In its latest decision in Re Conchubar Aromatics Ltd and other matters  SGHC 322, the Singapore High Court held that it is possible for an interim stay of proceedings to be granted under Section 210(10) of the Companies Act (“the Act”) before an application is made to the court to call a creditors’ meeting under Section 210(1) of the Act.
Three companies, Shefford Investments Holdings Limited, UVM Investment Corporation and Conchubar Aromatics Limited (collectively the “Applicants”), were shareholders in Jurong Aromatics Corporation Pte Ltd (“JAC”). JAC ran into challenges and was put into receivership in September 2015. The Applicants were similarly in difficulty and hoped to put forward a restructuring proposal under Section 210 of the Act.
As matters were still being negotiated, the Applicants sought a moratorium to protect their efforts at restructuring. They therefore applied for a restraint order under Section 210(10) of the Act, even though no application had been made to call a creditors’ meeting under Section 210(1) of the Act.
The High Court held that it was possible for a restraint order under Section 210(10) of the Act to be granted prior to an application to call for a creditors’ meeting under Section 210(1) of the Act and granted a restraint order operative for 10 weeks, unless discharged earlier, with a status conference fixed for an update on the situation and further status conferences to be ordered as needed.
The requirements for a restraint order to be granted prior to calling a creditors’ meeting
The court held that for a restraint order to be made prior to calling a creditors’ meeting, it would be necessary for the applicant to put forward a bona fide proposal that was sufficiently detailed. It is not necessary for the proposal to be complete. In determining whether the proposal was sufficiently detailed, the court will assess whether on the face of the proposal, it can conclude that there is a reasonable prospect of the scheme working and being acceptable to the general run of creditors.
To determine whether the proposal is bona fide, the court will look at various factors. In this case, the court took into account the fact that the Applicants committed to a 10-week timeline to make an application under Section 210(1) of the Act to call for a creditors’ meeting and volunteered to appear in court on a regular basis to provide updates.
The court also took into account that the proposal was sufficiently particularised, which indicated serious intent and thought. In addition, nothing appeared to indicate that the proposal was so bad that it would likely be rejected outright.
Apart from the above, the High Court held that companies incorporated outside of Singapore could also avail themselves of the protection under Section 210(10) of the Act.
It is now apparent that companies considering restructuring by means of a scheme of arrangement have the option of obtaining the additional protection of a court-ordered moratorium prior to applying to the court for the order to call a creditors’ meeting.
However, before obtaining such a moratorium, the company should have a sufficiently detailed scheme ready, as well as show that it is genuinely seeking the moratorium for the purpose of putting the scheme before its creditors.