S210(1) of the Companies Act allows the Court to order a meeting between a company and its creditors to consider compromises or arrangements. In Re Sembawang Engineers and Constructors Pte Ltd [2015] SGHC 20, the Singapore High Court granted an application by Sembawang Engineers and Constructors Pte Ltd (the “Company”) for a s210(1) order. The applicant Company was successfully represented by Patrick Ang, Low Poh Ling and Chew Xiang from Rajah & Tann Singapore LLP.

The application was resisted by one of the Company’s creditors, which disputed the viability of the proposed acheme of arrangement. The creditor submitted that the proposed scheme of arrangement was unlikely to be approved given its lack of detail, that some of its measures were conditional upon actions or approvals by the Company’s related entities, and that the Company was ‘hopelessly insolvent’.

The Court rejected the creditor’s submissions. It held that any lack of detail or lack of control by the Company in the scheme of arrangement did not raise any significant issue. The Court also held that its approach in a s210(1) application would generally be to at least allow a discussion between a company and its creditors, unless the proposal were doomed to fail.

In an assessment of viability, the magnitude of a company’s debts would of course be a relevant factor. However, the Court held that the balance sheet or commercial insolvency test would not be a determining factor for s210(1) applications, thereby departing from Malaysian and Australian authorities. The Court recognised that a company may be insolvent by such a measure, but may still be able to propose a viable scheme of arrangement.

Here, the relevant factors suggested that the scheme of arrangement was at least viable enough to warrant consideration by the creditors. The Company and its related entities were involved in a great many projects with many creditors. Therefore, the Court granted the Company’s application.

Schemes of arrangement tend to be complex matters as they involve a balance of the company’s own financial viability and the diverse interests of its various groups creditors. A functional scheme of arrangement must also be capable of obtaining the approval of the court and the buy-in of the company’s creditors.