The new insolvency provisions of the Companies (Amendment) Act will allow foreign companies to apply to a Singapore court for restructuring or judicial management. These provisions came into force on 23 May 2017. To be able to rely on the new provisions, a foreign company must show that it has a substantial connection with Singapore. In deciding whether a foreign company has a substantial connection with Singapore, the Singapore courts may rely on the presence of one or more of the following matters:
- Singapore is the centre of main interests of the foreign company;
- The foreign company is carrying on or has a place of business in Singapore ;
- The foreign company is registered as a foreign company in Singapore;
- The foreign company has substantial assets in Singapore;
- The foreign company has chosen Singapore law as the law governing a loan or other transaction, or the law governing the resolution of one or more disputes arising out of or in connection with a loan or other transaction;
- The company has submitted to the jurisdiction of the Singapore courts for the resolution of one or more disputes relating to a loan or other transaction.
The term “centre of main interests” is not defined. The term is taken from the UNCITRAL Model Law on Cross-Border Insolvency, and English cases that have considered that term will be helpful in deciding how our own courts are likely to interpret it. English courts have looked at and applied the following factors in a series of cases:
- The company’s jurisdiction of incorporation;
- Where the company’s business is conducted or where it pursues its economic activities;
- The location of its board meetings or central administration;
- The location of its assets;
- The jurisdiction and governing law of its contracts; and
- How it presents itself to third parties.
Moratoria Against Proceedings
A foreign company with a substantial connection with Singapore may under the new insolvency provisions propose a compromise or arrangement with its creditors. Upon application to court, an automatic moratorium of 30 days applies. During this automatic moratorium period, the company may not be wound up. The moratorium will also mean that, among other things, no step may be taken to enforce any security over any property of the company during that period. To ensure that companies do not abuse the automatic moratorium, it only applies if the company has not within the past 12 months of its application previously made another application for a compromise or arrangement.
The moratorium period may be extended by the court. The court may also order the moratorium to apply on a worldwide basis. It may also order that the moratorium also apply to the creditors of the company’s holding company and subsidiaries. The company must show, however, that:
- the holding company and/or subsidiaries play a necessary and integral role in the compromise or arrangement;
- the compromise or arrangement will otherwise be frustrated; and
- the creditors of the holding company and/or subsidiaries will not be unfairly prejudiced by the making of the moratorium order.
The holding company and/or subsidiaries must also not already have commenced procedures for winding up.
Features of the Scheme of Arrangement
The new provisions for schemes of arrangement provide for a number of features that are intended to make applying for a scheme of arrangement in Singapore more attractive to companies:
- Cram downs: When voting for a scheme of arrangement, creditors are sorted into classes and each class of creditors votes separately on the scheme. Each class must meet minimum requirements for approval: a majority in number of the creditors in that class, which majority in number must also represent at least three-quarters in value of the creditors in that class. If a class of creditors is small, for example, it consists of only two creditors, a single creditor may have the power to block a scheme of arrangement. Under the new provisions, this situation can be overridden by the court making an order approving the scheme notwithstanding the dissenting creditor’s objection to the scheme. The court may do this by cramming all the creditors into a single class. If that single class meets the minimum requirements for approval, and if the arrangement does not, in the view of the court, discriminate unfairly between the classes of creditors and is fair and equitable to each dissenting class, the court may approve the scheme.
- Pre-packs: The new scheme of arrangement provisions allow for pre-packs, under which the court may approve an order for a scheme of arrangement even though a creditors’ meeting has not been held. The court may do this if it is satisfied that were a meeting to be held, the minimum approval requirements would be met.
- Superpriority for rescue financing: A person that provides rescue financing to the company may obtain superpriority. Superpriority may be granted by the court upon the application of the company if it can establish that the person would not provide the financing without it. Rescue financing is financing that is necessary for the survival of the company as a going concern, or to achieve a more advantageous realisation of the company’s assets than on winding up. Superpriority may be granted at four levels:
- The debt takes priority together with the costs and expenses of the winding up but behind secured creditors;
- The debt takes priority above all preferential and unsecured debts, behind only secured creditors;
- The debt is secured by a security interest over property of the company that is unsecured or by a subordinate security interest over secured property; or
- The debt is secured by a security interest over already secured property of the company and takes the same or higher priority over the existing security.
A company may also apply for superpriority for rescue financing if it is in judicial management. Judicial management itself has been made easier to obtain:
- Previously, an order for judicial management would only be granted if the court was satisfied, among other things, that the company was or would be unable to pay its debts. The new provision allows the court to grant an order for judicial management if it is satisfied that the company is likely to become unable to pay its debts, which is a lower threshold.
- In addition, an application for judicial management could be automatically blocked by a security holder. Now, the court will have to consider whether the prejudice that would be caused to the security holder if the judicial management order were granted would be disproportionately greater than the prejudice that would be caused to the unsecured creditors if the order were not granted. This makes it much harder for the security holder to block an application for judicial management.