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What are the main insolvency procedures applicable to companies in your jurisdiction?
- Scheme of arrangement
- Judicial management
- Liquidation (winding up)
Scheme of arrangement – A financially distressed company can apply to court for a scheme of arrangement to agree a compromise of its debts. The scheme is binding on all creditors if approved by the court and the company’s creditors.
Judicial management – An insolvent company, its directors or creditors can apply to the court for a judicial management order, which the court will grant if there is a likelihood that:
- the company can be rescued;
- a compromise with creditors or scheme of arrangement can be agreed; or
- the company’s assets can be realised more advantageously than on a liquidation
On making the order a moratorium arises and the court appoints a judicial manager to oversee the process.
Liquidation – There are three types of liquidation:
- members’ voluntary liquidation (MVL): solvent, commenced by a resolution of the shareholders
- creditors’ voluntary liquidation (CVL): insolvent, commenced by a resolution of the shareholders
- compulsory liquidation: insolvent, commenced by court order
The liquidator realises the assets of the company and distributes the proceeds to its creditors. In an MVL the surplus is paid to the shareholders. At the end of the process, the company is dissolved and ceases to exist.
Can a company obtain a moratorium whilst it prepares a restructuring plan?
Scheme of arrangement – the company can apply to the court for a moratorium while preparing an application for a scheme of arrangement
Judicial management – a moratorium arises automatically on the making of a judicial management order
To what extent do the directors of the company remain in control of its affairs during any of the above procedures?
Scheme of arrangement – the directors remain in control
Judicial management – the judicial manager takes control of the company and the powers of the directors cease
Voluntary liquidation – the liquidator takes control of the company and the powers of the directors cease, save to the extent that the shareholders (in an MVL) or creditors (in a CVL) agree otherwise
Compulsory liquidation – the liquidator takes control of the company and the powers of the directors cease
Timeline to commence liquidation
How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
Six to eight weeks from presentation of a winding up petition. If the winding up petition is preceded by a statutory demand, a further three weeks is required.
Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?
Yes – but only insolvency proceedings commenced in the courts of Malaysia are recognised.
Position of creditors
Forms of security
What are the main forms of security over movable and immovable property?
Security over immovable property is taken by:
Security over movable property is taken by:
- fixed charge
- floating charge
Which classes of creditor are given preferential status? Are any classes subordinated?
Preferred creditors rank after secured creditors and are paid in the following order of priority:
- costs and expenses of the liquidation, including the liquidator’s fees
- unpaid salaries to the lesser of five months pay or SGD 7,500
- debts owed in relation to employees:
- retrenchment benefits and ex-gratia payments
- work injury compensation
- contributions to provident funds
- holiday pay accrued prior to the commencement of liquidation
- taxes assessed prior to the commencement of liquidation or the deadline for proving debts
Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?
Yes – although where a foreign company is liquidated in Singapore all domestic creditors must be paid in full before any proceeds are repatriated to the company’s jurisdiction of incorporation.
Termination of contract by reason of insolvency
Are contract terms permitting termination of the contract by reason of insolvency valid?
Retention of title
Are retention of title clauses effective?
Yes – however, such rights cannot be exercised without the permission of the court during the moratorium arising on the making of a judicial management order.
Setting aside transactions
Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?
A liquidator can challenge:
- Transactions at an undervalue entered into in the five years prior to the commencement of liquidation
- Undue preference transactions entered into in the six months prior to the commencement of liquidation (two years if the counterparty is an associate of the company)
- Extortionate credit transactions – a loan which:
- requires excessively high interest payments
- is unconscionable
- is grossly unfair
- entered into within three years prior to the commencement of liquidation.
Position of directors
Risks for directors
What are the risks facing the directors of an insolvent company?
A director can be found civilly liable to make good losses caused to the company if that director:
- breached his fiduciary duties to act in the best interests of the company
- committed any other misfeasance
- carried on the business of the company with the intent to defraud its creditors
A director can be found criminally liable and punished by a fine of upto SGD 10,000 or two years imprisonment for the following offences:
- failure to co-operate with the liquidator
- causing a company to incur a debt without reasonable belief the company would be able to repay it
A director will be disqualified if convicted of:
- fraud or dishonesty punishable by three months or more months imprisonment
- any offence in connection with the formation or management of a corporation