This is a follow-up to our previous client update on Swiber Holdings Limited written on 29 July 2016. To view our previous update, please click here.
In a sudden about-turn, Swiber Holdings Limited (“Swiber”) issued an announcement late on Friday night (29 July 2016) that it and its major subsidiary, Swiber Offshore Construction Pte Ltd (“SOC”) have applied for to be placed under judicial management ("JM"). At the same time, Swiber and SOC have applied for an interim JM order to be made, and for the discharge of the provisional liquidators and withdrawal of Swiber's earlier winding up application ("the withdrawal applications").
At the moment, the JM applications are pending before the High Court. The interim JM applications are due to be heard at 5pm on Tuesday, 2 August 2016. A pre-trial conference for the main JM applications is fixed for Friday 5 August 2016. The Singapore High Court's hearing lists shows that the applications to withdraw the winding up application and to discharge the Provisional Liquidators will also be heard on 5 August 2016.
According to Swiber’s announcement, the change of plans were made after Swiber’s Board of Directors and Provisional Liquidators met with a “major financial creditor” who indicated support for Swiber to place itself in JM instead of liquidation.
At this stage, it is not clear how (or if) a JM will prove to be more advantageous to the creditors of Swiber and SOC, as compared to a straightforward liquidation scenario. However, in this update, we cover what a typical unsecured creditor can expect in the JM of Swiber and SOC.
(1) What is judicial management?
Unlike liquidation, JM is generally viewed as a rehabilitative process. Essentially, it is a temporary, court-supervised rescue plan aimed at giving a financially troubled company time and space to rehabilitate itself and continue operating.
For the court to approve placing a company into JM, the company must be unable to pay its debts and there must be a real prospect that one or more of the following statutory objectives will be achieved:
- The survival of the company (or any part of its undertaking) as a going concern;
- The approval of a Scheme of Arrangement (under section 210 of the Companies Act); and/or
- A more advantageous realisation of the company’s assets than in a winding up.
If the JM order is granted, a judicial manager (who shall be an approved company auditor) will be appointed, who will take over conduct of the affairs of the company from the directors.
Operating under a JM, Swiber and SOC would essentially be able to continue operations, albeit under the purview of a third party judicial manager rather than the company's directors. This provides a balance between protecting the interests of the creditors and allowing the company to continue trading.
(2) After the judicial management order, what next?
From the time the JM orders are made, the judicial manager has 60 days to issue a statement of proposals, which sets out how the judicial managers propose to achieve one or more of the abovementioned statutory objectives. That 60-day period can be extended by the court.
The statement of proposals, once issued, must be placed before the creditors at a general meeting of the creditors. A creditor must first lodge a proof of debt to be able to vote at the meeting.
At the creditors' meeting, a majority in number and value of the creditors, present and voting, may approve the statement of proposals, with or without modifications. The judicial manager will then report the results of the meeting to the Court, which has the power to discharge the JM order if the statement of proposals was not duly approved.
Once approved, the judicial manager is under a duty to manage the affairs, business and property of the company in accordance with the proposals.
(3) What does all this mean for an unsecured creditor?
The JM applications for Swiber and SOC are, at the moment, pending before the High Court. If they are granted, it would mean that the High Court had found that there was a real prospect that one or more of the statutory objectives would be met.
Therefore, it would not be wrong to assume that all things being equal, a JM of Swiber and SOC should give the creditors a better recovery than a straightforward liquidation.
However, this is by no means guaranteed. Even if the statement of proposals is approved by the creditors, the implementation of those proposals remains fraught with uncertainty. Swiber's ability to continue trading and repay its creditors depends in part on factors outside the judicial manager's control e.g. the health of the particular industry sector or the economy at large.