An extract from The Restructuring Review, 13th Edition

Overview of restructuring and insolvency activity

The first five months of 2020 have seen a global economic downturn, which some have observed to be on a scale not experienced since the Great Depression of the 1930s. In April 2020, the International Monetary Fund's World Economic Outlook cut global growth forecasts dramatically to predict a 3 per cent contraction worldwide, including a predicted negative 6 per cent contraction for advanced economies. As a small and open economy, Singapore has been no exception to these dramatic changes in the global economic environment. The Singapore economy contracted by 0.7 per cent in the first quarter of 2020 (compared with a growth of 1.0 per cent in the previous quarter), and its 2020 GDP growth forecast has since been revised to –7.0 per cent to –4.0 per cent, down from an earlier forecast of –0.5 per cent to 1.5 per cent.

While the full effects of the above have yet to be observed, it is not surprising in the context of the global economic downturn that 2020 has already seen a significant uptick in restructuring activity in Singapore. We discuss the recent developments in the law.

Recent legal developments

i Temporary relief to restructuring and insolvency legal framework in response to covid-19 outbreak

Singapore has enacted interim provisions intended to address and mitigate certain economic and social consequences arising from the ongoing global covid-19 outbreak. One such measure was the covid-19 (Temporary Measures) Act 2020 (the Covid-19 Act), which was enacted in April 2020, and included temporary relief measures in respect of a party's inability to perform certain categories of contracts, and for financially distressed businesses and individuals. These temporary relief measures are to be in place for the prescribed period of six months (which may be extended or shortened by the Minister).

First, the Covid-19 Act provides temporary relief during the prescribed period for the inability to perform 'scheduled contracts' entered into before 25 March 2020, where such obligation was to be performed on or after 1 February 2020. The party seeking relief must show that the inability to perform an obligation under the scheduled contract is to a material extent caused by a covid-19 event (defined as covid-19 or the operation of or compliance with the law, order or direction of Singapore or any other country made by reason of or in connection with covid-19).

Second, the Covid-19 Act also provides temporary relief for financially distressed firms and businesses for the prescribed period, which modifies the existing framework for insolvency. For the purposes of Section 254(2)(a) of the Companies Act, a Singapore company will only be deemed to be unable to pay its debts if a creditor serves a statutory demand in a sum exceeding S$100,000 (an increase from the usual threshold of S$15,000), and the company neglects to pay the sum or secure or compound for it to the reasonable satisfaction of the creditor within six months (an increase from the usual period of 21 days).

Third, the Covid-19 Act also provides that, for the purposes of the liability for insolvent trading under Section 339(3) of the Companies Act (discussed above), an officer may have a defence if the debt is incurred: (1) in the ordinary course of the company's business, (2) during the prescribed period and (3) before the appointment of a judicial manager or liquidator. Officers remain liable for the offence of fraudulent trading (as discussed above).

Apart from the above, subsidiary legislation has been introduced under Part 4 of the Covid-19 Act on alternative arrangements for meetings of creditors that arise in connection with winding up or judicial management.

ii Case lawFactors that a Singapore court will consider in recognising foreign insolvency proceedings

In 2017, Singapore adopted the UNCITRAL Model Law on Cross-Border Insolvency (the UNCITRAL Model Law), with certain modifications under the Tenth Schedule of the Companies Act (the Singapore Model Law). The Singapore Model Law empowers Singapore courts to recognise foreign main proceedings or foreign non-main proceedings, and grant relief in aid of the recognised foreign main or non-main proceeding. The classification of a foreign proceeding as main or non-main affects the types of relief that may be granted in aid of such proceeding – in particular, relief for foreign main proceedings arises automatically, whereas an application must be made for relief for foreign non-main proceedings, and such applications are subject to the court's discretion.

The High Court in Re Rooftop Group International Pte Ltd and another (Triumphant Gold Ltd and another, nonparties) [2019] SGHC 280 (Re Rooftop) discussed and applied the factors discussed in Re: Zetta Jet Pte Ltd and others (Asia Aviation Holdings Pte Ltd, intervener) [2019] SGHC 53 (Re Zetta Jet (No. 2)), in determining the company's centre of main interests (COMI) under Singapore's Model Law. The Court considered that under Singapore's Model Law, there was a presumption in favour of Singapore since the company was incorporated in Singapore. The Court also considered certain factors pointing to the United States as the COMI, including the fact that the foreign representative appointed in US bankruptcy proceedings was a US citizen, and the fact that the company's sales and main assets were in the US, but held that these were insufficient to displace the presumption, as these factors were not the sort of factors that weighed heavily in a creditor's mind. Among other things, the Court noted that the company had not made the representation that it was a US-based entity, nor were its creditors generally located in the US. The Court accordingly granted recognition to the US Chapter 11 proceedings as a foreign non-main proceeding.

In relation to the type of appropriate relief to be granted in aid of a foreign non-main proceeding, the Court in Re Rooftop held that, in the absence of overriding interests in the jurisdiction (such as societal concerns or employee rights), the general inclination of the Court would be to grant such orders to assist the foreign representative in the performance of his or her functions to the same degree and extent as would be granted to a local insolvency representative. Therefore, the Court rejected the applicant's argument that relief ought to be granted in the form of a moratorium preventing the transfer of shares in the company on the basis of s 259 of the Companies Act, which provides that any transfer of shares after the commencement of winding up shall be void, finding that this was not an 'appropriate relief' to be granted. The Court observed that the rationale for granting assistance under the Singapore Model Law was to aid the orderly and equitable distribution of assets and to facilitate the process of restructuring whenever possible. It was not intended to protect or preserve a party's position within the company in the case of a dispute between shareholders, or to prevent different views from being taken about the direction of the restructuring.

The Court held that, although there were serious concerns about the foreign representative's fitness to serve as the company's foreign representative, the Singapore Model Law did not allow the Singapore court to appoint, of its own accord, another foreign representative in substitution, as this was a matter to be determined by the foreign proceeding itself.

The Court also observed that the Singapore court did not expect foreign courts to enforce its injunctions or moratoria, and correspondingly, any alleged non-compliance in Singapore with foreign injunctions or moratoria would be a matter solely for that foreign court. The court also observed that in general, where the Singapore Model Law was applicable to the subject matter, the court would be slow to allow common law recognition to be invoked as an alternative regime.

Schemes of arrangement: key developments

In 2020, the Singapore High Court granted super-priority status to rescue financing for the second time since the legislative provision was introduced in 2017. A local civil engineering contractor listed on the Singapore Stock Exchange, Swee Hong Limited, applied for, and was granted, super-priority financing in aid of a proposed scheme of arrangement. The court ordered that the new rescue financing be secured by a first fixed charge over the company's unencumbered assets, and that previous rescue financing that had already been provided be granted super-priority over all preferential and unsecured debt in the event of a winding up.

In Hyflux Ltd v. SM Investments Pte Ltd [2019] SGHC 236, the Singapore Court considered the scope of the moratorium granted under Section 211B of the Companies Act. The Court held that s 211B(1)(c), which restrains the commencement or continuation of any proceedings against a company undergoing the scheme of arrangement, does not, in the absence of express statutory language to the contrary, apply to counterclaims which are purely defensive. Hence, notwithstanding the Section 211B moratorium in favour of the plaintiff company undergoing restructuring, a defendant may raise a counterclaim without the leave of court insofar as it operates to extinguish or negate a claim brought by the plaintiff company, without affecting the position of other creditors. However, any other counterclaim that goes beyond operating as a defence (e.g., a counterclaim for damages or property) requires leave of court. In granting leave, the Court will have to go through a balancing exercise to consider the needs of the interests of the defendant as against the plaintiff company and its creditors, weighing (1) the impact on other creditors, (2) the possible distraction from restructuring and (3) the prejudice or effect of refusing or allowing the application on parties. In that case, the Court granted leave to bring the counterclaim, subject to the safeguard that there be no execution, so as to ensure that the defendant did not gain an advantage over the other creditors through its counterclaim.

Judicial management: key developments

The Singapore High Court affirmed a judicial manager's distributive powers to unsecured creditors outside of a scheme of arrangement or liquidation, allowing the judicial managers of Ryobi Kiso (S) Pte Ltd to make interim distributions of funds to its creditors.

Winding up: key developments

The Singapore Court has clarified that, notwithstanding the absence of a legislative provision, it has jurisdiction to set aside a winding-up order under its inherent powers. Such application should be made by the petitioning creditor or the liquidator. This development thus functions as a stop-gap interim measure until the Insolvency Act (which contains express provisions for the termination of winding-up proceedings) comes into force.

Seah Chee Wan and another v. Connectus Group Pte Ltd [2019] SGHC 228 involved the court's discretion to refuse a winding-up order on the grounds of insolvency, even after finding that the company was cash-flow insolvent. In that case, the High Court found that the company was cash-flow insolvent, but nevertheless exercised its discretion and declined to wind up the company on the grounds of insolvency – among other things, the company had an ongoing business with thriving operations that was capable of generating cash that could eventually be used to pay off its debts, and there was insufficient evidence to conclude that the company was balance-sheet insolvent. The company was, however, ordered to be wound up on a different ground: that it would be just and equitable to do so in the context of a dispute between shareholders.

Arbitration and insolvency

In respect of a winding-up application which one party contended was premised on a debt that is subject to arbitration, the Singapore Court of Appeal issued two decisions, AnAn Group (Singapore) Pte Ltd v. VTB Bank (Public Joint Stock Company) [2020] SGCA 33 and BWG v. BWF [2020] SGCA 36, holding that the lower prima facie standard of review would apply instead of the higher 'triable issues' standard (i.e., the debtor need only show that there is a prima facie dispute in relation to the debt which is subject to the arbitration agreement, and need not go so far as to establish a substantial or bona fide dispute). If, however, the applicant creditor demonstrates legitimate concerns about the solvency of the debtor company as a going concern, and no triable issues are raised by the debtor, the court can grant a stay, as opposed to a dismissal, of the winding-up application.

Slim Beauty House Co Ltd v MSB Beauty Pte Ltd [2019] SGHC 194 also demonstrated the care that must be taken in bringing winding-up applications premised on a prior arbitral award. In that case, the plaintiff had obtained an arbitral award that ordered the defendant in the arbitration to bear the costs of the application for winding up and liquidation of a joint venture company. Subsequently, the plaintiff brought an application before the High Court to wind up the joint venture company. However, as the applicant had not joined the defendant in the winding-up application, the Court declined to grant applications by plaintiff and the liquidator of the company for the costs of winding up and liquidation to be paid by the defendant. Instead, as the arbitration proceedings were separate from the winding-up proceedings, the plaintiff had to enforce the arbitral award in the usual way. If the defendant disputed the quantum or liability to pay, the plaintiff would have to commence an application against the defendant, joining the liquidator as co-defendant.

Significant transactions, key developments and most active industries

The oil and gas and offshore and marine industries continue to experience headwinds, with oil service provider EMAS Offshore applying to be placed into judicial management in July 2019 after failed restructuring efforts. Upstream oil and gas firm KrisEnergy also obtained a debt moratorium in September 2019.

There have also been highly publicised cases among certain commodities traders, with Agritrade International being placed under judicial management in February 2020.

Hin Leong Trading Pte Ltd (Hin Leong) and Ocean Tankers (Pte) Ltd, which are part of a group of companies which collectively form the largest integrated downstream energy group in Singapore and one of Asia's largest bunker suppliers, were both placed under interim judicial management in April and May 2020 respectively.

In May 2020, fuel trader Zenrock Commodities Trading Pte Ltd was also placed under judicial management, following allegations of dishonest transactions, including the use of the same oil cargo to obtain loans from different lenders. Police raids on Zenrock's offices have been reported.

A search on the register of companies revealed that Otto Marine Limited and Panoil Petroleum Pte Ltd, which entered into judicial management in 2018 and 2017 respectively, have since entered compulsory liquidation. Other companies mentioned in previous editions, such as Swiber Holdings Limited (entered judicial management in July 2016), Technics Oil & Gas (entered judicial management in July 2016) and Swissco Holdings Limited (entered judicial management in April 2017), all appear to be undergoing an extended period of judicial management as at the time of writing.

Home-grown water and energy solutions provider Hyflux Limited, which obtained a debt moratorium in May 2018, remains in restructuring after the scuppered restructuring deal (which led to the decision in Hyflux Ltd v. SM Investments Pte Ltd [2019] SGHC 236 discussed above), with the debt moratorium extended to 30 July 2020 at the time of writing. The scheme of arrangement in respect of H&C S Holdings Pte Ltd, which was highlighted in the last year's edition as the first instance in which a foreign court recognised Singapore's worldwide moratorium under s 211B of the Companies Act, was sanctioned by the Singapore High Court this February. In a relatively positive development, Marco Polo Marine Ltd posted profits of S$168 million in the first year after it emerged from a scheme of arrangement in January 2018.