I INSOLVENCY LAW, POLICY AND PROCEDURE
i Statutory framework and substantive law
Corporate insolvency in Singapore is primarily governed by the Companies Act, which is supplemented by the Companies (Winding-Up) Rules and the Companies Regulations. Certain provisions of the Bankruptcy Act also apply to corporate insolvency in Singapore and the Bankruptcy Rules are also relevant.
Apart from the general corporate insolvency provisions, Singapore has also provided for industry-specific insolvency or winding-up rules for certain industries, including the banking industry. These rules will apply to the relevant industry in addition to the insolvency provisions under general company law.
Singapore insolvency law and practice is substantially based on insolvency law and practice in the United Kingdom and Australia. Singapore’s insolvency laws have undergone substantial reformation following the Ministry of Law’s appointment in December 2010 of the Insolvency Law Review Committee (ILRC) to review Singapore’s existing personal bankruptcy and corporate insolvency regime and to provide recommendations in relation to a new omnibus Insolvency Act.
In May 2017, the Companies Act was amended to implement significant changes to Singapore’s insolvency regime with the stated objective of attracting more foreign debtors to restructure their debts in Singapore, thereby positioning Singapore as an international centre for debt restructuring. The scope of existing insolvency and pre-insolvency processes have not only been widened and enhanced; familiar features from leading insolvency regimes worldwide, such as the United States Title 11 debtor-in-possession regime, have also been adapted and incorporated.
The Companies Act provides for a range of insolvency and reorganisation options for companies in distress, namely: liquidation, judicial management and receivership, as well as schemes of arrangement between companies and their creditors and shareholders.
In October 2013, the ILRC issued a report (the ILRC Report), endorsing the enactment of a new Insolvency Act and setting out various recommendations on the provisions of the new Insolvency Act. The recommendations by the ILRC included proposals to enhance the existing insolvency and reorganisation mechanisms as well as the management of cross-border insolvency issues.
Subsequently, the Committee to Strengthen Singapore as an International Centre for Debt Restructuring (DRC) was established and issued its recommendations on 20 April 2016. Both the ILRC’s and the DRC’s recommendations were eventually broadly accepted by the Singapore government, culminating in some of the more significant amendments to the Companies Act in May 2017, which include:
- a amendments to jurisdictional requirements to give foreign companies increased access to the debt restructuring regime in Singapore;
- b enhanced moratoriums that will be granted by the Singapore courts in support of restructurings and can be expressed to have in personam worldwide effect and be extended to related entities of a debtor company;
- c improving features of the existing judicial management and scheme of arrangement regimes in Singapore;
- d the introduction of provisions to govern the granting of super-priority to debtor-in-possession lenders who provide much needed rescue financing during the restructuring process; and
- e the adoption of the UNCITRAL Model Law on Cross-Border Insolvency.
iii Insolvency procedures
Liquidation is also referred to as ‘winding up’. There are two types of winding up currently provided for under Singapore law: compulsory winding up (or winding up by the court) and voluntary winding up (consisting of creditors’ voluntary winding up or members’ voluntary winding up).2
The objective of compulsory winding up is to realise a company’s assets and distribute them to creditors in order of priority. Any company can be compulsorily wound up, regardless of whether it is registered in Singapore, provided that it has some connection with Singapore and meets the relevant criteria under the Companies Act. For example, a foreign company may be wound up under the amended Companies Act if the creditor can demonstrate that the company’s centre of main interests is in Singapore or that the company has substantial assets in Singapore.
On the other hand, the objective of a creditors’ voluntary winding up is to wind up a company without reference to the courts. Any company registered in Singapore can be wound up in this way. In a creditors’ voluntary winding up, the creditors have the right to nominate the liquidator. If the creditors do not nominate a liquidator, the liquidator will be nominated by the company.3
The objective of a members’ voluntary winding up is to wind up a company when its shareholders no longer wish it to continue in business (usually in a ‘deadlock’ scenario), to pay all the company’s creditors in full and to distribute any surplus to the shareholders. Members’ voluntary winding up can only be effected when the company is solvent. The company has the right to appoint the liquidator in a members’ voluntary winding up.4
A provisional liquidator will be appointed by the High Court (the Court) pending determination of the winding-up application5 if the applicant can demonstrate a prima facie case for the granting of a winding-up order and the Court is satisfied in the circumstances of the case that a provisional liquidator should be appointed.
The provisional liquidator is obliged to preserve the status quo so as to protect the company’s assets. A provisional liquidator’s powers are prescribed by the court order appointing him or her.6
Upon the making of a winding-up order or the appointment of a provisional liquidator, all the property of the company vests in the liquidator (or the provisional liquidator as the case may be).7
A company or its creditors may apply to the Court for an order that the company be placed under judicial management if: the company is or is likely to become unable to pay its debts; and there is a reasonable probability of rehabilitating the company or of preserving all or part of its business as a going concern or that otherwise the interests of creditors would be better served than by resorting to a winding up.8
Any company, including foreign companies, can be placed under judicial management provided that the Court is satisfied that the company is or is likely to become unable to pay its debts, and it considers that the making of the judicial management order would be likely to achieve one or more of the following purposes:
- a the survival of the company, or the whole or part of its undertaking as a going concern;
- b the approval under Sections 210 or 211I of the Companies Act of a compromise or scheme of arrangement; or
- c a more advantageous realisation of the company’s assets than would be effected on a winding up.9
The judicial manager has the power to manage the business and property of the company.10 In addition, during the period for which a judicial management order is in force:
- a the company cannot be wound up;
- b no receiver and manager of the whole of the company’s property can be appointed;
- c there is a moratorium on legal proceedings against the company; and
- d no security can be enforced against the company’s property except with the consent of the judicial manager or with leave of the court.11
An interim judicial manager may be appointed by the court pending determination of the judicial management application if: the applicant can demonstrate a prima facie case for the granting of a judicial management order; and the Court is satisfied in the circumstances of the case that an interim judicial manager should be appointed.
Judicial management has become less popular as a corporate rescue mechanism in recent years, as creditors are often wary of replacing a company’s management with individuals who are not necessarily as familiar with the business.
The Court may order the appointment of a receiver or a receiver and manager in ‘all cases in which it appears to the Court to be just and convenient’.12 The Court has relatively wide discretion to make such appointments and usually does so where there is genuine concern that the company’s assets are in jeopardy and may be dissipated to the detriment of the debenture holders.
Often, a secured creditor may also enforce its security rights against the debtor company by appointing a receiver, or a receiver and manager. The receiver’s primary duty is to realise the assets for the benefit of the secured creditors that appointed him or her, or in the case of the receiver and manager, to manage and realise the assets that come within the ambit of his or her appointment.
Schemes of arrangement
A scheme of arrangement is often used as a means of corporate rescue. A scheme of arrangement is a binding arrangement between the company and its creditors or shareholders, which may among other things, seek to compromise the company’s debts and liabilities.13
A scheme of arrangement is binding on all creditors or class of creditors or shareholders or class of shareholders, as the case may be, if:
- a a majority in number representing three-quarters in value of those creditors or class of creditors or shareholders or class of shareholders agrees to the scheme of arrangement and if the Court approves the scheme of arrangement;14 or
- b a majority in number and representing three-quarters in value of the creditors meant to be bound by the scheme of arrangement have agreed to the scheme of arrangement, and the Court is satisfied that the compromise does not discriminate unfairly between two or more classes of creditors, and is fair and equitable to each dissenting class.15
A scheme of arrangement will not be fair and equitable to a dissenting class if, among other reasons, a creditor in the class that has dissented to the scheme would receive an amount that is lower than what that creditor is estimated by the Court to receive in the most likely scenario if the scheme of arrangement does not pass.16
iv Starting proceedings
An application may be presented to the Court for an order that a company be wound up compulsorily if it is unable to pay its debts.17 A company is deemed to be unable to pay its debts when:
- a it is served with a statutory demand for a sum in excess of S$10,000 and it is unable to within 21 days of the date of service of the statutory demand, pay the sum or to secure or compound the sum to the reasonable satisfaction of the creditor;18 or
- b it is unable to pay its debts if execution or other process issued on a judgment in favour of a creditor of the debtor company is returned unsatisfied in whole or in part.19
Generally, a winding-up application can be presented to the Court by: the company; the company’s directors; or the company’s creditors.20 The winding-up application may provide for a private liquidator or the Official Receiver to be appointed as a liquidator of the company. Winding up is deemed to have commenced when the winding-up application is made.21
After the winding-up application is made, the company, any creditor or contributory may apply to the Court to stay any further proceedings in any pending actions against the company.22
A company’s directors can begin the procedure to wind up the company voluntarily if they believe that there is no real prospect of the company paying its debts. The directors must convene an extraordinary general meeting (EGM) of shareholders, where the shareholders must pass a special resolution for winding up by at least 75 per cent of votes cast. A creditors’ meeting is held within one day of this resolution to appoint a liquidator (and possibly a committee of inspection).23
A statutory declaration of the company’s inability to carry on business by reason of its liabilities24 and a statement of affairs pertaining to the company must be filed with the Accounting and Corporate Regulatory Authority (ACRA) within seven days of the appointment of the liquidator.25 Within one month of the date of the statutory declaration, an EGM of the company’s shareholders and a meeting of the company’s creditors must be convened. Voluntary winding up is deemed to have commenced when the resolution for voluntary winding up is passed26 or on the date of the making of the statutory declaration in the situation where a provisional liquidator is appointed.
The company’s directors must make a statutory declaration of solvency within the five weeks before the EGM of the company’s shareholders is convened to consider and – if they think fit – to pass the special resolution to wind up the company.27 The directors must also prepare a statement of affairs.28 The EGM is convened (with at least 21 days’ notice). At this meeting, the shareholders must pass a special resolution to resolve to wind up the company voluntarily and appoint a liquidator.29
In the event the liquidator in a members’ voluntary winding up forms the view that the company is unable to make payment of its liabilities as originally envisaged in the statutory declaration of solvency, the members’ voluntary winding up can no longer proceed as such. The liquidator may then summon a meeting of the company’s creditors and lay before them the company’s statement of assets and liabilities. At this meeting, the creditors will also have the option to appoint some other person to act as liquidator. Thereafter, the winding up shall proceed in the form of a creditors’ voluntary winding up.30
The application for a judicial management order may be made by the company, a creditor (or creditors jointly) including a contingent or prospective creditor, or a director of the company if authorised by a resolution of the members or of the board of directors.31
There is an automatic moratorium on all proceedings against the company starting from the time the application for judicial management is made until the Court makes a determination on the application. The moratorium is wide-ranging and restrains, among others, the passing of a resolution for winding up of the company and enforcement actions against any charge or security held over the company’s property, except with the judicial manager’s consent or leave of the Court.32
Following the May 2017 amendments to the Companies Act, the Court may also grant the application despite the opposition of a person who is appointed or is entitled to appoint a receiver and manager under the terms of any debenture, unless the prejudice that would be caused to such person if the order was made would be disproportionately greater than the prejudice that would be caused to unsecured creditors of the company if the application is dismissed.33 In the event the Court grants the judicial management order, judicial management is deemed to have commenced from the time the application for judicial management is made.34
Holders of debentures that contain an express power to appoint a receiver or a receiver and manager can make such an appointment privately. The powers of the receiver or receiver and manager are prescribed by the terms of the debenture.
Where the debentures do not provide for the appointment of a private receiver or receiver and manager, the holders of such debentures may make an application for the Court to appoint a receiver.35
Scheme of arrangement
An application to the Court for approval of a scheme of arrangement may be made by the company, any creditor or member of the company or the liquidator of the company (where the company is being wound up).36 The application is made by way of originating summons supported by an affidavit.
The company may apply for a moratorium to restrain or stay proceedings against the company where it is proposing a scheme of arrangement.37 An automatic 30-day stay of all proceedings against the company arises upon the filing of an application for such moratorium under Section 210(10) of the Companies Act.38 The moratorium may also restrain the appointment of a receiver or receiver and manager. The company applying for the moratorium is required to provide evidence of support from creditors,39 a brief description of the intended scheme of arrangement40 and sufficient information relating to the company’s financial affairs, which will place the creditors in a better position to assess the feasibility of any proposed scheme of arrangement. The company is also required to provide the Court with an undertaking that it will make the application for the scheme of arrangement as soon as practicable.41 A creditor may apply to the Court to vary or terminate the moratorium, especially if the applicant company has not filed the information required.42
A moratorium can be granted on the application of a subject company’s ‘related company’ (i.e., the subject company’s subsidiary, holding company, or ultimate holding company)43 and applies to acts taking place in Singapore or elsewhere as long as the creditor is in Singapore or within the jurisdiction of the Court.44
A scheme of arrangement that has been approved by the Court may only be amended by way of an order of court. A scheme of arrangement approved by the Court will need to be lodged with the ACRA before it becomes binding.
v Control of insolvency proceedings
The Singapore courts have assigned certain judges with the requisite expertise as docketed insolvency judges to hear insolvency and restructuring related applications, including on an urgent basis. Generally, the various insolvency procedures will be administered by the respective insolvency professionals appointed. However, the Court does retain a certain degree of oversight.
Upon the making of a winding-up order by the Court, the liquidator may only carry on the business of the company so far as is necessary for the beneficial winding up of the company for a period of four weeks after the date of the winding-up order. Thereafter, the liquidator can only do so with the leave of the Court or the committee of inspection.45 The powers of the company’s directors also effectively cease when the winding-up order is made by the Court.
In the case of voluntary winding-up, upon the appointment of a liquidator, all the powers of the company’s directors cease except to the extent approved by the liquidator or by the members of the company with the consent of the liquidator in the case of a members’ voluntary winding up or the committee of inspection in the case of a creditors’ voluntary winding up.46
The liquidator is regarded as an officer of the Court and is, therefore, expected to discharge his or her duties accordingly. All private liquidators are subject to the supervision of the Official Receiver. The Official Receiver may take cognisance of the conduct of a liquidator to determine whether the liquidator has faithfully performed his or her duties and observed all the requirements imposed on him or her by law in relation to the performance of his or her duties. In the event any complaint is made against a liquidator, the Official Receiver shall make inquiries into the complaint and take the appropriate action.47
The liquidator in a compulsory winding up is required to seek the Court’s leave to be released from his or her office as liquidator.48
Upon appointment, a judicial manager steps into the shoes of the company’s directors and is deemed to be the company’s agent with the ability to exercise the powers of the company’s officers.49 The judicial manager is also regarded as an officer of the Court and is therefore expected to discharge his or her duties accordingly. A judicial manager may be removed at any time by the Court and he or she is required to seek the Court’s leave to be released from his or her office as judicial manager.50
A judicial manager is obliged to table a statement of his or her proposals to achieve one or more of the purposes stated in the judicial management order (Statement of Proposals) for the company’s creditors. The Statement of Proposals must be sent to the Registrar of the ACRA as well as all creditors of the company.51 Thereafter, the judicial manager is obliged to summon a meeting of all the company’s creditors to consider and vote on the Statement of Proposals. The judicial manager is required to report to the Court the proceedings of the creditors’ meeting and the results of the voting on the Statement of Proposals.52
A judicial manager may be held personally liable for any contracts entered into by him or her on behalf of the company, or for any contracts previously entered into by the company and which he or she had adopted.53
A receiver or manager (regardless of whether he or she is appointed privately or by the Court), may apply to the Court to seek directions for any matter connected to the performance of his or her functions.54
Any creditor, contributory or liquidator of a company may also apply to the Court to examine the conduct of a receiver or manager who appears to have misapplied, retained or become liable or accountable for any money or property of the company; the same applies if the receiver or manager appears to have committed any misfeasance or breach of trust or duty in respect of the company.55
Scheme of arrangement
The Court has the power to supervise scheme meetings and it is open to the scheme manager to apply to the Court for directions and other ancillary orders as may be appropriate.
vi Special regimes
Singapore has enacted additional industry-specific legislative provisions for insolvency. Examples include the resolution regime for a bank licensed under the Banking Act as set out in the Monetary Authority of Singapore Act and the resolution regime for insurance companies as set out in the Insurance Act.
vii Rescue financing
The May 2017 Companies Act amendments have introduced provisions on ‘rescue financing’, which refers to any financing that is either necessary (1) for the survival of the company as a going concern, or (2) to achieve a more advantageous realisation of the assets of the company than on a winding-up of the company.56
The new amendments empower the Court to grant one of four levels of priority over other secured and unsecured debts, that is, for the rescue financing to: (1) be treated as part of the costs and expenses of the winding up; (2) have super-priority over preferential debts; (3) be secured by a security interest on property not otherwise subject to any security interest or that is subordinate to existing security, or (4) be secured by a security interest, on property subject to an existing security interest, of the same or a higher priority than the existing security interest.57
The availability of an order for priority for rescue financing depends on the level of priority sought, whether the company has made a scheme application or moratorium application, or both, or whether there is a judicial management order in force. In particular, in order for the rescue financier to be granted the priority levels as per (2) to (4) above, it must be shown that the company is unable to obtain the rescue financing from other persons unless the rescue financier is accorded that particular level of priority. Further, in order for an existing secured interest to be overridden (i.e., level (4) above), the Court must be satisfied that the existing secured creditor is ‘adequately protected’.
viii Cross-border issues
Pursuant to the new Section 354B(1) of the Companies Act, the UNCITRAL Model Law on Cross-Border Insolvency (the Model Law) will have force of law in Singapore and will facilitate the resolution of cross-border insolvencies by (among other things):
- a streamlining and clarifying the process for recognition in Singapore of foreign insolvency proceedings;
- b facilitating access by foreign insolvency representatives to the Singapore Court, as well as the granting of relief in Singapore to assist foreign proceedings; and
- c promoting cooperation and coordination between courts of different jurisdictions and insolvency administrators.
Together with the abolition of the ring-fencing rule in respect of foreign companies under Part XI, the introduction of the Model Law is a marked departure from the traditionally territorial conception of cross-border insolvency and is emblematic of the shift towards the principle of modified universalism that was embraced by the Court in Re Opti-Medix Ltd (in liquidation) and another matter  SGHC 108 as the golden thread running through cross-border insolvency law, which requires courts to, as far as is consistent with justice and public policy, cooperate with the courts in the country of the principal liquidation to ensure that all the company’s assets are distributed to its creditors under a single system of distribution.
The adoption of the Model Law also provides clarity in respect of the recognition of foreign insolvency proceedings and coheres neatly with pre-Model Law decisions such as Re Taisoo Suk (as foreign representative of Hanjin Shipping Co Ltd)  5 SLR 787, where the inherent jurisdiction of the court was invoked as a basis for recognition of foreign winding-up proceedings.
II INSOLVENCY METRICS
There were 187 companies in compulsory liquidation in 2016. This was a slight decrease compared with the 189 companies that were compulsorily liquidated in 2015.58
III PLENARY INSOLVENCY PROCEEDINGS
In February 2017, the Court in Parakou Shipping Pte Ltd (in liquidation) v. Liu Cheng Chan  SGHC 15 confirmed that a director who procured a company to enter into undue preference transactions under Section 329 of the Companies Act read with Sections 99 and 100(1)(b) of the Bankruptcy Act could be in breach of his or her duties and that an order could be made against such a director personally to pay a sum equal in value to the undue preference transactions.
In reaching its conclusion, the Court (per Chua Lee Ming J) affirmed the position that had been previously adopted by the Court (per Steven Chong J) in Living the Link Pte Ltd (in creditors’ voluntary liquidation) and others v. Tan Lay Tin Tina and Ors  3 SLR 621 and reiterated the importance of ensuring that the courts must be slow in allowing a liquidator to employ the claim against the director as a means of circumventing the strict statutory criteria for an undue preference laid down by Parliament in the Bankruptcy Act. Notably, the Court also observed that the mere fact that the transactions fell outside the statutory clawback period could not excuse the directors concerned from being held liable for breach of their duties.
As stated above, in order to position Singapore to meet the anticipated increase in demand for insolvency and restructuring services in the Asia-Pacific region, the DRC was appointed by the Ministry of Law in May 2015 to build on the work of the ILRC and recommend initiatives and legal reforms to cement Singapore’s status as a leading centre from which to coordinate a multi-jurisdictional restructuring.
Key recommendations by the DRC in its 20 April 2016 report have been implemented through the most recent round of amendments to the Companies Act, which came into operation on 23 May 2017.
Notably, several of the key changes to the existing insolvency framework were adapted, with appropriate modification, from jurisdictions that possess more mature and highly developed insolvency processes. In light of the current economic climate, it is anticipated that more companies (including foreign companies) will avail themselves of the new features under the enhanced insolvency regime.
1 Nish Shetty is a partner, and Elan Krishna and Keith Han are associates, at Clifford Chance Asia.
2 Section 247, Companies Act.
3 Section 297(1), Companies Act.
4 Section 294(1), Companies Act.
5 Section 267, Companies Act.
6 Section 267, Companies Act.
7 Section 269, Companies Act.
8 Section 227A, Companies Act.
9 Section 227B, Companies Act.
10 Section 227G, Companies Act.
11 Section 227D, Companies Act.
12 Section 4(10), Civil Law Act.
13 Section 210, Companies Act.
14 Section 210(3AB), Companies Act.
15 Sections 211H(2) and 211H(3), Companies Act.
16 Section 211H(4)(a), Companies Act.
17 Section 254(1)(e), Companies Act.
18 Section 254 (2)(a), Companies Act.
19 Section 254 (2)(b), Companies Act.
20 Section 253(1), Companies Act.
21 Section 255(2), Companies Act.
22 Section 258, Companies Act.
23 Sections 296 to 298, Companies Act.
24 The statutory declaration is made by the company’s directors.
25 Section 293, Companies Act.
26 Section 255(1), Companies Act.
27 Sections 293(1) and 293(3), Companies Act.
28 Section 293(2), Companies Act.
29 Section 294(1), Companies Act.
30 Section 295, Companies Act.
31 Section 227A, Companies Act.
32 Section 227D(4), Companies Act.
33 Section 227B(5), Companies Act.
34 Section 227C, Companies Act.
35 Order 30, Rule 2, Singapore Rules of Court.
36 Sections 210(1) and 210(2), Companies Act.
37 Section 210(10), Companies Act.
38 Sections 211B(8) and 211B(13), Companies Act.
39 Section 211B(4), Companies Act.
40 Section 211B(4), Companies Act.
41 Section 211B(2)(b), Companies Act.
42 Sections 211B(10) , 211B(11), and 211B(4), Companies Act.
43 Section 211C(1), Companies Act.
44 Section 211B(5), Companies Act.
45 Section 272(1)(a), Companies Act.
46 Sections 294(2) and 297(4), Companies Act.
47 Section 265(1), Companies Act.
48 Section 275, Companies Act.
49 Section 227G(2), Companies Act.
50 Section 227J, Companies Act.
51 Section 227M, Companies Act.
52 Section 227N, Companies Act.
53 Section 227I, Companies Act.
54 Section 218(3), Companies Act.
55 Section 227(2), Companies Act.
56 Sections 211E(9) and 227HA(10), Companies Act.
57 Sections 211E(1) and 227HA(1), Companies Act.
58 Insolvency and Public Trustee’s Office at https://www.mlaw.gov.sg/content/dam/minlaw/io/Statistic/Companies%20Liquidation.pdf.