Financial difficulties are not uncommon in the course of a business’ lifespan, and though there may be the threat of insolvency, there are a number of alternative avenues through which a company may stave off winding up proceedings. In Re Conchubar Aromatics Ltd  SGHC 322, the Singapore High Court examined restraint orders against insolvency proceedings under s210 of the Companies Act, which deals with schemes of arrangement.
S210 prescribes a series of stages for the implementation of schemes of arrangement, including the following:
- Under s210(1), the Court may grant permission for a company to convene a meeting for its creditors to consider a scheme.
- Under s210(10), the Court may restrain any insolvency or winding up proceedings against the company.
Technically, the company should propose a scheme to its creditors before it applies for an interim moratorium under s210(10). However, a practice has developed in Singapore where companies apply for a s210(10) moratorium before proposing a scheme or seeking permission to convene a creditors’ meeting. In this decision, the Court clarified that it has the power to grant s210(10) restraint orders even where there has been no application for permission to convene a creditors’ meeting under s210(1). The Court also laid out the necessary criteria for a s210(10) application.
First, the applicant must submit a proposal of arrangement or compromise that is sufficiently detailed to allow the Court to assess its feasibility. The proposal need not be complete, nor does the Court need to closely scrutinise the merits or viability of the proposal.
Second, the application must be made bona fide. The Court must be satisfied that the restraint order is not an attempt to game the system or abuse the s210(10) process. Therefore, a s210(1) application should be made shortly thereafter, or else a sufficient explanation and proposed timeline should be given.
Here, the applicant companies found themselves in financial difficulty, and sought a moratorium to protect their ability to c0ntinue their efforts at restructuring. The applicants thus applied for a restraint order under s210(10).
The Court held that the proposal submitted by the applicants was sufficiently detailed, showing how the creditors would derive greater benefit than by having the companies wound up.
Further, there was nothing to indicate that the proposal was not bona fide. The proposal was sufficiently particularised and appeared viable. The applicants also committed to a 10 week timeline and volunteered to appear in court on a regular basis to provide updates.
Therefore, even though no application for a meeting had been made under s210(1), the Court granted a restraint order against insolvency proceedings for 10 weeks.