singapore insolvency law

C. Main Effects of a Compulsory Winding Up Order. The Companies Act sets out the framework for corporate insolvency. Where there are preference shares, their entitlements or preferences will be honoured in accordance with the terms of their issue as set out in the memorandum and articles of association of the company. Notably, there was no allegation that the directors were intentionally acting in the manner so as to defraud the company’s creditors. The Singapore Companies (Amendment) Act 2017 (“Act“) [1], which came into force on 23 May 2017, introduced significant new legislative tools to rescue distressed companies and significantly enhanced Singapore’s schemes of arrangement and judicial management processes.. 30.7.16 A moratorium will also be imposed under section 76(1) (c) of the BA, such that creditors will not be able to commence proceedings for debts incurred prior to bankruptcy except with leave of court. Judicial management can be ordered where the company is or is likely to become unable to pay its debts, and where judicial management is likely to fulfil one or more of the following objects: (1) the survival of the company as a going concern; (2) effecting a scheme of arrangement between the company and its creditors; or (3) a more advantageous realisation of the company’s assets than would otherwise occur on a winding up. While English and Australian insolvency decisions are relevant, the guidance offered must be construed against the backdrop of commercial practices and policy considerations in Singapore. The statement of affairs contains details of the company’s assets and liabilities, and enables the liquidator to carry out investigations into the affairs of the company. putting the recipient in a better position in the event of that party’s insolvency). Post navigation. Singapore & Australia Singapore's insolvency law reforms took effect through the Insolvency, Restructuring and Dissolution Act 2018, which came into force on 30 July 2020, and Australia's reforms took place by virtue of amendments to the Corporations Act 2001 (Cth), which came into effect in 2018. The key statute governing insolvency and corporate rescue mechanisms in Singapore is the Companies Act. Such a person may also be guilty of the commission of an offence under section 340(5) of the CA. However, the Singapore Courts have been robust in laying down principles and rules for the local context and adopting a commercial and practical approach to ensure the relevance and efficacy of schemes. Our Legal System. A deed is usually executed detailing the agreed arrangement. This is subject to exceptions for secured and preferential debts. 50) (the “Companies Act”) and the Bankruptcy Act (Cap. The definition of associates of the insolvent company is wide. The Court will not impugn a transaction at an undervalue if the Court is satisfied that the debtor company (i) entered the transaction in good faith and for the purposes of carrying on its business; and (ii) that at the time it did so, there were reasonable grounds for believing that the transaction would benefit the debtor company (Regulation 6, Companies (Application of Bankruptcy Provisions) Regulations (Cap. The main types of proceedings within the latter category are judicial management and schemes of arrangement. The Courts will ordinarily attach little weight to the wishes of the contributories in comparison with the weight it attaches to the wishes of any creditor, who proves that he is unpaid and that the company is unable to pay its debts (Re Hong Huat Realty (M) Sdn Bhd [1987] 2 MLJ 502). 8. 30.2.1 The winding up or liquidation of a company entails the debtor company’s assets being collected and sold off in order to pay its debts. Wrongful trading must be established on a criminal standard of proof. An Act to amend and consolidate the written laws relating to the making and approval of a compromise or an arrangement with the creditors of a company or an individual, receivership, corporate insolvency and winding up, individual insolvency and bankruptcy, and the public administration of insolvency, to provide for the regulation of insolvency practitioners, to provide for connected matters, to repeal the Bankruptcy … 30.7.19 A bankrupt may exit bankruptcy in the following three ways: 30.7.20 The new differentiated discharge framework set out in the 2016 amendments introduces a regime whereby bankrupts can be discharged at fixed exit points. Singapore’s new Insolvency, Restructuring and Dissolution Act will come into force on 30 July 2020, consolidating the jurisdiction’s corporate insolvency and personal insolvency regimes and establishing a regulatory regime for insolvency practitioners. If a partnership firm wishes to take out a Bankruptcy Application, the application must be presented jointly by all the partners of the firm or by a majority of such partners who are residing in Singapore at the time of the making of the application. The Singapore High Court in Joo Yee Construction Pte Ltd v Diethelm Industries Pte Ltd [1990] SLR 278 applied the anti-deprivation rule as set out in British Eagle International Airlines v. Air France [1975] 2 All ER 390. 30.2.17 A winding up application is typically heard within 6 weeks from the date of its filing. The entire procedure is set out in sections 210 and 211 of the CA. 30.7.11 The hearing of a Bankruptcy Application is fixed approximately 4 to 6 weeks from the date of filing of the Bankruptcy Application. Where the security is a floating charge over the undertaking of the company, the receiver is also given powers of management in respect of the company’s undertaking and is known as a receiver and manager. Such arrangements may be privately arranged or Court sanctioned. Singapore’s system of insolvency laws comprises procedures for liquidation as well as rehabilitative debt restructuring procedures. Specifically, division 5 of Part X of the CA is applicable to the winding up of unregistered companies, the definition of which includes foreign companies. 30.2.29 Section 340(1) of the CA applies where, in the course of winding up or any proceedings against a company, it appears that any business of the company has been carried on with an intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose. In principle, the contracting of debts in a reckless or unreasonable manner may be sufficient to establish the offence. This provision does not specify a limit on the number of extensions which the Court may grant. For voluntary liquidation, solvent companies may voluntarily liquidate by way of a members’ voluntary winding up, whereas insolvent companies must do so through a creditors’ voluntary winding up. Disclaimer: The articles and briefings on this website are for general information only. The Court, or the judicial manager, has a discretion to allow otherwise prohibited proceedings or enforcement actions to be commenced or continued ( Hinckley Singapore Trading Pte Ltd v. Sogo Department Stores (S) Pte Ltd [2001] 4 SLR 154). If after a certain amount of time, it appears that the scheme is not going to achieve its objectives, then assuming the appropriate terms have been incorporated in the scheme document, the scheme could be terminated either by a vote at a meeting of creditors/members or on the decision of the scheme administrator. 30.5.2 It is possible for company to attempt to enter into private arrangement with its creditors without the assistance of the Court. 30.2.10 Even though no one single test is conclusive as a measure of solvency, it is commonly accepted that the two primary indicia of a company’s inability to pay debts are an inability to meet a demand for a debt which has become due (the “cash flow” test) and an excess of liabilities over assets (the “balance sheet” test). Such jurisdiction to wind up a foreign company will only exist where it has assets in Singapore or has sufficient nexus or connection with Singapore. The Model Law reflects a universalist approach to insolvency and provides an established framework which will allow Singapore Courts to recognise and assist foreign insolvency proceedings. Unlike judicial management, an application for the Court to convene a meeting of creditors to set in motion the process of reaching a scheme of arrangement does not automatically set a moratorium in place, unless an application is made under the newly introduced s 211B of the Companies Act pursuant to the 2017 amendments. However, with the recent amendments to the Companies Act, the Court now has the discretion to order that a creditor which provides “rescue financing” to an ailing company be afforded super-priority over the company’s other secured and unsecured creditors. In Re Conchubar Aromatics [2015] SGHC 322, the foreign applicants were able to establish sufficient nexus to Singapore because they held shares in Singapore companies. The draft of the omnibus Insolvency Bill is currently being prepared. The IRDA consolidates Singapore’s personal and corporate insolvency and debt restructuring laws into a single piece of legislation. Once the winding up order is made, no action against the company may be commenced or continued without the leave of the Court. 30.4.13 The judicial manager also has the power to dispose of secured assets in accordance with section 227H of the CA. The IRDA is an omnibus legislation housing all of Singapore’s insolvency and restructuring laws in one single piece of legislation. A liquidator’s powers also include the ability to avoid or “reverse” certain transactions which may have wrongfully depleted the assets of the company prior to the winding up proceedings. If this is not done and the creditors and members do not have sufficient information on which to make an informed decision, the Court may later decline to approve the scheme even though it may have been approved by the requisite majority ( Wah Yuen Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd [2003] 3 SLR 629 (“Wah Yuen”)). He can exercise his discretion in the management and disposal of a security. The updating of Singapore’s insolvency legal landscape is still in its early days. When a company is wound up, its assets and affairs are taken over by the Official Receiver or a private liquidator (depending on which is appointed on the winding up of a company), whose powers, duties, and functions are regulated by statute. 30.5.9 Unlike judicial management, which results in an immediate moratorium, setting in motion the scheme process does not, of itself, afford a company any protection from creditors. If the Court is minded to make such an order, a proposal must then be tabled before the relevant meetings and approved by the requisite majority of the creditors or members. A members’ voluntary winding up typically commences upon the passing of a special resolution by the members of the company. The Court need only assess whether on the face of the proposal, it can conclude that there is a reasonable prospect of the eventual scheme succeeding. 30.4.15 The judicial management order may also be discharged under section 227N(4) of the CA if (i) the creditors decline to approve the judicial manager´s proposals; or (ii) under section 227Q(1) of the CA it appears on the application of the judicial manager that the purposes specified in the judicial management order cannot be achieved; or (iii) under section 227R of the CA the judicial manager has acted or will act in a manner that would be unfairly prejudicial to the interests of creditors or members of the company. The two reports, by the Insolvency Law Review Committee and the Committee to Strengthen Singapore's bankruptcy and corporate insolvency regime led the Ministry of Law to update and strengthen Singapore's Insolvency and Restructuring law through a three-stage approach. But as a practical matter, judges take an expansive view of the jurisdiction and will grant such blanket moratoriums. Enhance Singapore's insolvency and restructuring laws and in particular, strengthen the debt restructuring regimes. 30.7.23 After a Bankruptcy Application has been filed, a debtor may explore debt settlement with its creditors by way of an individual voluntary arrangement. Apart from voluntary winding up, winding up may also be ordered compulsorily. 30.5.5 According to statistics based on the cases filed with the Courts from 2002 to July 2009, out of 48 schemes which were sanctioned by the Court in that period, a majority of the companies (77.1%) remained live as at December 2009. 30.2.2 Proceedings to wind up a company are either voluntary or compulsory. The Court also has the power to make a judicial management order where it considers that the public interest so requires. 50, Reg 3)). Section 330 / Section 227X of the CA essentially seeks to prevent companies on their last legs from creating floating charges in favour of certain creditors in order to secure past debts ( Tang Yoke Kheng (trading as Niklex Supply Co) v Lek Benedict and Others [2005] 3 SLR 263). 30.6.3 Section 377(3) (c) of the CA provides for the ring-fencing of the Singapore assets of a foreign company in Singapore undergoing liquidation. A phased approach was taken to implement changes to Singapore's personal insolvency, corporate insolvency and debt restructuring laws. Court Sanctioned Schemes of Arrangements. As a corporate rescue mechanism, a scheme needs to retain the flexibility to discriminate amongst creditors where necessary, in order to be effective. At the end of a receivership, the company theoretically still exists and may continue its business, at least in theory. 30.2.26 Any residual assets of the company remaining after payment of all secured, preferred and unsecured creditors will be divided amongst the company’s shareholders. This is so even if the shareholders of the company have no objections to their actions or where the shareholders may actually have benefited. This country-specific Q&A provides an overview of Restructuring & Insolvency laws and regulations applicable in Singapore. 2) If there are no results in your inbox or spam folder, please provide us with the following details below through … The Model Law is a framework of rules providing the mechanisms for dealing with cases of cross-border insolvency, including (a) access by foreign insolvency representatives to the court of the enacting state; (b) recognition by the enacting state of foreign insolvency proceedings; (c) the granting of relief to assist foreign insolvency proceedings; and (… Insolvency Office The Official Assignee administers the affairs of bankrupts and the Official Receiver administers the affairs of wound-up companies ... Singapore’s debt recovery system strikes a balance between meeting the interests of creditors and providing fresh starts for debtors. On the application of the liquidator or any creditor or contributory of the company, the Court may, if it thinks proper to do so, declare that any person, who was knowingly a party to the carrying on of the business in that manner, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company. Assets secured by a floating charge may be disposed of at the judicial manager’s discretion. 30.7.5 An application for a bankruptcy order may be made by either a creditor or the debtor. This may be done without the assistance of the court, but to do so would require the unanimous consent of all affected creditors, which may be difficult to obtain. 30.7.22 A bankrupt’s eligibility for discharge will depend on his paying a “Target Contribution”. If the Court makes such an order convening the meeting or meetings of creditors, a proposal must then be tabled before the relevant meetings and approved by the requisite majority of each class of creditors. Register of Insolvency Practitioners. 30.2.37 The avoidance provisions found principally in the CA and Bankruptcy Act (the “BA”) are of great importance in the management of the insolvent estate in winding up or judicial management. There should also not be in existence a genuine cross-claim against the creditor. 30.6.4 In Beluga Chartering GmbH (in liquidation) v Beluga Projects (Singapore) Pte Ltd (in liquidation) and Anor [2014] SGCA 14 (“Beluga Chartering”), the Singapore Court of Appeal commented that where there are no Singapore insolvency proceedings, the Singapore Court in general ought to recognize the title of a foreign liquidator and assist him in claiming assets belonging to the insolvent company. However, problems may arise when a creditor breaches the deed or if creditors that are not parties to the deed subsequently surface. 30.4.10 The judicial manager is the agent of the company and is personally liable on any contract entered into or adopted by him in the carrying out of his functions, unless such liability is excluded. 30.7.17 The bankrupt will also be subject to various statutory restrictions and disabilities, including being unable to leave Singapore without the Official Assignee’s permission. 30.5.7 In recent times, judges have adopted a proactive role in managing the proceedings and guiding the stakeholders, in particular through status conference hearings while the moratorium is in place ( Re Conchubar Aromatics [2015] SGHC 322). Thereafter, the judicial manager would be deemed to have adopted any contract entered into by the company. Any monies remaining after all debts, expenses and costs have been paid off are then distributed amongst the shareholders of the company. If successfully invoked, they mandate the clawing-back of property transferred by the transactions or a reversal of their effects. In order for a scheme to be approved, more than 50% of creditors (or a class of creditors) comprising 75% in … It has the power to “cram down” one or more classes of dissenting creditors provided that certain conditions are satisfied, including the condition that the compromise must not discriminate unfairly between two or more classes of creditors and is fair and equitable to each dissenting class. The main types of proceedings within the latter category are judicial management and schemes of arrangement. That said, such powers may be conferred on judicial managers pursuant to section 227X(b) of the CA. As long as the preferred party is an associate of the company, the company is presumed to have been influenced by a … Rajah & Tann Singapore LLP has over 25 lawyers in its restructuring and insolvency team in Singapore. Furthermore, in addition to all the powers and duties of the directors, he assumes the powers specified in the Eleventh Schedule of the CA. The right of any secured creditor to realise or otherwise deal with his security is unaffected. Where such personal service is unsuccessful, it is possible to apply for substituted service under Rule 111 of the Bankrupt Rules. A foreign company may choose to do this in conjunction with concurrent restructuring proceedings taking place in its place of incorporation. The Court rejected the reasons put forward by the creditors opposing the winding up as being mere expressions of willingness to give the company time to recover money from certain debtors. 30.2.45 There is also a presumption of the company being “influenced by the desire to prefer” if the preferred creditor is an associate of the company. 30.5.4 The provisions on schemes of arrangement were introduced in 1967 and are based on English legislation formulated in the 19th Century. For most purposes, it is the present inability to pay debts that is the crucial factor. The receiver does not owe a general duty of care to the company or the other stakeholders in the company, except for specific contexts such as the taking of reasonable steps to obtain a proper price for the security ( Roberto Building Material Pte Ltd and others v Oversea-Chinese Banking Corp and another [2003] 3 SLR (R) 217 and Beckkett Pte Ltd v Deutsche Bank AG and another and another appeal [2009] SGCA 18). 30.5.15 The dissimilarity principle means that if a creditor’s (or a group of creditors’) position will improve or decline to such a different extent, vis-à-vis other creditors, simply because of the terms of the scheme ( and not because of its own unique circumstances, ie, its “private interests”) assessed against the most likely scenario in the absence of scheme approval (the “appropriate comparator”), then it should be placed in a different voting class from the other creditors. The requisite majority is a majority in number representing three-fourths in value of each class of creditors present and voting at the meeting. 30.2.35 Ordinarily the directors of a company are not personally liable for the debts of the company since the company is a separate legal entity. Bankruptcy Corporate Insolvency Statistics. The ILRC’s report recommended the adoption of the UNCITRAL Model Law on Cross-Border Insolvency (the “Model Law”). (BNP Paribas at [19]). Consequently, restructuring can become more difficult as a result of inertia. To safeguard the interests of the company as well as its creditors, in particular where the interim judicial manager will be in a better position to continue the business affairs of the company in the meantime. The most common modes are: 30.7.9 If a debtor wishes to set aside the Statutory Demand served on him, an Originating Summons must be filed within 14 days (or if the Statutory Demand was served outside Singapore, within 21 days) from the date of service of the Statutory Demand. A company is deemed to be unable to pay its debts if: 30.2.9 There is no prescribed form for the statutory demand save that it be signed by the creditor or by his authorised agent. There is no requirement under Singapore law for a company to initiate restructuring or insolvency proceedings once a specific threshold or event has been reached. After a Bankruptcy Order has been made against a person, this will be published in the Government Gazette accordingly, and the Official Assignee or the Private Trustee (if one is appointed) will then administer the bankrupt’s affairs in bankruptcy. As long as the preferred party is an associate of the company, the company is presumed to have been influenced by a desire to prefer. 30.4.11 Once a judicial management order is made and while it remains in force, the board of directors becomes functus officio and its functions and powers are transferred to the judicial manager. 30.4.4 The Court will dismiss the application where a receiver and manager have been appointed over the whole or substantially the whole of the company’s property under a debenture of the company secured by a floating charge. 30.2.3 For a members’ voluntary winding up, the company must be in a position to pay its debts in full within 12 months after the commencement of winding up. Research the key issues surrounding Restructuring & Insolvency law in Singapore. On 14 July 2015, the Bankruptcy (Amendment) Bill 2015 was passed in Parliament. 30.7.3 Section 60 of the BA provides that the High Court has jurisdiction if the debtor: 30.7.4 The law adopts a presumption against a change of domicile (Algemene Bank Nederland v Loo Choon Yao [1989] 2 MLJ 258). state personal grounds or other reasons why the statutory demand should be set aside. Whereas this was previously only available to Singapore-incorporated companies, the 2017 amendments to the Companies Act make judicial management available in respect of foreign companies with a “substantial connection” with Singapore. In recent times, there has been a gradual shift towards creating a climate conducive to corporate rescue. However, in practice, the onset of receivership more often than not foreshadows liquidation proceedings. If before the passing of the winding up resolution, the directors lodge a declaration with the Registrar of Companies that the company cannot by virtue of its liabilities continue its business, the winding up commences at the time that the declaration is lodged (regardless of when the winding up resolution is passed). Mere frequent travel abroad will therefore not constitute a change of domicile. About the Licensing Officer. 30.4.6 It is open for creditors to oppose the making of a judicial management order through the filing and service of an affidavit stating the grounds for the opposition of judicial management application. By allowing them to vote separately, from creditors whose rights are so different from theirs such that the latter have additional non-private interests in voting for the scheme, these minority creditors are less likely to be overwhelmed and their votes thereby given the appropriate significance. PricewaterhouseCoopers LLP and others v Celestial Nutrifoods Ltd (in compulsory liquidation) [2015] SGCA 20 sets out the principles that govern the exercise of the Court’s power to grant such orders. A company’s inability to pay its debts is a common ground for presenting an originating summons for compulsory winding up (section 254(1) (e)). Anecdotally, debtors tend to delay reaching out to restructuring professionals until creditor goodwill and funds are running low. 30.7.2 All bankruptcy proceedings take place in the Singapore High Court. To allow members and creditors to exercise their votes in an informed manner, section 211(1) of the CA states that every notice summoning the meeting must contain a statement explaining the effect of the compromise or arrangement and, in particular, stating any material interests of the directors and the effect thereon of the compromise or arrangement, in so far as it is different from the effect on the like interests of other persons. However, the 2017 amendments to the Companies Act give the Court wider “cram down” powers. SECTION 1 INTRODUCTION TO SINGAPORE INSOLVENCY LAWS . To establish this, a decent chance of the company’s survival alone is not enough. 30.2.21 After the winding application has been filed, the company, its creditors or its shareholders may apply to restrain any pending proceedings against the company. The IRLC issued its final report in 2013, wherein it recommended the enacting of a new omnibus Insolvency Act that would consolidate and update Singapore’s insolvency regime. Singapore’s Insolvency, Restructuring and Dissolution Act (the “IRDA“), together with 48 pieces of subsidiary legislation, comes into force today, 30 July 2020 (available here). the more advantageous realization of the company´s assets than would occur in a winding up. If these proposals are approved, the judicial manager must manage the company’s affairs in accordance with the approved proposals. Recently, the Court has introduced specialist commercial lists of judges, including one for company, insolvency and trusts. The process begins with the company itself or a creditor of the company making an application to Court to convene a meeting or meetings of creditors of the company. 30.5.19 In TT International, the Court of Appeal set out the three considerations in respect of which a Court must be satisfied: 30.5.20 The scheme document will usually provide for the scenario under which the scheme will conclude or terminate. Various Ministers on grounds specified under the law. 30.4.14 Under section 227B(8) of the CA, a judicial management order will be discharged after a hundred and eighty days unless extended by the Court. It has to be demonstrated that not only were the transactions unfair, but were oppressive and reflecting an imbalance in bargaining power of which the other party took improper advantage. The members of the company must pass a resolution that the company be wound up. by forwarding the statutory demand to the debtor by prepaid registered post to the last known place of residence, business or employment of the debtor. 30.4.1 In 1987 following the Pan-Electric crisis, judicial management was introduced in Singapore and is based on the English administration regime. Voluntary winding up may take the form of a members’ voluntary winding up or a creditors’ voluntary winding up. In Commentary on the Model Law, the authors have suggested that the public policy exception should be read narrowly to remove pre-existing obstacles to the recognition of foreign insolvency proceedings, given that one of the objectives of the Singapore Model Law is to promote cooperation between the courts and other authorities among states in cross-border insolvency. Alternatively, the value of the consideration given by the company significantly exceeds the value received by the company. In Singapore, liens can arise by operation of law in certain specific relationships, for example solicitor-client or through contract. state reasons for not admitting the debt; admit the debt, but state reasons why it is not immediately payable; admit the debt and offer to secure or compound it to the creditor’s satisfaction; inform the Court that the debt is a secured debt and provide full details of the security and its value; (where the debt arises from a judgment) prove that execution on the judgment of the Court has been stayed; state reasons why the statutory demand does not comply with the Bankruptcy Rules; and /or. It is the largest dedicated legal practice in Singapore dealing with banking and financing disputes, corporate insolvencies and rescues, business advisory, workouts and debt restructurings, and enforcement of creditors’ rights. 30.2.15 Section 325 of the CA also provides that the Court may have regard to the wishes of creditors or contributories in matters relating to the winding up of companies. If you did not receive the Insolvency Search Result(s) after making your payment, please follow the steps below before lodging an online enquiry: 1) If you listed your email address for the E-service to send you the results, check your email to see if you have received a copy. 30.2.16 The fact that the company is already in voluntary winding-up may also persuade the Court not to make the order for winding-up (section 253(2) (d) of the CA). The directors of the company are required to file a declaration of solvency to the above effect. 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