Bid for perfection: Q&A on Singapore's new restructuring framework

Author: | Published: 16 Jul 2018
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

The Supreme Court of Singapore’s Justice Aedit Abdullah discusses the country’s recent overhaul of its restructuring and insolvency framework

In May 2017 Singapore implemented a major overhaul and update of its restructuring and insolvency (R&I) regime via amendments to the Singapore Companies Act. The new framework aims at nothing less than to position Singapore as a foremost international centre for cross-border R&Is. At the very least, it has undoubtedly stolen a march on its Asian rivals.

The new regime drew inspiration from restructuring frameworks worldwide, among other things incorporating the US Chapter 11 debtor-in-possession (DIP) regime. Other key changes seek to open Singapore up to foreign companies, enhance mechanisms for extra-territorial moratoria and offer sophisticated scheme of arrangement tools for cram-downs, DIP financing and pre-packs.

IFLR speaks with Justice Aedit Abdullah, a former prosecutor turned High Court judge who has handled many of Singapore's most important recent insolvency cases, about the new regime, its importance and some of the questions that have been raised about the new regime by critics.

How important for the Singapore business law community is it to have a globally competitive restructuring and insolvency legal regime?

We recognise the importance of R&I work, not just domestically but also regionally. Given the scale of corporate investment and activity, it is inevitable that even in the best of times, corporations are likely to pursue restructuring for various ends. With a well-regarded R&I legal regime, law practices can expect more restructuring work from the region. There are also ramifications for the Singapore business law community at large. All too often corporate restructuring is associated only with the demise of a business. But a competitive R&I regime is one that seeks to keep deserving businesses a going concern and injects a sense of economic optimism in the business community. Law is an ancillary service. If businesses do well, then the legal industry, as a whole, stands to benefit.

A sound and progressive legal regime is essential to ensure the continued relevance of Singapore as a financial and business centre in Asia, which in turn will help ensure that the legal profession in Singapore continues to do well.

Is there a risk that the changes that have been brought in are too debtor-friendly?

While we are aware that there is a perception among some that the changes tilt towards the debtor, a close examination of the statutory regime will show that we strive for an appropriate balance with sufficient safeguards to protect the interests of creditors and the various stakeholders. Conditions similar to those ordered in Chapter 11 proceedings may be imposed on moratoria. The court may also in an appropriate case consider the appointment of a chief restructuring officer to help monitor the restructuring efforts. In addition to the statutory requirements, the courts have introduced a number of measures intended to protect the interests of these creditors and stakeholders. Such measures include robust case management even after initial orders are made and require cost schedules for most cases.

What type of case prompted the inclusion of super-priority rescue (DIP) financing provisions?

It might be useful to first explain the broad contours of DIP financing in Singapore. As regards fresh unsecured rescue loans, such loans enjoy priority over other unsecured claims and administrative expenses claims when it comes to the distribution of unsecured assets. As regards fresh secured rescue loans, super-priority liens may be granted by the court to allow the fresh funds to rank ahead of other existing secured loans.

The introduction of DIP was not in response to a specific case. What prompted it was an appreciation that we needed to give more tools to allow rescues to be effected, noting in particular that without a rescue financing regime, it would be very hard to attract new funds to assist companies in difficulties. The DIP regime that was introduced is modelled after the US regime and seeks to strike the right balance between conferring benefit and reward for the new financing on the one hand, and safeguarding the interests of prior creditors on the other.

What do Singapore courts have to do to make its new R&I regime robust and attractive for companies, come what may?

The recent changes to the R&I regime, as well as the greater ease of re-domicilation, have established the necessary mechanisms. Companies the world over are waiting to see how the courts decide the cases that come up. What we need to do is to demonstrate that it works. So, the courts have, where possible, issued judgments even in the absence of appeals, to allow observers to understand the approach taken. We hope this helps to provide certainty. We are also exploring a number of mechanisms, including fast-tracking appeals, to build up our jurisprudence.

We are mindful of commercial sensitivity and strive to have our cases progress to resolution as promptly as possible. We have a number of other initiatives under consideration which we hope to roll out fairly soon.

What considerations are being debated when it comes to recognition of Singapore's jurisdiction in cases? For example, the new laws imply significant international reach particularly on the question of moratoria, how can this be enforced?

The international effect of our moratoria will ultimately be visited upon parties actually present in Singapore, or which have assets in Singapore. If Singapore was chosen as the fori, and given that we are a financial centre, this is likely to be the case.

In terms of enforcement generally, we are a party to the Model Law. This facilitates recognition of restructuring activities of businesses in other jurisdictions. Further we have developed our rules of common law recognition along the lines of recognising the jurisdiction of other courts in a broad range of instances. This shows our commitment to a modified universalist approach, which we hope will encourage greater cross-border cooperation. We are supportive of international efforts to place cross-border enforcement on a firmer footing.

How flexibly should a substantial connection with Singapore be weighed by Singapore courts?

The requirement of substantial connection with Singapore has been a feature of our law for some time. The amendments brought in specific examples of such substantial connection: a foreign company whose centre of main interest is in Singapore; a company which is carrying on business in Singapore or has a place of business in Singapore; a company with substantial assets in Singapore; and a company which has chosen Singapore law as the governing law of a loan or transaction.

I think other possibilities that may be raised for consideration could include being listed on our local stock exchange, whether primary or otherwise; or where securities are marketed to the Singapore retail investors. The essential focus is on requiring something more than a tenuous link; I do not, for the moment, see the courts taking an overly strict approach.

Where do the Singapore courts currently fall in debates over valuation and where part autonomy in proceedings should give way to the need to collective procedures?

We recognise the difficulties in valuation. There is something to be said for the US approach in giving primary weight to the going concern value, given the difficulties in a conclusive determination of market value, especially for a business that has failed or is on the verge of failure. Market value in such situations is really market value for the liquidated assets. Where a scheme of arrangement is being pursued, with a view to the resuscitation of a company, rather than say, judicial management, using the liquidation value may not be appropriate. Subject to arguments in court, I would venture to say that our courts would probably be willing to consider the use of going concern values instead.

There is much to be said for giving effect to party autonomy, save where significant social interests, such as employees' rights, are at stake. This would mean that generally, parties may for instance, seek appropriate re-domiciliation, with little interference, unless it is being pursued to evade obligations owed to employees for instance or to frustrate claims by say, third party victims of a tort committed by the corporation.

What features of the new R&I regime has so far been tested in live cases?

We have had several cases on section 211B applications, moratoria, super-priority financing and recognition. For instance, in Re: Empire Capital Resources, the Court made some observations on a moratorium sought in respect of foreign proceedings outside Singapore and section 211B of the Companies Act. An application for super-priority financing also came before the Court in Re Attilan Group. What is perhaps of note in Re Attilan Group is the consideration of US case law to interpret the section 211E of the Companies Act. As regards the recognition of foreign insolvency proceedings, the Court in Re: Zetta Jet Pte Ltd and ors was faced with an application for recognition by an interim trustee acting in Chapter 7 proceedings in California.

About the author

Justice Aedit Abdullah
Judge of the High Court, Supreme Court of Singapore

Justice Aedit Abdullah was appointed judicial commissioner in 2014 and High Court Judge on September 30 2017.

Justice Abdullah obtained a bachelor of laws (first class honours) from the National University of Singapore (NUS) in 1994, as well as a bachelor of civil law (first class) from the University of Oxford and a master in public management from NUS in 2007.

He joined the Singapore Legal Service in 2000 and began his career as a Justices' law clerk. He then taught at the Faculty of Law, NUS, before re-joining the Singapore Legal Service. He has held various appointments, such as deputy public prosecutor, deputy senior state counsel and district judge of the Subordinate Courts (renamed as State Courts in 2014).

He was appointed chief prosecutor (economic crimes and governance division) and subsequently chief prosecutor (criminal justice division) at the attorney general's chambers in 2011 and served as special counsel at the Monetary Authority of Singapore from January 2008 to June 2009. He was appointed senior counsel in 2012.