amendments to the Act introduced in 2017, please refer to "Changes to the Companies Act pursuant to the Companies (Amendment) Bill 2017 – A Summary" by our fellow colleagues, Elaine Beh and Cai Peiguan.

2. JIN Guidelines

On 1 February 2017, the courts in Singapore and Delaware, USA became the first two courts to adopt the guidelines from the JIN (comprising of judges from Australia, Bermuda, British Virgin Islands, Canada, Cayman Islands, England & Wales, Singapore and USA). It is anticipated that other countries including Australia, England and Wales will join in on the pioneering move.

The JIN Guidelines are the first set of guidelines developed by insolvency judges to promote cooperation and communication between courts from various jurisdictions when they are faced with two or more proceedings on the same subject across the globe. They are meant only to supplement the procedural rules of the courts and do not have any effect on the substantive laws.

There are 14 guidelines set out under four main headings. These are summarily set out as follows:

(i) Adoption & Interpretation - Guidelines 1 to 6 provide how the courts may apply and interpret the JIN Guidelines, as well as the objectives they seek to achieve.

(ii) Communication between Courts – Guidelines 7 to 9 provide for specific methods of communication between the courts and how such communications are to be recorded and when they may be circulated.

(iii) Appearance in Court – Guidelines 10 and 11 provide that one court may authorize a party/person to appear before and be heard by the foreign court, with or without becoming subject to its jurisdiction.

(iv) Consequential Provisions – Guidelines 12 to 14 contain provisions that ensure the JIN Guidelines can be implemented effectively. Subject to proper objections on valid grounds, the court is required to recognize and accept as authentic without further proof, the statutes, regulations and rules of court applicable in other jurisdictions, as well as the orders made.

(v) Annex A (Joint Hearings) – Annex A sets out guidelines on the conduct of joint hearings between Courts.

The JIN Guidelines are in line with and do further the objectives of the Model Law which will soon be implemented in Singapore. The provisions aim to reduce the amount of legal costs incurred during cross-border insolvency proceedings, and in doing so, preserve the value of financially distressed businesses and their assets.

One such instance is the provision of a platform for the conduct of a joint hearing between the courts. Under the JIN Guidelines, the courts can simultaneously hear the proceedings in one court, permit a foreign counsel to appear in front of it and communicate with the other court in advance of such a joint hearing to establish the procedures for the orderly making of submissions and rendering of decisions.

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