Singapore’s insolvency and restructuring regime, in the eyes of practitioners: Opinion
23 July 2023
23 July 2023
Five years ago, Singapore’s insolvency laws were changed to put the Republic on the map as a hub for international or Asian restructurings. Today, it is timely to take stock of how far the move has succeeded in its objective.
The Companies Act was amended in 2017, followed by the passing into law of the Insolvency, Restructuring and Dissolution Act in 2018.
Among the changes were new features of the scheme of arrangement regime, modelled on the debtor-friendly US Chapter 11 “debtor in possession” model – notably, an expanded jurisdiction for foreign companies to use Singapore schemes of arrangement and enhanced moratorium, including automatic stay.
To assess the changes from an empirical perspective, we designed a study to survey selected insolvency practitioners (IPs) in Singapore and overseas for their views on the “law in practice”. This consists of semi-structured interviews on whether Singapore’s regime post-2017 is perceived to be fair, efficient, effective and world-leading.
While interviews are ongoing, here are some interim findings that we hope will be of interest – and useful – to policymakers as they consider further improvements.
In short, IPs have a high level of confidence in Singapore’s regime, feel that processes are fair, and see greater efficiency. Views differ on effectiveness, but the system is seen to be operating as intended.
As for whether the regime is seen as “world-leading”, IPs lauded the fact that all the key elements are in place, but noted areas of concern.
On the whole, IPs have a reasonable to high level of confidence in the regime. They consider it sophisticated and responsive, having been improved and refined through legislative amendments and judicial decisions.
There is a general sense that the system is transparent and effective, which engenders trust. This is vital, since IPs need to know what the worst-case scenario is for their clients.
One IP noted that the rules and technical aspects are “very high quality” – Singapore’s judges understand insolvency law, and the decisions have been “very satisfactory”.
However, it was felt that Singapore does not have a sufficiently large base of qualified and experienced IPs to handle large-scale, high-value cases – and the Republic is not regarded as the jurisdiction of choice for restructuring. As the “big complex restructurings” are not coming to Singapore, there are limited opportunities to develop skill sets and deep expertise.
Another IP opined that this could be a consequence of Singapore not having the benefit of an economic “hinterland” – unlike, say, Hong Kong or London. But in this regard, it could be said that Singapore does have a “hinterland” in South-east Asia. and possibly India.
From the perspective of an IP who acts for creditors, the regime may be “too debtor-friendly”. Citing the ease of access to moratoria, one IP felt that there was insufficient scrutiny. In some cases, the moratorium against enforcement was either not necessary or “stayed in place too long”, which did not lead to the best outcomes for creditors.
But another IP observed that there is enhanced scrutiny of moratoria applications: applicants must provide details, not just a term sheet of a planned restructuring.
In general, IPs concurred that processes are fair and stakeholders are treated fairly, even where a better commercial outcome for creditors is not reached.
With regard to standards of conduct and information-sharing, IPs said there was room for improvement, although recent cases are encouraging.
While greater transparency from debtors would be desirable and helpful, it is often not easy to enforce rules of disclosure or the extensiveness of disclosure. It was thus timely for the apex court in Pathfinder Strategic Credit LP v Empire Capital Resources (2019) to reinforce that the benefits of a “debtor in possession” regime come with corresponding obligations to ensure transparency.
Another IP suggested introducing a statutory trustee, answerable to both creditor and debtor groups and subject to court supervision. These sentiments were echoed by an IP from a civil law jurisdiction, who noted that creditors would prefer for applicable standards and procedures to be stated in statutes.
IPs were asked whether, in their experience, relevant procedures are completed within a reasonable timeframe. They noted that processes are now “tighter”: there is increased vigilance, and courts are more prepared to enforce stricter timelines for operational matters, such as filing of affidavits.
However, one thorny issue is the use – or misuse – of moratoria as a “negotiating tactic” in negotiations, with debtors threatening to file for one in the event that negotiations break down.
The framework puts schemes of arrangement within the context of an adversarial court-centred system, which could sometimes result in delays, said one IP.
As for effectiveness, IPs were asked to assess the extent to which the regime has achieved its aim of balancing business rescue with maximising returns for creditors. They were asked how well the regime helps viable companies to survive; whether it enables the equitable treatment of creditors; and how it affects investment decision making.
One IP noted an inherent difficulty in measuring and defining effectiveness. Anecdotally, some companies have used the process to restructure and emerge with a healthier balance sheet – so the regime could be said to be effective.
Yet at the same time, there are companies which went into judicial management and were eventually wound up. These include judicial management orders made in high-profile business collapses such as Hyflux, Agritrade International and Hin Leong Trading, which ended in the companies being wound up and their businesses sold.
There are also cases where the business is transferred to a special purpose vehicle and the old entity is wound up. It is debatable if these outcomes can be considered intended and hence successful – though arguably, it is a good outcome if the business can be saved and employees are retained.
Another IP commented that creditors accustomed to a more “creditor-friendly” environment may hesitate to make investments in Singapore – though they also questioned the extent to which such back-end considerations affect those at the front end.
In this regard, it was noted that the “debtor-friendly” US Chapter 11 regime does not dissuade investors from investing in the US. In any event, it is not possible to prevent debtors from filing in the US or the forum of their choice.
Finally, IPs were asked if they consider the regime to be innovative or forward thinking, and whether Singapore is at the forefront of global standards and practices.
They noted that the framework is in place and policymakers have done all they can – but Singapore has not yet achieved its aspiration of becoming an international debt restructuring hub.
Possible contributory factors include familiarity – or lack thereof – with the Singapore regime, and issues relating to the choice of law.
On the latter, IPs noted that the “big financing deals” are not governed by Singapore law. Based on an earlier survey of transaction counsel from 2021 to 2022, there is some truth to this: such financing transactions are typically governed by English or New York law.
Familiarity and choice of law issues aside, one IP highlighted a need for “global talent” to come to Singapore. Here, the importance of restructuring fees and costs cannot be overstated – but Singapore’s fees are not considered on par with those in established jurisdictions, and this is an impediment.
Moreover, lawyers are often paid only after security has been realised and proceeds of sale are received, meaning that bills remain unpaid for a considerable period of time. It was noted that world-leading IPs will not work on this basis.
In conclusion, there seems to be broad consensus that the regime has worked well – with the caveat that it could be even better. As financial centres evolve and other jurisdictions seek to outdo one another, so too must Singapore push on.
All the IPs surveyed thought that deeper engagement would be beneficial as policymakers consider amendments to position the Singapore regime for the future.