Singapore has made plans to become an insolvency and restructuring hub in the region, and to that end, it passed game-changing laws last year. Lawyers analyse the impact that the new framework has had so far, and what the future holds.
Singapore has been making significant moves to streamline its insolvency framework in recent times, and that could make the city-state a prime spot for debt restructuring work in the region. On May 23, 2017, Singapore implemented the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency through the Companies (Amendment) Act 2017.
“The Model Law, which was adopted by UNCITRAL on May 30, 1997, does not attempt a substantive unification of insolvency law across different jurisdictions. Rather, it provides a framework for cooperation between jurisdictions by recommending a legislative text for States to incorporate into their national laws,” says Danny Chua, senior partner at Singapore-headquartered Joseph Tan Jude Benny (JTJB).
Legislation based on the Model Law has since been adopted in 43 States in a total of 45 jurisdictions, including the United States, UK, Canada, Greece, Japan, Korea, Mexico, South Africa, Australia, and New Zealand.
“Unlike an international convention, the Model Law does not require the State enacting it to notify the UN or other enacting States,” notes Chua.
The changes came about after global corporate default rates hit a high in 2016 since the 2008 global financial crisis and a large amount of Singapore bond market defaults can.
In 2016, a 17-member committee consisting of lawyers, insolvency and financial professionals, and Monetary Authority of Singapore officials provided the Singaporean government with a roadmap in the form of 17 recommendations.
One of the key suggestions was the enhancing of Singapore's legal framework for restructuring by setting up customised rules and procedures. This would include a specialist insolvency bench for restructuring cases that involves both Singaporean and international judges.
The committee also proposed that the Singapore International Arbitration Centre and the Singapore International Mediation Centre develop rules for insolvency. In addition, it was suggested that multidisciplinary training be given to increase the availability of rescue financing and bolster the insolvency profession.
Indranee Rajah, co-chairman of the committee and Senior Minister of State for Law and Finance, had said in a briefing that Singapore’s trusted judicial system gives the country an advantage when offering debt-restructuring services.
She suggested that this could help the island state become a “global debt-restructuring centre like New York or London.”
SIGNIFICANT CHANGES
Peter Doraisamy, the founding partner and managing director of Singapore law firm Peter Doraisamy, feels that the legislative change is significant as it offers many opportunities for companies to survive in today's tumultuous times.
“I think these regulatory changes are welcomed as companies attempt to stay afloat in today's rough economic waters. The effects of these changes are to attempt to rescue these companies who would otherwise be insolvent and many jobs would be lost,” Doraisamy says.
“These amendments make Singapore's insolvency regime more in line with the U.S. Chapter 11 Bankruptcy provisions. The Act has empowered schemes with a worldwide moratorium, which may be imposed and allows a moratorium for related entities,” he adds.
Doraisamy feels this will allow companies with transnational operations to effect schemes, which may turn the companies around. Of notable mention is the changes to the judicial management regime, where it is now also offered to companies that are not incorporated in Singapore.
“With the Singapore Companies (Amendment) Act 2017, creditors and representatives of foreign insolvency proceedings can benefit from swift and direct access to the Singapore courts,” Chua says.
“Conversely, local insolvent companies are able to seek foreign judicial assistance in jurisdictions which have similarly adopted the Model Law.”
A significant advantage is the recognition of foreign restructuring and rehabilitation proceedings and orders beyond the traditional winding-up proceedings or schemes of arrangement.
“By broadening the scope of the Companies Act, foreign proceedings (regardless of its name or form) can have access to local judicial relief such as interim relief pending an application for recognition, automatic stay upon recognition of foreign proceedings, relief for non-main proceedings following stay, etc.,” Chua says.
The types of relief are also expanded to include super-priority rescue financing, ‘cram down’ provisions and fast-tracked pre-negotiated schemes.
“In situations where a debtor’s assets are located in different jurisdictions, the respective courts are also empowered to cooperate and coordinate concurrent proceedings,” Chua says.
“For instance, the Singapore Supreme Court is part of the Judicial Insolvency Network that includes judges from Australia (Federal Court and New South Wales), Bermuda, the British Virgin Islands, Canada (Ontario), the Cayman Islands, England & Wales and the United States of America (Delaware and Southern District of New York). Such cross-border judicial cooperation discourages creditors from scrambling to enforce their claims before formal insolvency proceedings are commenced in their local jurisdiction,” Chua further explained.
MORE OPPORTUNITIES
In essence, the significance of this law lies in enabling more cross-border debt restructuring. That opens even more access to the substantial sum of debt available for restructuring across major Asia Pacific markets, which consulting firm Oliver Wyman estimates to be at $250 billion.
But perhaps the more significant question for the legal industry, is whether the changes also open up more opportunities with more cross-border cases popping up.
“The amendments have resulted in a growing number of insolvency cases with companies that have transnational operations,” says Doraisamy.
“We have seen an increase in our insolvency practice as a result of these amendments. We would like to help companies deal with these amendments and its impact on their business,” Doraisamy adds.
“The insolvency process in Singapore is now streamlined and rehabilitation and/or restructuring of companies can proceed in a much more orderly fashion,” Chua says.
But he feels the need for legal representation and assistance has “declined dramatically” since creditors can no longer rush to gain priority or ‘carve out’ assets on a first-come-first-served basis.
Doraisamy holds a different view, citing an increase in his firm’s workload in the form of more transnational cases as well as restructuring cases.
“Some of the amendments include a worldwide moratorium which is appealing for companies with transnational operations,” Doraisamy says.
“More novel forms of restructuring are also being proposed. With the amendments to allow rescue financing, more are willing to come forward to help turn companies around.”
LOOKING AHEAD
A recent report by Rajah & Tann Singapore says that Singapore has shown no sign of slowing down. The coming year spells out a new chapter in Singapore’s insolvency regime as the country doubles down on “developing measures aimed at streamlining insolvency processes and integrating cross disciplines involved in restructuring works.”
The new provisions under the Singapore Companies (Amendment) Act 2017 will also be extended to personal insolvency by way of an Omnibus Insolvency Bill, which is expected to be introduced in the second half of 2018.
“With a single piece of legislation to regulate both personal and corporate insolvency and restructuring, it is foreseeable that Singapore will grow in its attractiveness as a jurisdiction that facilitates debt restructuring in the region,” says Chua of JTJB.
Adding to that, Doraisamy of Peter Doraisamy suggests that the framework for the regulation of insolvency professionals is also welcomed. Fortunately, the new Bill will also incorporate recommendations proposed by the Insolvency Law Reform Committee in 2013, which includes such regulations.
The proposed Insolvency Bill is expected to provide consolidated regulations in relation to the licensing and discipline of insolvency-office holders and promote a clear and common standard for insolvency office-holders.
“We want liquidators who are able to maximize the returns and assets of a company for the benefit of all stakeholders. Not only that, we want scheme managers who might be able to turn a company around and help safeguard jobs,” Doraisamy says.
The legal industry would do well to prepare its members for the changes as other fields are doing.
The Singapore Accountancy Commission has established a taskforce to study the restructuring industry, with a goal to train and ensure high quality professionals.
Nonetheless, this is still promising news for the legal industry.
“I see that the Omnibus Insolvency Bill will be beneficial in consolidating the debt restructuring regimes in Singapore. There is a vast potential for this in light of the total amount of debt available for restructuring across key Asia-Pacific markets is estimated at $250 billion,” Doraisamy says.
In their report, Rajah & Tann welcomed these latest changes to Singapore’s debt restructuring regime, hailing it as “a key step in Singapore’s establishment as an eminent debt restructuring hub not only in ASEAN but in Asia.”
The firm believes the success of Singapore as a debt restructuring hub would then lead to “commensurate increase in investments and growth in the region with investors assured of easy access to effective restructuring mechanisms.”
Therefore, there is much anticipation as Singapore continues building on its groundwork for insolvency success.
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