Restructuring and Insolvency in Singapore 2024

Restructuring and Insolvency in Singapore 2024 – Supreme Court, Singapore

RESTRUCTURING AND INSOLVENCY 2024

SINGAPORE

Robert Child, Jean Woo, Karan Puri, Matthias Goh

(Ashurst)

GENERAL

Legislation

1. What main legislation is applicable to insolvencies and reorganizations?

These are the Insolvency, Restructuring and Dissolution Act 2018 (the IRDA), as supplemented by its subsidiary legislation, and the Companies Act 1967 (the Companies Act).

Excluded entities and excluded assets

2. What entities are excluded from customary insolvency or reorganization proceedings and what legislation applies to them? What assets are excluded or exempt from claims of creditors?

The customary insolvency and reorganization proceedings governed by the IRDA and the Companies Act apply to companies. This extends to foreign companies that have a ‘substantial connection’ to Singapore.

The insolvency and, where applicable, reorganization of the following business entities are governed by separate legislation:

• limited liability partnerships: the Limited Liability Partnerships Act 2005and the Limited Liability Partnerships (Winding Up) Rules 2007;
• registered business trusts: the Business Trusts Act 2004;
• collective investment schemes and real estate investment trusts: the Securities andFutures Act 2001; and
• banks: the Banking Act 1970and the Monetary Authority of Singapore Act 1970.

Additional requirements for the winding up of companies operating in certain industries apply under industry-specific legislation, including:

• companies carrying on insurance or insurance broking business (the Insurance Act1966);
• electricity licensees (the Electricity Act 2001);
• designated clearing houses (the Securities and Futures Act 2001); and
• trust companies (the Trust Companies Act 2005).

Assets subject to security interests (eg, mortgages, charges and debentures) are generally excluded from creditors’ claims in a liquidation, as beneficial title to such assets does not sit with the debtor. Such encumbered assets sit outside the pool of assets for realization and distribution in a liquidation.

Public enterprises

3. What procedures are followed in the insolvency of a government-owned enterprise? What remedies do creditors of insolvent public enterprises have?

The same procedures under the IRDA generally apply to the insolvency of a government-owned enterprise.

However, the Singapore court has discretion on whether to make a winding up order even if the grounds for insolvency are met. The court may therefore decline to grant a winding up order of a government-owned enterprise on public interest grounds.

Protection for large financial institutions

4. Has your country enacted legislation to deal with the financial difficulties of institutions that are considered ‘too big to fail’?

Unlike other jurisdictions such as Hong Kong and the United Kingdom, Singapore has not enacted legislation dealing with the financial difficulties of institutions that are ‘too big to fail’.

Courts and appeals

5. What courts are involved? What are the rights of appeal from court orders? Does an appellant have an automatic right of appeal or must it obtain permission? Is there a requirement to post security to proceed with an appeal?

The General Division of the Singapore High Court has jurisdiction in relation to corporate insolvency and reorganization, individual insolvency and bankruptcy. This includes the Singapore International Commercial Court, which is a division of the General Division of the High Court.

Appeals are made to the Court of Appeal, which is the court of final appeal in Singapore. Appeals require payment of a S$20,000 deposit as security for the respondent’s costs of the appeal.

TYPES OF LIQUIDATION AND reorganization PROCESSES

Voluntary liquidations

6. What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

There are two types of voluntary liquidation for corporate debtors under Singapore law:

• members’ voluntary liquidation (MVL) – sometimes also referred to as a ‘solvent liquidation’; and
• creditors’ voluntary liquidation (CVL).

The members of a corporate debtor may commence an MVL and a CVL by passing a special resolution. If the company is solvent, the voluntary liquidation proceeds as an MVL. If the company is not solvent, the liquidation proceeds as a CVL.

Under an MVL, the directors (or a majority of the directors) of the company must make and lodge with the Accounting and Corporate Regulatory Authority a statutory declaration that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up.

An MVL can be converted into a CVL if it is subsequently discovered that the company is unable to pay its debts in full within this period. A voluntary liquidation proceeds as a CVL if the company is insolvent (and no such statutory declaration is made).

Unlike an MVL, in a CVL the members’ resolution is followed by a creditors’ meeting where creditors vote on key issues relating to the voluntary liquidation. Both the company and the creditors may nominate a liquidator and, in the event of a conflict, the creditors’ choice prevails. Creditors may also appoint a committee of inspection to supervise the liquidator’s actions.

As in a compulsory winding up, upon the commencement of a voluntary winding up:

• the company must cease carrying on its business, except insofar as the liquidator considers is necessary for the beneficial winding up of the company;
• any transfer of shares made without the liquidator’s sanction, and any alteration in the status of the company’s members, is void;
• most creditor enforcement action against the company’s property is void; and
• no action or proceeding may continue or commence against the company, except by leave of the court and subject to such terms as the court may impose.

Voluntary reorganizations

7. What are the requirements for a debtor commencing a voluntary reorganization and what are the effects?

A corporate debtor has two formal voluntary reorganization options under Singapore law. These are a scheme of arrangement (scheme) and judicial management (JM). Both options enable the debtor to reorganize under the court’s supervision and protection. Singapore-incorporated companies and foreign companies that can demonstrate a ‘substantial connection’ to Singapore are eligible to reorganize under the statutory framework governing schemes and JM.

A key difference between a scheme and JM is that a scheme is a debtor-in-possession process whereby the debtor’s management remains in place for the duration of the reorganization, and (usually) continues to run the debtor’s business. In JM, the debtor’s directors are displaced by the judicial manager for the duration of the JM order.

Schemes of arrangement in further detail

Overview of framework

A scheme of arrangement allows a debtor to implement a compromise or arrangement with its creditors (or any class of creditors). There are broadly three stages involved in the scheme process.

First, an application is made to court for leave to convene a meeting (or meetings) of the debtor’s creditors (or classes of creditors). This application may be brought by the debtor itself, a judicial manager, a liquidator or creditors. Considerations the court will take into account at this stage include:

• classification of creditors into classes;
• whether there is a realistic prospect of the scheme receiving the requisite approval;
• any suggestions of abuse of process; and
• whether the debtor has discharged its disclosure obligations specific to this stage – in particular, whether sufficient particulars of the restructuring proposal have been presented to the court.

The convening application stage is often (though not always) preceded by an application for a moratorium restraining legal proceedings by creditors against the debtor. Moratoriums are available to subsidiaries, holding companies and ultimate holding companies of the scheme company.

If the court grants leave to convene, the second stage is the holding of the creditor meetings, where the creditors – or a class or classes of creditors – vote to approve or reject the scheme. This is preceded by the issuance of notices summoning the meetings and an explanatory statement setting out all the material terms of the proposed scheme.

For a scheme to be approved, a majority in number representing at least three-fourths in value of each class of creditors present and voting must vote in favor of the scheme. If any one class does not pass this threshold, the scheme will fail. It is, however, possible to cramdown dissenting classes of creditors (see below for further details).

The final stage applies only if the statutory threshold for approval has been met across all classes of creditors. If this requisite approval is met, a further application is made to court to sanction the scheme. At this stage, the court is primarily concerned with the integrity of voting outcomes and the objective fairness of the scheme. Factors that the court will take into account when making this assessment include:

• the objective fairness of the scheme process (including whether disclosure obligations have been sufficiently discharged);
• whether the statutory requirements have been complied with;
• whether the classification of creditors was fairly representative of different classes; and
• if the scheme is one that a person of business or an intelligent and honest person would reasonably approve.

If sanctioned by the court, the scheme of arrangement takes effect and is binding on all affected creditors once lodged with the Accounting and Corporate Regulatory Authority.

Additional tools available under the scheme regime

The Insolvency, Restructuring and Dissolution Act 2018 (the IRDA) provides further Chapter 11-inspired restructuring tools to debtors looking to reorganize via a scheme. Briefly, these are as follows.

• A means to cramdown dissenting classes of creditors, such that the scheme may be sanctioned and become effective even if a class or classes of creditors vote against it. The court will need to be satisfied, on application, that:
• at least one class of creditors has approved the proposed compromise or arrangement at the scheme meetings;
• a majority in number, representing at least three-fourths in value, of all creditors (regardless of class) present and voting at the scheme meetings have agreed to the proposed compromise or arrangement;
• the proposed compromise does not discriminate unfairly between two or more classes of creditors; and
• the proposed compromise is fair and equitable to dissenting classes.
• ‘Prepackaged’ schemes of arrangement, whereby the court may, on application, sanction a scheme without the need for creditor meetings to be held.
• The granting of enhanced priority, including ‘super priority’, to lenders who provide rescue financing to distressed companies. The varying levels of enhanced priority, in increasing order, are:
• treating the financing as part of the costs and expenses of the winding up, if the debtor were to be wound up;
• granting the financing priority over all preferential debts, as statutorily provided for in the IRDA, and unsecured debts;
• granting the financing security on property not otherwise subject to any security interest, or a subordinate security interest on existing secured property; and
• granting security over property subject to an existing security interest, of the same or higher priority than the existing security interest.

Recently, the court has also endorsed applications involving the following restructuring tools in a scheme of arrangement context. These tools are not specifically codified under the IRDA but are routinely utilized in mature restructuring jurisdictions such as the United States and the United Kingdom:

• roll-up rescue financing, in which a portion of the pre-moratorium debt is rolled-up into the rescue financing package;
• lock-up agreements, with clarifications that certain requirements will need to be met such that they do not fracture existing classes of creditors; and
• the mandatory appointment of a chief restructuring officer to steer the restructuring of a distressed company seeking to restructure by way of a scheme of arrangement.

Judicial management in further detail

Judicial management entails the appointment of an external judicial manager over the debtor for a fixed period of time, initially 180 days. The duration of the JM order can be extended either on application to the court, or by obtaining the approval of a majority in number and value of the debtor’s creditors. A judicial manager manages the company’s affairs, business and property, with a view to the debtor’s rehabilitation.

JM can be initiated either via an application to court by the debtor, any of its directors or any creditor, or the debtor convening a meeting of its creditors and seeking a resolution of a majority in value and number of those creditors. In both cases it is necessary to demonstrate that:

• the debtor is, or is likely to become, unable to pay its debts; and
• one or more of the following purposes is reasonably likely to be achieved:
• the survival of the debtor as a going concern;
• the approval of a scheme (including a prepackaged scheme); or
• that the JM will achieve a more advantageous realization of the debtor’s assets than on a winding up.

Where a JM application is made, the applicant is required to nominate a licensed insolvency practitioner to act as judicial manager. If the applicant is the debtor, creditors with a majority in number and value of the applicant’s debts may counter-nominate another licensed insolvency practitioner to be judicial manager. The identity of the judicial manager will subsequently be determined by the court.

Alternatively, the identity of the judicial manager may be determined by a person who has appointed, or is or may be entitled to appoint, a receiver and manager of the whole (or substantially the whole) of the company’s property under the terms of any debentures of the company secured by a floating charge and one or more fixed charges, that would be valid and enforceable in case of a liquidation of the company. This is unless the court considers that the appointment would not be appropriate in the circumstances.

Such a person can veto an application to court for a JM order if it can demonstrate that the prejudice caused to it by the making of the JM order is disproportionately greater than the prejudice that would be caused to unsecured creditors if the application is dismissed.

Where the debtor makes a JM application to court or lodges a written notice to appoint an interim judicial manager, a moratorium on, among other things, legal action against the debtor and enforcement of the debtor’s security takes effect.

When a company enters JM, a more comprehensive moratorium comes into effect. Any receiver, or receiver and manager, will be required to vacate office. The judicial manager is required to work towards the implementation of one of the three purposes of JM highlighted above.

To this end, the judicial manager is required to present a statement of proposals to the debtor’s creditors within 90 days of appointment for their approval. As part of its powers and the discharge of its duties, the judicial manager can avail itself of the rescue financing provisions in the IRDA as part of their efforts to rehabilitate the company.

If the statement of proposals is rejected, the judicial manager may need to vacate office. The judicial manager is also under a duty to vacate office if it appears to the judicial manager that none of the three purposes of JM highlighted above are capable of achievement.

A judicial manager may also apply to court for enhanced priority for rescue financing.

Successful reorganizations

8. How are creditors classified for purposes of a reorganization plan and how is the plan approved? Can a reorganization plan release non-debtor parties from liability and, if so, in what circumstances?

Questions of classification are relevant when a reorganization is being implemented by way of a scheme of arrangement. While the applicable legislation does not specify how classification is to be conducted, case law makes clear that a company’s creditors will be divided into separate classes if their rights are so dissimilar that they cannot sensibly consult together with a view to their common interest (dissimilarity principle).

Classification is a dynamic inquiry that requires a comparative analysis of the treatment creditors would receive in an appropriate comparator – that is, the most likely scenario in the absence of scheme approval – as against the treatment they would receive under the scheme. The appropriate comparator is often, though not always, insolvent liquidation.

Broadly, classification entails the following three steps:

• first, identify the appropriate comparator;
• second, assess whether the relative positions of creditors under the proposed scheme mirror their relative positions in the comparator. This entails a determination and comparison of rights of creditors under the proposed scheme and their rights in the comparator; and
• third, determine if there is a material difference in the rights identified. Any such differences are to be assessed with the dissimilarity principle in mind – that is, whether the extent of the difference is such as to render the creditors so dissimilar that they cannot sensibly consult together with a view to their common interest.

The Singapore court is generally minded to take a practical and objective approach to classification, so as to ensure that multiple classes are not propagated in such a manner that creates unjustified minority vetoes.

It is also settled law that a scheme of arrangement can give effect to third-party releases, provided that there is a demonstrable nexus or connection between the release of the third-party liability, on the one hand, and the relationship between the company and scheme creditors, on the other hand.

Involuntary liquidations

9. What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

Involuntary liquidations, or compulsory liquidations, are commenced by way of application to the court. There are various grounds on which a creditor might apply to place a corporate debtor in compulsory liquidation. The most common ground is that the debtor is unable to pay its debts.

It is possible for the debtor, its creditors or (in the case of a corporate debtor) its shareholders to oppose a creditor’s winding-up application.

Once commenced, the key effects of the compulsory winding up are broadly same as in a voluntary winding up:

• the company must cease carrying on its business, except to the extent that the liquidator may conduct so far as is necessary for the beneficial winding up of the company;
• any disposition of the company’s property, any transfer of shares and any alteration in the status of the company’s members made after the commencement of the winding up is void;
• most creditor enforcement action against the company’s property is void; and
• no action or proceeding may be proceeded with or commenced against the company, except by leave of the court and subject to such terms as the court may impose.

One material difference between involuntary and voluntary liquidations is the extent to which the court is involved in the conduct of the liquidation. In the former, the liquidator is appointed by the court and is an officer of the court, and the winding up is conducted under the court’s direct supervision. In the latter, the liquidator is not an officer of the court, and the court’s role is restricted to ensuring that the liquidation is conducted justly and beneficially.

The consequence of this is that certain powers available to liquidators in an involuntary liquidation – such as the power to apply to court to examine a company’s officers – are not available to liquidators in a voluntary liquidation as a matter of right. Such powers instead require an application to court in the first instance before they can be exercised.

Where a debtor has already been placed in liquidation, a liquidator has the power to compromise and discharge creditors’ claims, subject to authorization by either the court or the committee of inspection.

A liquidator can be removed by the court if, after assessing the purposes of the liquidation, the court determines that removal of the liquidator is in the real, substantial and honest interest of the liquidation.

Involuntary reorganizations

10. What are the requirements for creditors commencing an involuntary reorganization and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

Where a debtor has not been placed in liquidation, creditors typically commence involuntary reorganizations through a judicial management application. This can be initiated by creditors either via an application to court, or by a resolution passed by a majority in value and number of the debtor’s creditors. In both cases it is necessary to demonstrate that:

• the debtor is, or is likely to become, unable to pay its debts; and
• one or more of the following purposes is reasonably likely to be achieved:
• the survival of the debtor as a going concern;
• the approval of a scheme (including a prepackaged scheme); or
• that the JM will achieve a more advantageous realization of the debtor’s assets than on a winding up.

While involuntary reorganizations can in theory be commenced by creditors by way of a scheme of arrangement, this is not typically done in practice as any compromise or arrangement would require the consent of the debtor – meaning that schemes tend to involve voluntary reorganizations commenced by debtors.

Expedited reorganizations

11. Do procedures exist for expedited reorganizations (eg, ‘prepackaged’ reorganizations)?

Yes. The IRDA provides for prepackaged schemes of arrangement (or pre-packs) similar to those available under Chapter 11 of the US Bankruptcy Code. The Singapore pre-pack regime enables schemes of arrangement to be sanctioned by the court without the need for any scheme meetings to be held. Such schemes are typically negotiated, and votes are solicited, ahead of any filings with the Singapore court. For a successful prepackaged application, the debtor is required to:

• satisfy specific disclosure obligations to its creditors, including the disclosure of all information that is necessary for creditors to make an informed decision on whether to agree to the proposed restructuring;
• satisfy certain advertisement and notification requirements; and
• satisfy the court that had the meetings in question been held, a majority in number representing at least three-fourths in value of creditors, or each class of creditors, would have been forthcoming.

In a recent reported decision featuring a prepackaged scheme of arrangement proposed by a company in the cryptocurrency industry, the court permitted the classification of a multitude of low-value creditors in an ’administrative convenience class‘ who were deemed to have approved of the scheme in question. This was done on the basis that it would be administratively onerous to solicit the votes of these creditors, and that there would be no undue prejudice to such creditors.

Unsuccessful reorganizations

12. How is a proposed reorganization defeated and what is the effect of a reorganization plan not being approved? What if the debtor fails to perform a plan?

Scheme of arrangement

Where a proposed reorganization is intended to take effect via a scheme of arrangement, each distinct stage of the scheme process provides an avenue to defeat the reorganization.

At the leave application stage, a scheme of arrangement may be defeated if a contesting creditor is able to persuade the court that:

• the court does not have jurisdiction to sanction the scheme – for example, by establishing that the applicant’s creditors have been incorrectly classified;
• there is no realistic prospect of the scheme receiving the requisite approval;
• the application to convene a scheme meeting amounts to an abuse of process; or
• insufficient financial disclosure has been made.

If the leave application is granted, the scheme can be defeated if the statutory threshold for approval – that is, a majority in number representing at least three-fourths in value – is not met. This means that where a scheme with multiple classes is concerned, failure to reach this threshold by any one class will, prima facie, result in the scheme failing. This is subject to the ability of the debtor to use the cross-class cramdown provisions, which would result in a scheme being sanctioned notwithstanding a failure to meet the statutory majorities.

Even if the statutory thresholds are met, the court does not simply rubber-stamp the scheme and will look closely at a number of factors before agreeing to sanction the arrangement. This provides a final opportunity for creditors to contest the reorganization on the basis of the integrity of voting outcomes and the objective fairness of the scheme. Arguments that can be raised in this regard include that:

• disclosure made by the debtor has been insufficient to enable creditors to exercise their voting rights meaningfully;
• creditors have been improperly classified, such that the statutory majority requirements were not met;
• the classification of creditors was not fairly representative of different classes; and/or
• the scheme is not one that a person of business, or an intelligent and honest person, would reasonably approve.

Judicial management

Where a proposed reorganization is intended to take effect via judicial management, there are three main avenues to defeat the reorganization.

Where an application has been made for a court-appointed judicial manager, an opposing creditor may oppose the application on the basis that none of the statutory objectives of judicial management will be achieved. Where the judicial manager is sought to be appointed via a creditors’ resolution, opposing creditors should instead seek to vote down the resolution.

Alternatively, the court will dismiss an application for a judicial management order if the application is opposed by a person entitled to appoint a receiver and manager of the whole (or substantially the whole) of the company’s property. This can be done by demonstrating to the court that the prejudice caused to it by the potential judicial management order is disproportionately greater than the prejudice that would be caused to the company’s unsecured creditors if the application was dismissed.

If a judicial management order is nonetheless granted (in the case of a court-appointed judicial manager), or a resolution is successfully passed by creditors to place the debtor in judicial management, it is open to contesting creditors to vote down the judicial manager’s statement of proposals when presented by the judicial manager at the creditors’ meeting convened for this purpose. The threshold for approval of the statement of proposals is a majority in number and value present and voting at the meeting. Secured creditors that do not surrender their security are entitled to vote only in respect of the under-secured element of their claim.

Where the reorganization plan is not approved or the debtor fails to perform the plan

As the scheme process is a debtor-in-possession process, management remain in place for the duration of the scheme proceedings. This means that where a scheme of arrangement is not approved by requisite majorities of creditor or is not sanctioned by the court, the debtor’s affairs proceed ‘as usual’. Generally speaking, the moratorium, if earlier granted by the court, will expire following this.

Where a judicial manager has been appointed but fails to obtain requisite approval for its statement of proposals, the court may grant an order discharging the judicial manager from office. This results in the reinstatement of the debtor’s management.

Unlike other restructuring regimes such as the Indonesian PKPU or the Indian Bankruptcy Code, the debtor does not automatically proceed to liquidation if the reorganization plan is not approved. However, depending on the circumstances, the fact that the debtor had attempted but failed to restructure its debts may mean that the court is more open to placing the debtor in liquidation, if a winding-up application were to be brought by a creditor on the basis that the debtor is unable to pay its debts as they fall due.

Corporate procedures

13. Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

Yes. Dissolutions of corporations typically take place at the conclusion of a winding up on application to court by the liquidator. This process may extend to foreign companies that have a ‘substantial connection’ to Singapore.

The IRDA provides for summary procedures allowing for the early dissolution of corporations where it becomes apparent to a liquidator that the realizable assets of a corporation are insufficient to cover the expenses of the winding up, and that the corporation’s affairs do not require further investigation.

The Registrar of Companies is also empowered to strike off corporations on grounds other than insolvency. Where local companies are concerned, this is generally where the Registrar has reasonable cause to believe that the company in question is not carrying on business or is not in operation. Local companies may also apply for their own striking off by the Registrar on the basis that they have ceased to carry on business or operate, or had not started to carry on business or to operate to begin with.

Additional grounds exist for the striking off of foreign companies, including but not limited to:

• where the Registrar is satisfied that the company is being used for an unlawful purpose, or for purposes against national security or interest;
• where the Registrar has reasonable cause to believe that the company has ceased to carry on business or have a place of business in Singapore; and
• where the company has failed to appoint an authorized representative within six months of the death of its sole authorized

Conclusion of case

14. How are liquidation and reorganization cases formally concluded?

A voluntary and involuntary liquidation may be concluded by the liquidator applying for an order for the company to be dissolved.

How reorganizations are concluded depends on whether the reorganization is implemented by way of a scheme or judicial management.

For reorganizations that are implemented by way of a scheme, a scheme is formally brought to conclusion when its terms are performed and the scheme is terminated.

For reorganizations that are implemented by way of a judicial manager appointed by court order, the default position is that a company is discharged from judicial management upon the expiry of the period for which the judicial manager is appointed. This period is generally 180 days, unless the court orders otherwise. Where a judicial manager is instead appointed by a meeting of creditors, the company is discharged from judicial management after a period of 180 days. In both instances, the period of judicial management is capable of extension.

Judicial management may also be brought to a conclusion on application by the judicial manager if it appears to the judicial manager that one or more of the statutory objectives of judicial management has been achieved. A judicial manager is also under an obligation to apply to the court for the company to be discharged from judicial management if it forms the view that none of these purposes are capable of achievement.

INSOLVENCY TESTS AND FILING REQUIREMENTS

Conditions for insolvency

15. What is the test to determine if a debtor is insolvent?

The cash flow test is the determinative test to determine if a debtor is insolvent. This requires that the creditor establish that the debtor’s current liabilities exceed its current assets such that it is unable to meet its debts as they fall due.

Another common way to establish a debtor’s inability to pay its debts is by relying on a statutory demand for a sum exceeding S$15,000 remaining unsatisfied for three weeks. The Singapore court has recently held that a debt denominated in cryptocurrency is not a money debt capable of being the subject matter of a statutory demand.

The debtor is required, for three weeks following service of the statutory demand, to have neglected to pay the sum, or secure or compound it to the creditor’s reasonable satisfaction. If this is the case, a statutory presumption of the debtor’s inability to pay its debts arises.

Mandatory filing

16. Must companies commence insolvency proceedings in particular circumstances?

There is no mandatory requirement for a company to commence insolvency proceedings in any particular circumstances. However, where a company is insolvent, or close to insolvency, a director’s fiduciary duties expand to include taking into account the interests of the general body of the company’s creditors. Its directors therefore should consider proactively taking steps to place the company in liquidation or judicial management or initiate scheme of arrangement proceedings to avoid incurring personal liability from breaching these fiduciary duties.

DIRECTORS AND OFFICERS

Directors’ liability – failure to commence proceedings and trading while insolvent

17. If proceedings are not commenced, what liability can result for directors and officers? What are the consequences for directors and officers if a company carries on business while insolvent?

Generally speaking, directors and officers do not incur personal liability solely by virtue of the fact that proceedings have not been commenced. However, where a company is insolvent or in the zone of insolvency, directors’ fiduciary duties expand to take into account the interests of the company’s creditors when making decisions on the company’s behalf.

Depending on the circumstances, commencing proceedings (whether liquidation or reorganization) may be in the company’s (and creditors’) best interests – and a failure to do so could amount to a breach of such fiduciary duties.

There is no outright statutory prohibition against a company’s carrying on of its business while it is insolvent. This is on the assumption that such business is carried out in good faith and in keeping with applicable law. Directors and officers of an insolvent company may, however, be held personally (and criminally) liable if the company engages in wrongful or fraudulent trading, or if they are subsequently found to be in breach of fiduciary duties for failing to act in the interests of the company’s creditors.

Individuals who are not directors of a company, but on whose directions or instructions the directors of the company are accustomed to act, may similarly be held liable for such actions on the basis that they are shadow directors of the company.

Directors’ liability – other sources of liability

18. Apart from failure to file for proceedings, are corporate officers and directors personally liable for their corporation’s obligations? Are they liable for corporate pre-insolvency or pre-reorganization actions? Can they be subject to sanctions for other reasons?

A corporation’s directors and officers generally will not be personally liable for their corporation’s obligations unless they have given a personal guarantee for the performance of such obligations.

However, directors and officers may be exposed to personal liability in the context of an insolvency or reorganization, particularly if they have engaged in wrongful or fraudulent trading or breached certain fiduciary duties prior to the company’s insolvency or reorganization. This is elaborated on below. Directors and officers may also be personally liable where the court sets aside antecedent transactions entered into by the company, and if proper books of account were not kept.

Wrongful trading

Wrongful trading occurs when a company contracts debts or other liabilities while insolvent (or becomes insolvent as a result of contracting such debt or liability) without a reasonable prospect of meeting them in full.

Where a company has traded wrongfully, an officer who was party to the wrongful trading and who knew that the company was trading wrongfully or, as an officer of the company, ought to have known, in all the circumstances, that the company was trading wrongfully, may be personally liable for the same offence.

Such liability may be criminal or civil in nature. An officer may be fined (not exceeding S$10,000) or face an imprisonment term of not more than three years, or both, if they are found to be guilty of wrongful trading. The court may also, on the application of the judicial manager, liquidator, Official Receiver or any creditor or contributory of the company (with leave of the judicial manager, liquidator or the court), declare that officer personally responsible without any limitation of liability for the payment of the whole or any part of that debt if it thinks it proper to do so.

In addition, any person who was a party to the wrongful trading may be personally liable – that is, exposure to personal liability for wrongful trading is not limited to directors and officers of the company.

Fraudulent trading

Fraudulent trading occurs when any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose.

Where a company has traded fraudulently, an officer who was knowingly a party to the carrying on of the business in that manner may be personally liable (without any limitation of liability) for all or any of the debts or other liabilities of the company. Officers may also be fined (not exceeding S$15,000) or face an imprisonment term of not more than seven years, or both, if they are found to be guilty of fraudulent trading.

In addition, any person who was a party to the fraudulent trading may be personally liable – that is, exposure to personal liability for fraudulent trading is not limited to directors and officers of the company.

Antecedent transactions

Under Singapore law, a number of categories of transactions entered into prior to the commencement of liquidation may be declared void or voidable on application by a liquidator or a judicial manager. These are known as ‘antecedent transactions’. The primary purpose of the antecedent transaction regime is to ensure that in the lead-up to a company’s liquidation, the company’s creditors are not disadvantaged by any attempt by the company to diminish the general pool of the company’s assets to which creditors should have recourse in a liquidation, or treat particular creditors with any form of preference at other creditors’ expense.

Where antecedent transactions entered into by the company are subsequently set aside by the court, the company’s directors may be held personally liable in respect of these transactions on the basis that they had breached their fiduciary duties to the company’s creditors.

Failure to keep proper accounts

Defaulting officers may be criminally liable where their company fails to keep proper books of account throughout the shorter of:

• the period of two years immediately preceding the commencement of an investigation under the Insolvency, Restructuring and Dissolution Act 2018, judicial management or winding up, as the case may be; or
• the period between incorporation of the company and the commencement of the investigation, judicial management or winding up, as the case may be.

A defaulting officer may be liable on conviction to a fine (not exceeding S$10,000) or face an imprisonment term of not more than 12 months.

Breach of fiduciary duties in general

Directors are under a statutory duty to act honestly at all times, and use reasonable diligence in the discharge of their duties. Directors are also under a statutory duty to refrain from making improper use of their position to gain an advantage for themselves – or any other person – or to cause detriment to the company. The common law also imposes several duties on directors, including:

• a duty to exercise their discretion in what they consider to be in the best interest of the company;
• a duty not to place themselves in a position where their duties and interests conflict;
• a duty to exercise their powers for purposes for which those powers are given, and not collateral purposes; and
• a duty to exercise a duty of care to the company, and reasonable diligence in performing the duties of their office.

Directors’ liability for breaches of their statutory duties (whether to the company or to its creditors) may be criminal or civil in nature. A director that fails to discharge their duties honestly and with reasonable diligence, or makes improper use of his position to obtain a personal advantage or cause detriment to the company may, for example, be ordered to pay equitable compensation (or account for profits, where applicable), and fined (up to S$5,000) or face an imprisonment term of not more than 12 months.

Additionally, where a director breaches their duties under statute or at common law, the company can sue that director for damages, demand the return of any secret profits made by that director, or declare specific acts undertaken invalid.

A director that has been convicted of an offence involving fraud or dishonesty may also be disqualified from their position.

Directors’ liability – defenses

19. What defenses are available to directors and officers in the context of an insolvency or reorganization?

In relation to wrongful trading, it is a defense if the director can show that they acted honestly and if, having regard to all the circumstances of the case, the court considers that the person ought fairly to be relieved from the personal liability.

In relation to fraudulent trading, it is a defense for a person charged to prove that they had no intention to defraud, conceal the state of affairs of the company or to defeat the law.

In relation to a failure to keep proper accounts, it is a defense for the person charged to prove that they had acted honestly and to show that the default was excusable in the circumstances in which the business of the company was carried on.

Shift in directors’ duties

20. Do the duties that directors owe to the corporation shift to the creditors when an insolvency or reorganization proceeding is likely? When?

Yes. When a company is insolvent, or approaches insolvency (which is likely to be the case when a reorganization proceeding is imminent), directors’ fiduciary duties expand to include interests of the company’s creditors. Directors will have a fiduciary duty to take the interests of the company’s creditors into account in their dealings, and ensure that the company’s assets are not dissipated in a manner that would be prejudicial to the creditors’ interests where the company is insolvent or near insolvent on a cash-flow basis, or in a ‘parlous financial situation’.

Directors’ powers after proceedings commence

21. What powers can directors and officers exercise after liquidation or reorganization proceedings are commenced by, or against, their corporation?

Once a company is placed in liquidation, directors become functus oficio and their powers cease. They will be required to cooperate with the liquidator in the discharge of its functions and to prepare the company’s statement of affairs.

The impact of reorganization proceedings on directors’ powers depends on whether the reorganization is given effect via judicial management or a scheme of arrangement. Where a judicial manager is appointed, the debtor’s management is displaced for the duration of the judicial manager’s appointment. All powers conferred on and duties assumed by the directors instead vest in the judicial manager.

Directors will continue to retain their powers of management where a reorganization is instead being implemented via a scheme of arrangement.

MATTERS ARISING IN A LIQUIDATION OR REORGANIZATION

Stays of proceedings and moratoria

22. What prohibitions against the continuation of legal proceedings or the enforcement of claims by creditors apply in liquidations and reorganizations? In what circumstances may creditors obtain relief from such prohibitions?

Liquidation

Upon the making of a winding-up order, the appointment of a provisional liquidator in a court-ordered winding up, or the commencement of a voluntary winding up, an automatic stay on legal proceedings takes effect. This stay prevents any action or proceeding from being proceeded with or commenced against the company, except by leave of the court and subject to such terms as the court may impose.

When a winding-up application has been filed in court but no order has yet been made for the company’s winding up, the company or any creditor or contributory may apply to stay or restrain ongoing legal proceedings against the company.

Scheme of arrangement

Companies that have either proposed, or intend to propose, a reorganization of their debts through a scheme of arrangement may apply to court for a moratorium. The moratorium stays, among other things:

• all legal proceedings from continuing or being commenced against the company;
• the appointment of receivers;
• the realization of security over the company’s assets; and
• the execution, distress or other legal processes against the company’s assets.

The court has the power to order for the moratorium to restrain conduct on any person both inside and outside of Singapore, so long as the party whose conduct is restrained is within the Singapore court’s in personam jurisdiction.

Upon application, an automatic 30-day moratorium period takes effect. It is typical for the hearing for the moratorium application to be fixed within this time. If the moratorium is granted to the company, moratoriums may also be available to subsidiaries, holding companies or ultimate holding companies of that company.

The duration of the moratorium is not fixed by statute, but three to six months is typical, and the moratorium may be further extended on application. The court may dismiss an application for the grant or extension of a moratorium if the applicants fail to establish that there is a reasonable prospect of the scheme working.

Objecting creditors may also apply to court for leave to continue or commence proceedings against the company. When hearing a leave application, the court will balance the creditor’s interests against the importance of granting the debtor the breathing space it needs to conduct a scheme of arrangement.

Judicial management

An automatic moratorium arises when a company makes an application to be placed in judicial management, or lodges notice of the appointment of an interim judicial manager. A wider moratorium similar in scope to that under the scheme regime applies when the company enters judicial management, and lasts for the duration of the judicial management.

A key difference between a scheme moratorium and a judicial management moratorium is that the latter cannot be extended to companies related to the company under judicial management. Additionally, the moratorium subsists only for the duration of the judicial management proceedings and cannot be extended on a standalone basis. A scheme moratorium is capable of extension even if an application to convene scheme meetings has not yet been brought.

Doing business

23. When can the debtor carry on business during a liquidation or reorganization? Is any special treatment given to creditors who supply goods or services after the filing? What are the roles of the creditors and the court in supervising the debtor’s business activities?

Liquidation

In a court-ordered winding up, the company’s business may only be carried on by a liquidator as is necessary for the beneficial winding up of the company. Express authorization of either the court or the committee of inspection has to be obtained, unless the liquidator is carrying on the company’s business during the four weeks after the date of the winding-up order.

In a voluntary winding up, the company is required to cease to carry on its business from the commencement of the winding up. The exception is where the liquidator considers that the company’s business be carried on for the beneficial winding up of the company.

Scheme of arrangement

Where the company is reorganizing under a scheme of arrangement, there are no restrictions on its ability to continue its business. Special treatment may be given to creditors that supply goods or services to the company after the filing depending on the terms of any applicable agreements. Creditors typically exercise oversight by making inquiries into the manner in which the company’s business is run – either individually, or collectively where informal creditor committees have been formed.

Judicial management

Where the company is reorganizing under judicial management, the judicial manager carries on the company’s business in place of the company’s management. The judicial manager will provide creditors with a statement of proposals, which typically includes the manner in which the company’s business is to be run by the judicial manager, as well as any special treatment to be given to creditors that supply goods or services during the reorganization.

This affords creditors an opportunity to exercise oversight over the judicial manager’s conduct of the company’s business, as they are required to vote on whether to accept the judicial manager’s proposals, with or without modification. Creditors are also entitled to establish a committee to hold the judicial manager accountable and monitor the conduct of the judicial management.

Post-filing credit

24. May a debtor in a liquidation or reorganization obtain secured or unsecured loans or credit? What priority is or can be given to such loans or credit?

Yes. Where the debtor is in liquidation, a liquidator can raise any money required for the expenses of the liquidation by giving security over the company’s assets. Unsecured loans taken out by the liquidator on the company’s behalf will be treated as costs and expenses of the winding up, and accorded priority ahead of other unsecured debts.

Where a debtor is reorganizing under judicial management, the judicial manager is authorized to undertake loans on the debtor’s behalf and grant security over the debtor’s property for the same. Such monetary obligations are similarly granted priority and are payable as part of the judicial manager’s costs and expenses.

A debtor reorganizing by way of either a scheme of arrangement or judicial management may also raise rescue financing, which can enjoy enhanced priority, including super priority.

Sale of assets

25. In reorganizations and liquidations, what provisions apply to the sale of specific assets out of the ordinary course of business and to the sale of the entire business of the debtor? Does the purchaser acquire the assets ‘free and clear’ of claims or do some liabilities pass with the assets?

A liquidator is generally entitled to dispose of the company’s assets in the administration of the liquidation. The exception is assets that are encumbered by a security interest, or assets that the company is not otherwise beneficially entitled to.

Judicial managers are likewise empowered to dispose of the company’s assets in the discharge of their functions. Unlike liquidators, judicial managers are empowered to sell assets of the company that are subject to a secured interest. The proceeds of the sale of secured assets must be used to discharge sums secured by the security in question.

Negotiating sale of assets

26. Does your system allow for ‘stalking horse’ bids in sale procedures and does your system permit credit bidding in sales?

‘Stalking horse’ bids in sale procedures and credit bidding in sales are, in theory, permitted in Singapore. However, they are uncommon and have not been the subject of any reported decisions of the Singapore court.

Rejection and disclaimer of contracts

27. Can a debtor undergoing a liquidation or reorganization reject or disclaim an unfavorable contract? Are there contracts that may not be rejected? What procedure is followed to reject a contract and what is the effect of rejection on the other party? What happens if a debtor breaches the contract after the insolvency case is opened?

Unprofitable contracts may be disclaimed. However, this power lies with the liquidator or the judicial manager, and not with the company. Property that is unsaleable, illiquid or that might give rise to liabilities on the company’s part may also be disclaimed by the liquidator or judicial manager. Such property, together with unprofitable contracts, is referred to as ‘onerous property’.

This power of disclaimer is exercised by giving a notice of disclaimer to the company’s creditors and the Official Receiver. The judicial manager or liquidator need not have taken possession of or endeavored to sell the onerous property, or otherwise exercised rights of ownership in relation to the onerous property.

However, onerous property may not be disclaimed where a person interested in the property makes an application in writing to the liquidator or judicial manager requiring them to decide whether they will disclaim the property, and the liquidator or judicial manager does not disclaim that property within 28 days (or such longer period as the court may allow) after the commencement of the application.

A disclaimer of onerous property does not affect the rights or liabilities of any other person, except so far as is necessary for the purpose of releasing the company from any liability. Any person sustaining loss or damage in consequence of the operation of a disclaimer will be treated as a creditor of the company to the extent of the loss or damage, and may prove for the loss or damage in the winding up or judicial management of the company.

A disclaimer may also be set aside on application to court by a person sustaining loss or damage in consequence, where the injury caused by the disclaimer outweighs any advantage likely to be gained by the liquidator or judicial manager.

Intellectual property assets

28. May an IP licensor or owner terminate the debtor’s right to use the IP when a liquidation or reorganization is opened? To what extent may IP rights granted under an agreement with the debtor continue to be used?

The treatment of IP licenses and whether the debtor may continue to use the IP rights during and after liquidation or reorganization typically depends on the terms of the license agreement in question. Provisions that seek to effect the revesting of IP on insolvency may be void on the basis that they contravene the anti-deprivation rule, but this will depend on the agreement in question.

Provisions that seek to entitle a licensor to terminate a licensing agreement solely by virtue of the commencement of reorganization proceedings, or of the licensee’s insolvency, are unenforceable. This unenforceability extends more broadly to contractual provisions that seek to terminate, amend or claim an accelerated payment or forfeiture of term, or terminate or modify any right or obligation under any agreement – commonly referred to as ‘ipso facto clauses’.

This restriction does not apply to certain contracts prescribed in the subsidiary legislation of the Insolvency, Restructuring and Dissolution Act 2018, including derivatives contracts, margin lending agreements and securities contracts.

Personal data

29. Where personal information or customer data collected by a company in liquidation or reorganization is valuable, are there any restrictions in your country on the use of that information or its transfer to a purchaser?

The protection of personal data in Singapore is governed by the Personal Data Protection Act 2012 (the PDPA). The PDPA requires that all organizations implement reasonable security arrangements to prevent the unauthorized access, collection, use, disclosure, copying, modification or disposal of, and of similar risks materializing in relation to, personal data. Under the PDPA, the disclosure of personal data of an individual generally requires that individual’s consent – although there may be certain exceptions such as when disclosure is necessary in the public interest.

Arbitration processes

30. How frequently is arbitration used in liquidation or reorganization proceedings? Are there certain types of disputes that may not be arbitrated? Can disputes that arise after the liquidation or reorganization case is opened be arbitrated with the consent of the parties?

Issues relating to liquidation or reorganization proceedings themselves and claims arising from statutory insolvency provisions are generally non-arbitrable. However, disputes that arise in the course of the liquidation or reorganization proceedings may be referred to arbitration where the parties have consented to doing so, or where the underlying contract from which the dispute arises provides for the disputes to be referred to arbitration. The creditor in question will be required to apply for and obtain leave of court to be excluded from the scope of any applicable moratorium.

CREDITOR REMEDIES

Creditors’ enforcement

31. Are there processes by which some or all of the assets of a business may be seized outside of court proceedings? How are these processes carried out?

A secured creditor typically has rights under the applicable security document to appoint a private receiver over assets in which it has a security interest. If appointed, a private receiver exercises the powers conferred on them by the security document – which typically include powers of sale and management – with a view to ensuring that the secured debt is paid.

Unsecured credit

32. What remedies are available to unsecured creditors? Are the processes difficult or time-consuming? Are pre-judgment attachments available?

There are several remedies available to unsecured creditors, assuming that they have first obtained a judgment relating to the debt in question from the court. These remedies are broadly as follows:

• applying for, and issuing, a writ of seizure and sale over movable and immovable property of the debtor;
• applying for a garnishee order, under which debts due to the debtor from a third party are garnished for the benefit of the creditor; and
• applying for the appointment of a receiver by way of equitable execution.

These applications are commonly brought by unpaid judgment creditors. If uncontested, the process typically takes 21 days from the date the application is filed. This timeline can extend depending on how heavily the application is contested.

It is also possible for a judgment creditor to apply to wind up the debtor. However, winding-up applications can be considerably more difficult and time-consuming than the three processes listed above, as the court will need to be persuaded to exercise its discretion to wind the debtor up. Several procedural steps will also need to be discharged, including the placing of a deposit with the Official Receiver, the advertisement of the application and the identification and appointment of a private liquidator. If uncontested, a successful winding-up application typically takes between three to six weeks to result in a winding-up order (though this timeline may vary depending on the court’s availability to hear the matter).

The court has the power to order pre-judgment attachments. However, pre-judgment attachments are not common, as the court generally exercises this power sparingly. Creditors may also apply for an injunction to freeze a debtor’s assets if it can be demonstrated that there is a risk the debtor will dissipate its assets, and thereby frustrate a judgment obtained against it.

CREDITOR INVOLVEMENT AND PROVING CLAIMS

Creditor participation

33. During the liquidation or reorganization, what notices are given to creditors? What meetings are held and how are they called? What information regarding the administration of the estate, its assets and the claims against it is available to creditors or creditors’ committees? What are the liquidator’s reporting obligations?

Liquidation (court-ordered winding up)

Various notices are given by the liquidator from the time of their appointment. While not all of the notices are given to creditors directly, they are of interest to, and should be noted by, the company’s creditors.

• Within 14 days of their appointment, the liquidator is required to lodge a notice of their appointment and the address of their office with the Accounting and Corporate Regulatory Authority and the Official Receiver.
• Within 14 days of the winding-up order, the company’s directors are required to submit to the liquidator a statement of the affairs of the company as at the date of the winding-up order. Subsequently, as soon as practicable after receipt of the statement of affairs, the liquidator is required to submit a preliminary report to the Official Receiver providing details of the company’s capital and estimated assets and liabilities, the causes of the company’s failure, and whether, in their opinion, further inquiry into the company’s promotion, formation, failure or conduct of business is desirable.
• Notice will subsequently be given to the company’s creditors to inform them of the day on which they are to prove any debts or claims against the company. At least 14 days’ notice is required to be given to creditors.
• The liquidator is also required to give at least 14 days’ notice before declaring a dividend to the company’s creditors.

Liquidation (voluntary)

• Where a company is intended to be wound up by creditors’ voluntary liquidation, the company is required to convene a meeting of the company’s creditors at a time and place convenient to the majority of creditors. At least 10 days’ notice is required to be given to creditors. The company is also required to advertise the meeting.
• If a winding up continues for more than a year, the liquidator is required to summon a general meeting of the company at the end of each succeeding year, and present an account of the liquidator’s acts and dealings, and of the conduct of the winding up, over the preceding year.

Schemes of arrangement

• If the court grants leave for the company to convene a meeting of its creditors or classes of creditors, the company is required to send a notice summoning the meeting to its creditors. This notice is to be accompanied by a statement explaining the effect of the intended scheme, stating any material interests of the company’s directors and the effect of the scheme on such interests insofar as it is different from the effect on similar interests of other persons.
• The statement referred to above is also required to make clear the manner in which creditors are to file proofs of debt. The scheme chairman is required to inform all creditors who have filed proofs of debt of the results of their adjudication of proofs submitted.

Judicial management

• A judicial manager is required to give certain notices to creditors relating to the commencement of judicial management shortly following their appointment. The judicial manager will also provide creditors notice to file proofs of debt.
• The judicial manager is also required to send creditors a copy of a statement of their proposals for the conduct of the judicial management, as well as summon a meeting to present the statement before the creditors. If the judicial manager proposes to make substantial revisions to the statement of proposals following creditors’ approval at this meeting, notice of the amended statement must be given to the creditors and a new meeting must be called for the purpose of obtaining creditors’ approval.

Creditor representation

34. What committees can be formed (or representative counsel appointed) and what powers or responsibilities do they have? How are they selected and appointed? May they retain advisers and how are their expenses funded?

Creditor committees are commonly formed in liquidations and reorganization proceedings (specifically judicial management), although this is not mandatory.

Liquidation

Where a company is placed in compulsory or voluntary liquidation, creditors may form a committee of inspection. Committees of inspection are typically appointed at the first meeting of creditors following the liquidator’s appointment.

In the context of a compulsory liquidation, this committee generally plays a supervisory role over the liquidator’s administration and distribution of the company’s assets. The powers of the committee of inspection include, but are not limited to:

• authorization of the liquidator’s power to appoint a solicitor to assist the liquidator in their duties; and
• determine the liquidator’s remuneration.

The committee of inspection may act by a majority of its members present at a meeting, but is not able to act unless a majority is present.

Members of the committee of inspection may also appoint their own personal legal advisers. These advisers can appear at meetings of the committee on the member’s behalf. The costs of these advisers are borne by the creditor appointing the adviser.

Judicial management

A committee of creditors may be formed at the first meeting of creditors called by the judicial manager. This committee has the power to hold the judicial manager accountable by requiring the judicial manager to attend before the committee and provide information on the discharge of their functions. Typically, as in a liquidation, judicial managers seek approval from the committee of creditors before discharging major decisions.

As in liquidation, members of the committee of inspection may also appoint their own personal legal advisers. These advisers can appear at meetings of the committee on the member’s behalf. The costs of these advisers are borne by the creditor appointing the adviser.

Schemes of arrangement

A scheme of arrangement is a debtor-in-possession process. As such, the Singapore legislative framework does not provide for the formation of creditor committees where a reorganization is carried out under a scheme. However, it is common – especially in complex restructurings – for creditors with similar rights to form ad hoc committees – for example, informal committees of secured creditors, unsecured creditors or bondholders. This enables those creditors to, among other things, present a unified front in negotiations with the company, and pool resources to hire advisers.

Enforcement of estate’s rights

35. If the liquidator has no assets to pursue a claim, may the creditors pursue the estate’s remedies? If so, to whom do the fruits of the remedies belong? Can they be assigned to a third party?

It is not possible for a creditor to bring legal proceedings against a third party on the company’s behalf. On winding up, the liquidator alone may pursue the company’s claims. As such claims are to be funded out of the company’s assets – which are typically limited – this can be a bar to pursuing claims that otherwise may have merit.

However, it is possible for the liquidator to assign the proceeds of claim from the company to a creditor, or third-party funder – in which case the rights to the fruits of the claim will belong to the creditor.

Alternatively, creditors may choose to place the liquidator in funds so as to pursue certain actions. Where the action in question is successful, the court may, on application, make specific orders in relation to the distribution of any assets and expenses recovered in the action, with a view to providing creditors that have provided funding a return for the risks undertaken. Before providing any funding, creditors may pre-emptively apply to court for an order that they be provided a return in the event that the action funded is successful.

Claims

36. How is a creditor’s claim submitted and what are the time limits? How are claims disallowed and how does a creditor appeal? Can claims for contingent or unliquidated amounts be recognized? Are there provisions on the transfer of claims and must transfers be disclosed? How are the amounts of such claims determined?

In a winding up or judicial management, all debts payable on contingency, and all claims against the company, whether present or future, certain or contingent, fixed or liquidated, or capable of being ascertained by fixed rules or as a matter of opinion, are admissible as claims against the company.

Claims are generally submitted to a liquidator, judicial manager or scheme manager in the form of proofs of debt, together with underlying documentation supporting the claims in question. Once received, the liquidator, judicial manager or scheme manager will adjudicate creditors’ claims based on the information provided.

The results of such adjudication form the basis of creditors’ individual voting rights at applicable meetings, and entitlement to dividends (in the event of liquidation). The procedure for proofs of debt varies depending on whether the process in question is a liquidation, judicial management or a scheme of arrangement.

Creditors dissatisfied with the amount admitted by a liquidator or judicial manager have a right of appeal to the Singapore High Court.

In a scheme of arrangement, creditors that have filed proofs of debt are entitled to inspect other creditors’ proof of debt, and may object to the admission of the whole or other part of a proof of debt filed by such creditors. The Insolvency, Restructuring and Dissolution Act 2018 (the IRDA) provides a detailed process through which disputes in relation to the inspection, admission or rejection of proofs of debt are to be determined.

Transfers of claims need not necessarily be disclosed, and claims acquired at a discount are generally admissible at their full-face value.

Set-off and netting

37. To what extent may creditors exercise rights of set-off or netting in a liquidation or in a reorganization? Can creditors be deprived of the right of set-off either temporarily or permanently?

In liquidation, or where a reorganization is taking place by way of judicial management (but not a scheme of arrangement), credits, debt and other dealings may be set off against each other if they are mutual. Only the balance, following the set-off, will constitute a debt provable in the liquidation or judicial management of the company.

In relation to mutual debts, such debts must be provable in winding up or judicial management, and cannot have arisen by reason of an obligation incurred at a time when:

• the creditor had notice of an interim judicial manager’s appointment; or
• the application for a judicial management order or winding up of the company was pending.

Set-off as described above – that is, insolvency set-off – is mandatory and a function of statute, and cannot be excluded by contract.

Modifying creditors’ rights

38. May the court change the rank (priority) of a creditor’s claim? If so, what are the grounds for doing so and how frequently does this occur?

The priorities of creditors’ unsecured claims are determined by section 203 of the IRDA. Generally speaking, the court does not have the power to change such rankings.

The court does have the power to change priority in respect of security interests in the company’s assets in the event that the company is reorganizing its debts under a scheme of arrangement or judicial management, and the company (in the case of a scheme) or the judicial manager applies to obtain super priority for rescue financing.

In such an instance the court is empowered to order that the rescue financing is secured by an equivalent or higher priority security interest over existing security interests on assets of the company. Rescue financing that is unsecured may also be given priority over the above-mentioned statutory order of priorities.

As of the date of publication, there have been no reported cases on an equivalent or higher priority security interest having been ordered by the court over existing security interests on the company’s assets.

Priority claims

39. Apart from employee-related claims, what are the major privileged and priority claims in liquidations and reorganizations? Which have priority over secured creditors?

Liquidations

Employee-related claims are only one category of priority claims. The following claims by certain unsecured creditors rank in priority ahead of other unsecured debts in a liquidation. The ranking is as follows:

1. the costs and expenses of the winding up;
2. unpaid wages or salaries due – subject to a maximum of five months’ salary or S$13,000, whichever is less;
3. retrenchment benefits and ex gratia payments due – subject to a maximum of five months’ salary or S$13,000, whichever is less;
4. compensation due to employees for injuries suffered in the course of their employment under the Work Injury Compensation Act 2019;
5. amounts due in respect of contributions payable in respect of employees’ superannuation or provident funds during the consecutive 12 month period commencing not earlier than 12 months before, and ending not later than 12 months after, the commencement of the winding up;
6. all remuneration payable in respect of vacation leave – subject to a maximum of five months’ salary or S$13,000, whichever is less; and
7. taxes payable.

To the extent that the company’s assets are insufficient to meet the preferential debts specified in (1) to (6) (but not (7)) above, such debts have priority over the claims of holders of debentures under floating charges created by the company. These preferential debts are required to be paid accordingly out of any property subject to that charge.

The court has a statutory discretion to grant priority ahead of these statutory preferential debts to distributions to creditors that have contributed funding, provided an indemnity or otherwise incurred certain risks for the purposes of recovering, protecting or preserving the assets of the company.

Reorganizations

In a reorganization conducted under the purview of a scheme of arrangement, privileged and priority claims are determined in accordance with the terms of the scheme. Where a reorganization is conducted under the purview of judicial management, the expenses of the judicial manager are payable in the following order of priority:

• debts arising from rescue financing granted priority over statutory preferential debts, under section 101(1)(b) of the IRDA;
• debts or liabilities of the company incurred during judicial management, including rescue financing granted the same priority as costs and expenses of a winding up under section 101(1)(a) of the IRDA; and
• remuneration or expenses properly incurred by the judicial manager in performing their functions.

Additionally, it is possible for a company restructuring under a scheme of arrangement or judicial management to obtain super priority for rescue financing, such that the rescue financing is secured by an equivalent or higher priority security interest over existing security interests on assets of the company.

Employment-related liabilities

40. What employee claims arise where employees’ contracts are terminated during a restructuring or liquidation? What are the procedures for termination? (Are employee claims as a whole increased where large numbers of employees’ contracts are terminated or where the business ceases operations?)

Various employee claims may arise – for example, in respect of unpaid wages, retrenchment benefits, ex gratia payments, work injury compensation, superannuation or provident funds, and vacation leave. The aforementioned claims are afforded statutory priority over unsecured claims under the IRDA, though in some instances they are subject to a cap.

Pension claims

41. What remedies exist for pension-related claims against employers in insolvency or reorganization proceedings and what priorities attach to such claims?

Pension-related claims are generally granted priority in a company’s liquidation. This is provided that they are:

• payable during the consecutive 12 month period commencing not earlier than 12 months before, and ending not later than 12 months after, the commencement of the winding up; and
• payable under any written law relating to employees’ superannuation or provident funds or approved scheme of superannuation.

Environmental problems and liabilities

42. Where there are environmental problems, who is responsible for controlling the environmental problem and for remediating the damage caused? Are any of these liabilities imposed on the insolvency administrator personally, secured or unsecured creditors, the debtor’s officers and directors, or on third parties?

There is currently no legislation or case law in Singapore that specifically addresses the issue of responsibility for environmental problems caused by companies that are undergoing insolvency proceedings.

However, Singapore legislation on environmental issues generally provides relevant Singapore government authorities with the power to require any person – including companies – who have caused environmental problems to remediate the damage or take pre-emptive measures to prevent damage from materializing. It is, therefore, possible for the relevant government authority to require a liquidator, or any other third party responsible for the environmental problem in question, to take the appropriate action.

Liabilities that survive insolvency or reorganization proceedings

43. Do any liabilities of a debtor survive an insolvency or a reorganization?

Once an insolvent company has been placed in liquidation and is subsequently dissolved, none of its liabilities survive.

Where the company is undergoing a reorganization under the purview of a scheme of arrangement, upon conclusion of the scheme, only those liabilities expressed to be covered under the scheme will be compromised.

Distributions

44. How and when are distributions made to creditors in liquidations and reorganizations?

Liquidators may declare and distribute both interim dividends and final dividends. Interim dividends can be declared over the course of the liquidation. Final dividends may only be declared when all, or as much as possible, of the company’s property is realized. In both cases, the liquidator is required to give creditors written notice, and publish a notice in the Government Gazette, not more than two months before the declaration.

Distributions to creditors in reorganizations will depend on the terms of the reorganization, whether it is implemented via a scheme of arrangement or judicial management.

SECURITY

Secured lending and credit (immovables)

45. What principal types of security are taken on immovable (real) property?

The principal types of security taken on immovable (real) property are legal mortgages and equitable mortgages.

Secured lending and credit (movables)

46. What principal types of security are taken on movable (personal) property?

Security taken on movable (personal) property most commonly takes the form of a fixed or floating charge. Other forms of security are liens and pledges.

Additionally, quasi-security such as sale and leaseback, recourse factoring (ie, the sale of receivables by way of assignment, where the assignee continues to have recourse against the assignor in the event of a default by the debtor), hire purchase and retention of title arrangements are fairly common.

CLAWBACK AND RELATED-PARTY TRANSACTIONS

Transactions that may be annulled

47. What transactions can be annulled or set aside in liquidations and reorganizations and what are the grounds? Who can attack such transactions?

A liquidator or a judicial manager has the power to apply to court to set aside the following categories of transactions:

• Unfair preference transactions: transactions entered into by a company that prefer a creditor, surety or guarantor of the company. The company must have been influenced by a desire to prefer that person, and must have been insolvent at the time of – or become insolvent as a result of – the transaction. Such transactions are liable to be set aside if they were entered into within one year of the commencement of the liquidation or judicial management, or two years if the preferred creditor is connected with the company and the transaction is not also a transaction at an undervalue (see below).
• Transactions at an undervalue: transactions entered into by a company for no consideration, or consideration significantly lower than that received by the counterparty. The company must have been insolvent at the time of – or become insolvent as a result of – the transaction. This applies to transactions entered into within three years of the winding up or judicial management. This has recently been found by the court to extend to the granting of fresh security for the existing indebtedness of a third party for no value.
• Extortionate credit transactions: credit transactions pursuant to which the company had undertaken credit on terms that were extortionate, and which were entered into within three years of the liquidation or judicial management.
• Transactions defrauding creditors: transactions entered into by a company at an undervalue with the intention of defrauding creditors.

The court generally has a wide discretion to make orders as it deems appropriate in the circumstances to restoring the company to the position it would have been in had the transaction not been entered into. This includes making orders for the unwinding of the transaction.

Additionally:

• a liquidator in a compulsory winding up may apply to court to set aside any dispositions of the company’s property, transfers of shares in the company, or alteration in the status of the company’s members made after the commencement of the winding up;
• a floating charge, for past value, on the undertaking or property of the company created within one year (or two years if created in favor of a person connected with the company) of the commencement of a compulsory winding up is invalid. This requires that the company was insolvent at the time the charge was granted, or became insolvent as a result of the transaction under which the charge was granted, and is subject to certain limits; and
• charges created over the company’s assets that are registrable but not registered are void against the liquidator and any of the company’s creditors.

Equitable subordination

48. Are there any restrictions on claims by related parties or non-arm’s length creditors (including shareholders) against corporations in insolvency or reorganization proceedings?

No such restrictions apply, provided that the transactions from which such claims arise are not liable to be set aside as outlined in the section on antecedent transactions.

Lender liability

49. Are there any circumstances where lenders could be held liable for the insolvency of a debtor?

We are not aware of any circumstances where lenders have been held liable for the insolvency of a debtor per se as a matter of Singapore law.

However, a lender could face liability where it has exercised influence or decision-making powers, or both, in respect of a company, and is found to be a shadow director as a result. Shadow directors are subject to the same duties and responsibilities as directors of a company. It is possible that such lenders may be held liable for breaches of directors’ fiduciary duties as a result of the company’s insolvency, as well as personal liability in the context of wrongful or fraudulent trading by the company.

GROUPS OF COMPANIES

Groups of companies

50. In which circumstances can a parent or affiliated corporation be responsible for the liabilities of subsidiaries or affiliates?

Parent and affiliated corporations are generally treated as separate legal entities. This means that the court is unlikely to hold corporations responsible for the debts of their subsidiaries or affiliates unless it is persuaded that this separate legal personality should be disregarded.

However, the court is generally slow to ‘pierce the corporate veil’, and will only do so in exceptional circumstances – such as where a subsidiary or affiliate can be demonstrated to be a façade or sham, or where there has been abuse of the corporate form.

Combining parent and subsidiary proceedings

51. In proceedings involving a corporate group, are the proceedings by the parent and its subsidiaries combined for administrative purposes? May the assets and liabilities of the companies be pooled for distribution purposes?

As each member of a corporate group is treated as a separate legal entity, insolvency or reorganization proceedings take place separately and on an individual basis. However, it is common that such proceedings are heard at the same time, or that the same liquidators or judicial managers are appointed over members of the corporate group.

Assets and liabilities of entities within a corporate group generally may not be pooled for distribution purposes in the context of a liquidation. One exception is where a liquidator takes action to wind up the subsidiary of an entity they are appointed liquidator over. In this case, any assets of the subsidiary remaining following distributions to its creditors will be distributed to the parent entity, and subsequently be distributable in the main liquidation.

Recent case law suggests that the court may be prepared to sanction a scheme of arrangement that entails the substantive consolidation of the assets and liabilities of various entities in a corporate group notwithstanding the separate legal personality of each member of the group.

INTERNATIONAL CASES

Recognition of foreign judgments

52. Are foreign judgments or orders recognized, and in what circumstances? Is your country a signatory to a treaty on international insolvency or on the recognition of foreign judgments?

Foreign judgments may be registered and enforced in Singapore under either the Choice of Courts Act 2016 (the CCAA) or the Reciprocal Enforcement of Foreign Judgment Acts 1959 (the REFJA). The CCAA applies to judgments from jurisdictions that have ratified the Hague Convention on Choice of Court Agreements 2005, provided that the other criteria set out in the CCAA are fulfilled.

The REFJA currently applies to both money and non-money judgments from Hong Kong and to the countries and their respective courts specified in the Reciprocal Enforcement of Foreign Judgments (United Kingdom and the Commonwealth) Order 2023, which includes the United Kingdom, Australia and India.

If a foreign judgment has been obtained in a jurisdiction to which neither the CCAA nor the REFJA apply, that party may commence a common law action for the judgment debt in Singapore, and apply for summary judgment on that claim.

The court also has the power to recognize foreign insolvency judgments and orders under the UNCITRAL Model Law on Cross-Border Insolvency.

UNCITRAL Model Laws

53. Have any of the UNCITRAL Model Laws on Cross-Border Insolvency been adopted or is adoption under consideration in your country?

Yes. The UNCITRAL Model Law on Cross-Border Insolvency was enacted into Singapore legislation in May 2017.

The Model Law on Enterprise Group Insolvency and the Model Law on Recognition and Enforcement of Insolvency-Related Judgments have not been adopted in Singapore. In respect of the latter, the court has held that in addition to recognizing foreign insolvency and restructuring-related proceedings, it will also recognize foreign insolvency and restructuring-related judgments and orders under the UNCITRAL Model Law on Cross-Border Insolvency.

Foreign creditors

54. How are foreign creditors dealt with in liquidations and reorganizations?

Until 2017, liquidators of foreign companies registered in Singapore were required to ringfence assets located in Singapore to pay off debts owing to creditors in Singapore in priority over debts owing to foreign creditors. This rule has since been abolished. Foreign creditors are now dealt with no differently from local creditors in liquidations and reorganizations.

Cross-border transfers of assets under administration

55. May assets be transferred from an administration in your country to an administration of the same company or another group company in another country?

The foreign representative of the foreign administration may first apply for recognition of the foreign administration by the Singapore court. If this is granted, the foreign representative may subsequently request to be entrusted with the distribution of the debtor’s assets located in Singapore in support of the foreign administration. The court will need to be satisfied that the interests of creditors in Singapore are adequately protected.

COMI

56. What test is used in your jurisdiction to determine the COMI (center of main interests) of a debtor company or group of companies? Is there a test for, or any experience with, determining the COMI of a corporate group of companies in your jurisdiction?

There is no statutorily prescribed test to determine a debtor’s center of main interests (COMI). The UNCITRAL Model Law on Cross-Border Insolvency (as enacted in Singapore legislation) contains a rebuttable presumption that the place of a debtor company’s registered office is its COMI.

However, this presumption may be displaced if it can be shown that the place of the debtor’s central administration, and other factors objectively ascertainably by third parties (eg, the location of substantial assets, of sales, of clients, of creditors and of operations), point its COMI away from the place of its registration.

The court has also laid down general criteria to assist in the determination of a debtor’s COMI. As a starting point, the court’s focus will be on determining the debtor’s ‘center of gravity’, based on factors that should be objectively ascertainable by third parties generally, and by creditors in particular. The court will have special regard to how important each factor would likely be to a creditor when determining whether to extend credit to the debtor. There should also be an element of settled permanence – of intended permanence – in COMI factors considered.

The court need not maintain strict distinctions between different entities in a group when ascertaining a debtor’s COMI, but may analyze the activities of the group as a whole (rather than those of the debtor alone). Where COMI factors appear to point in different directions, the court will revert to the presumption that the location of the debtor’s registered office is its COMI by default.

Cross-border cooperation

57. Does your country’s system provide for recognition of foreign insolvency proceedings and for cooperation between domestic and foreign courts and domestic and foreign insolvency administrators in cross-border insolvencies and restructurings? Have courts in your country refused to recognize foreign proceedings or to cooperate with foreign courts and, if so, on what grounds?

Yes. The UNCITRAL Model Law on Cross-Border Insolvency (the Model Law) was enacted into Singapore law in 2017 and provides a basis for recognition of ongoing insolvency proceedings by the Singapore court as either foreign main or non-main proceedings, as well as cooperation between courts in cross-border insolvencies and restructurings.

The court has also held that in addition to recognizing foreign insolvency and restructuring-related proceedings, it will also recognize foreign insolvency and restructuring-related judgments and orders under the Model Law.

Notably, the Model Law empowers the court to refuse to take any action under the Model Law if such action would be contrary to the public policy of Singapore.

This power of refusal was exercised in part in Re Zetta Jet Pte Ltd & Others [2018] SGHC 16 (Zetta Jet). Briefly, in Zetta Jet, a shareholder of the debtor had obtained an injunction from the Singapore court that prohibited the debtor from acting in furtherance of ongoing bankruptcy proceedings in the United States. The debtor contravened this injunction by continuing the said US bankruptcy proceedings.

The bankruptcy trustee of the debtor eventually sought recognition of these proceedings by the Singapore court as foreign main proceedings. The Singapore court took the view that the debtor’s breaching of the injunction amounted to an undermining of the administration of justice, and instead of granting the trustee full recognition of the US bankruptcy proceedings, granted limited recognition of the proceedings.

The court recently held that solvent liquidations do not fall within the ambit of foreign proceedings that are capable of being recognized under the Model Law. As of the date of publication, the decision in question is set to be appealed.

Cross-border insolvency protocols and joint court hearings

58. In cross-border cases, have the courts in your country entered into cross-border insolvency protocols or other arrangements to coordinate proceedings with courts in other countries? Have courts in your country communicated or held joint hearings with courts in other countries in cross-border cases? If so, with which other countries?

In October 2016, the Singapore court announced the establishment of a network of insolvency judges from various jurisdictions to promote cooperation among national courts in insolvency and reorganization cases. This network is known as the Judicial Insolvency Network (JIN), and comprises judges from, among other jurisdictions, the United States, England and Wales, and Australia.

In February 2017, the Singapore court implemented guidelines published by the JIN for communication and cooperation between courts in cross-border insolvency and reorganization proceedings opened in more than one jurisdiction (JIN Guidelines). The guidelines aim to promote, among other things, the efficient and timely coordination and administration of such parallel proceedings, and the sharing of information between courts in order to reduce costs.

In June 2020, the Singapore court adopted the Modalities of Court-to-Court Communications published by the JIN, which prescribe mechanics for initiating, receiving and engaging in communication between bankruptcy courts relating to parallel insolvency and restructuring proceedings (Modalities).

Several other jurisdictions have since adopted the JIN Guidelines, including the US Bankruptcy Courts for the District of Delaware and the Southern District of New York. However, there has yet to be a reported decision in Singapore that features a court’s use of the JIN Guidelines and the Modalities, or where a court has otherwise communicated with or held joint hearings with other courts in cross-border cases.

Winding-up of foreign companies

59. What is the extent of your courts’ powers to order the winding-up of foreign companies doing business in your jurisdiction?

Foreign companies that are not registered in Singapore may be liable to be wound up in Singapore so long as it can be established that they have a ‘substantial connection’ to Singapore. The factors that the court will take into account to determine if such substantial connection exists are non-exhaustive, but includes:

• considerations of the company’s center of main interests;
• whether the company has business activities of some degree of permanence in Singapore;
• whether the company has substantial assets in Singapore;
• whether the company has chosen Singapore law as the governing law for loans and other transactions; and
• submission to Singapore court’s jurisdiction for the resolution of any dispute relating to a loan or other transaction.

Foreign companies with a substantial connection to Singapore – including those that can establish that Singapore is the company’s center of main interests (as used in the UNCITRAL Model Law on Cross-Border Insolvency) – also have the requisite standing to apply for reorganization procedures under Singapore law, including standalone moratoriums under the scheme of arrangement regime.

UPDATE AND TRENDS IN RESTRUCTURING AND INSOLVENCY IN SINGAPORE

Trends and reforms

60. Are there any emerging trends or hot topics in the law of insolvency and restructuring? Is there any new or pending legislation affecting domestic bankruptcy procedures, international bankruptcy cooperation or recognition of foreign judgments and orders?

Court-ordered mediation in restructuring proceedings

The Committee to Strengthen Singapore as an International center for Debt Restructuring had, in 2016, highlighted that court-ordered mediation could be used as an alternative to achieve consensus between creditors and debtors in a restructuring. This has been the subject of commentary in Singapore given that under Singapore law, as is the case under English and Hong Kong law, alternative dispute resolution methods such as mediation are generally only capable of being initiated voluntarily.

The position in other jurisdictions such as Australia and the United States is different, as the courts of these jurisdictions are empowered to refer parties in court proceedings to mediation. The introduction of the Singapore Convention on Mediation in September 2020 suggests that it is possible the law in Singapore may eventually align with the Australian and United States approach.

Forum shopping in restructuring proceedings

Recent English judgments, including Re Gategroup Guarantee Ltd [2021] EWHC 304 (Ch) have featured the use of co-obligor structures to access the English court’s jurisdictions. This form of forum shopping in restructuring proceedings – which refers to the practice of selecting and initiating restructuring proceedings in a jurisdiction that offers the best prospects for a successful restructuring – has been a recent topic of debate.

Certain judicial commentary in Singapore has suggested that such forum shopping should be encouraged. On the contrary, the United States recently introduced the Bankruptcy Venue Reform Act of 2021, which requires large corporations and affluent individuals to file for bankruptcy in their home states – thereby restricting forum shopping.

The Singapore International Commercial Court

Recent developments in the Singapore International Commercial Court (SICC) mean that:

• the SICC now has jurisdiction to hear corporate insolvency, restructuring and dissolution proceedings that are international and commercial in nature;
• such cases may be transferred from the Singapore court to the SICC;
• the SICC rules may be made applicable to such cases; and
• foreign lawyers may be registered and make submissions on non-Singapore law matters before the SICC.

Lawyers representing clients in certain insolvency matters that have commenced and remain in the SICC will also be able to enter into conditional fee arrangements with their clients.

Covid-19 measures and developments

In 2020, Parliament passed the Covid-19 (Temporary Measures) Bill to provide temporary relief for companies and individuals from specified contractual obligations. The Bill also temporarily lifted the monetary threshold for corporate statutory demands from S$10,000 (which was the prevailing threshold at the time under the Companies Act 1967) to S$100,000, and increased the time for a company to respond to a statutory demand from 21 days to six months. The Bill has since lapsed.

In January 2021, the Ministry of Law introduced a simplified insolvency programme as a simpler and lower-cost alternative for small and micro companies seeking to restructure their debts or be wound up. The program is open to companies that meet certain criteria, including having 30 or fewer employees, 50 or fewer creditors, a maximum liability of S$2 million and a maximum annual sales turnover of S$10 million.

* This chapter is co-written by ADTLaw LLC and Ashurst LLP who together form Ashurst ADTLaw in Singapore. Ashurst LLP is licensed to operate as a foreign law practice in Singapore. Where advice on Singapore law is required, we will refer the matter to and work with licensed Singapore law practices where necessary.

* The information in this chapter was accurate as at September 2023.

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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”

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