13 Oct 2021 Posted in [Speeches]
Mr. Manoj Pillay Sandrasegara and Ms. Angela Ee, Chairperson and Vice-Chairperson, Insolvency Practitioners Association of Singapore (IPAS)
Mr. Sushil Nair, Chairperson of the Insolvency Practice Committee, The Law Society of Singapore
Mr. Sim Kwan Kiat and Mr. Darius Tay, Co-chairs of the Conference Organising Committee
Ladies and Gentlemen
- Good morning. Thank you very much for inviting me here today, to be back here with colleagues from the Restructuring and Insolvency Bar, and also with other Insolvency professionals as well.
- Let me start by offering my congratulations to the organisers and supporters of this flagship Conference. The Conference is now in its 8th edition. It continues to attract a really diverse slate of truly high-quality speakers and attendees from across both the private and public sectors.
- In fact, this year, I understand that there are more than 300 registrants online.
The continued success of this Conference reflects the recognition of, I would say:
a. The growing importance of effective restructuring and insolvency frameworks; and
b. Also the rapidly evolving economic and business landscape, which in turn impacts the paradigm within which all of you, the insolvency professionals work.
In this speech this morning, I will share some perspectives on these areas:
a. First, Singapore’s progress in the restructuring and insolvency space – what we have done over the past couple of years in the legislative space, and also some of the key decisions coming from the bench;
b. How the local and global landscape has evolved; and
c. Finally, some of the challenges and opportunities that we see ahead, some changes that we are thinking about to keep ahead of the competition and continue to enhance and, if possible, entrench our position as a restructuring hub.
II. Singapore’s Progress as a Restructuring and Insolvency Centre
- Looking back, a little over a decade since the Insolvency Law Review Committee was set up to review and also modernise Singapore’s insolvency and restructuring laws in 2010.
I would say that tremendous progress has been made to our own legislative framework.
a. Just to recap, some of these key milestones include:
i. Companies (Amendment) Act 2017 –
Enhanced Singapore’s restructuring frameworks through the engrafting of US Chapter 11 features; and
Adoption of the UNCITRAL Model Law on Cross-Border Insolvency.
Those of you in this space would remember that in 2016 and 2017, there was a series of high-profile restructurings and amendments to the insolvency framework were pushed through the Companies (Amendment) Act.
ii. Thereafter, the Insolvency Restructuring and Dissolution Act 2018 came into being. It was a milestone omnibus legislation that:
Consolidated and also harmonised the approaches across both personal and corporate regimes; and
Continued the enhancement of the corporate rescue framework.
b. I myself was privileged to have been involved in these changes, first as a practitioner, sitting and working with many of you, my colleagues out there on the working committees.
c. Subsequently, moving the Bills through Parliament, the IRDA, in particular, when I joined the Government a few years ago.
d. The legislation very much reflects features which practitioners, all of you, as we gathered views, thought would be useful, practical, to anchor our position as a restructuring hub.
e. In some ways, it is difficult to define success by any one matrix, but just as one indicator: in 2020 alone, last year, when most of the year was blighted by COVID-19, there were more than 100 restructuring related applications using the new framework.
I put a large part of this down to the fact that Singapore’s insolvency and restructuring laws have remained both progressive and modern, whilst at the same time, balancing the interests of debtors, creditors and other stakeholders. That is a very important feature – not to be pro-debtor or pro-creditor, but to look at the range of options and interests of the different stakeholders.
a. Whilst providing tools for companies in need, where there is no possibility of a viable restructuring, the concept and philosophy in IRDA is not to frustrate the exercise of creditor rights. For example, in certain financings made to investment management or special purpose asset holding companies, there may be a common understanding that the fund must be liquidated and security enforced, and given the nature of the financing, the creditors, in fact, would not support any restructuring process. In these situations, the court would no doubt give due weight to these considerations.
b. The balanced regime is illustrated in a recent working paper by SMU Singapore Global Restructuring Initiative – a dedicated restructuring and insolvency academic centre. The paper sets out an index to measure the attractiveness of reorganisation procedures from the perspective of debtors, secured creditors and also, unsecured creditors. The paper details how Singapore significantly enhanced our restructuring framework for debtors, while remaining an attractive jurisdiction for lenders and financial services. That, if I may add, is a particularly important consideration. If we turn too much towards one stakeholder or the other, the balance will be affected.
c. Besides the IRDA’s importance in formal proceedings, one (perhaps sometimes often overlooked) aspect is its wider impact on informal workouts as well.
i. Such workouts are often facilitated by the parties’ knowledge that the formal framework and processes are there, can remain a backstop, and be defaulted too, if necessary.
ii. Parties, in certain cases, may be more inclined to enter into informal discussions and negotiations, work it out amongst themselves; bearing in mind the framework that is at play, where it could be a more expedient process, and also likely to have less negative impact and adverse publicity.
iii. Anecdotally, for example, the ability to cram down has engaged creditors, and encouraged them to be more reasonable in informal negotiations.
In the broader context – I’m sure all of you would also know, that we are seeing an increased pace of insolvency reforms, not just in Singapore and Asia, but also across the world, including in some of the world’s leading jurisdictions – the UK, Germany, Netherlands and Australia.
a. Some of the proposed reforms and innovations that are being contemplated in the other jurisdictions include features that have already been introduced here. And over in those other jurisdictions, you will see that they have included concepts like –
i. Enhanced moratorium;
ii. Super-priority for rescue financing; and
iii. Cross-class cram-downs.
Impetus and Broad Rationale
- Overall, I would say that an efficient, effective and balanced restructuring and insolvency framework is critically important.
In particular, it:
a. Assists local businesses experiencing financial difficulties;
b. Benefits creditors and other stakeholders, as better outcomes may be achieved if –
i. the restructuring is successful, averting, sometimes a longtail of disastrous financially and time-consuming winding up, and
ii. As far as possible, returns can be maximised, where the business itself is no longer viable;
c. In turn, it enhances Singapore’s position as a forum of choice for foreign debtors; and
d. Supports Singapore’s position as an international legal, financial and business centre.
- These are all very important considerations for us in the Government as we look at constantly reforming, evaluating changes, and how we can further improve the ecosystem to encourage ourselves as a financial and economic hub.
Developments to Enhance Framework for Smaller Local Companies
- On the first two points on assisting local businesses and their stakeholders, you probably know that the Government had to move very quickly in response to the devastating impact of the COVID-19 pandemic. This includes the restructuring and insolvency space as well. I know some of you were consulted when we drew up the COVID-19-related relief and measures.
- We had expected that smaller businesses would probably be disproportionately hit in this pandemic – hardest hit – and it was felt that smaller businesses could in fact benefit from more streamlined provisions.
One of the things we did arising from this, was to introduce the temporary Simplified Insolvency Programme (“SIP”), targeted to assist micro and small companies:
a. Aiming to provide simpler, faster, and lower cost proceedings (compared to what we regard as more ‘standard’ proceedings) for the eligible micro and small companies.
b. It was reasonably successful, we received 31 applications for simplified winding up thus far. 15 of these have been accepted, whilst 11 are pending and 5 rejected because of eligibility requirements.
c. While the accepted cases remain under administration, I would say, roughly, the estimated time for conclusion is about 9 months, compared to standard winding up proceeding which typically take a year, a year and a half, or sometimes longer.
d. The application period for the SIP – we have decided to extend to July next year, so it will remain afoot for this period of time, whilst we still look at businesses that struggle to come out of business failures, adversely impacted by COVID-19. This programme will assist companies that may become financially distressed in the coming months, as economic conditions remain fluid and the economy tries to pivot and transits into the new endemic normal.
e. But I would say as well that we have learnt something from this experience. A simple, time and cost-efficient process is particularly important, especially so to smaller businesses.
i. Smaller businesses make up about 95% of Singapore’s enterprise landscape. A big part of the economy is made up of smaller businesses, and the direct impact it has to livelihoods is not insignificant.
ii. Many of the smaller businesses because of COVID-19 or otherwise: their business has failed, they want to move on. If there is no fraud and minimal prejudice to creditors, there ought to be no need for protracted proceedings, which can sometimes can destroy any remaining value and certainly, disincentivise any remaining entrepreneurial appetite.
iii. So, we will consider in the future whether some features of this simplified process could be refined and retained on a more permanent basis. We will study this and perhaps consult with the industry as well on this.
Next Level as a Nodal Jurisdiction
- Next, let me look at what we can do to make Singapore a forum of choice, to be a nodal jurisdiction. I would say the ingredients are there. Singapore is well-placed to take this step, to move towards the next level as a key nodal jurisdiction.
- I’m sure all of you could point to a myriad of different factors – such as having a stronger bench, which I’ll touch on in a moment, thought leadership coming through from so many of our insolvency professionals, from the cases that we see.
- But I look at two encouraging signs as an indicator. I will just touch on these two this morning:
- First, there has been increasing certainty and maturity in the use of the IRDA:
- It has only been a couple of years, but it has been stress-tested and used in the various restructurings across a spectrum of different industries, and certainly in different financial and economic contexts, where the factual matrix has been different.
There have been, and will continue to be, successful and challenging restructurings. Some will work, some may not.
a. This follows the difficult nature of the restructuring process itself. Reaching consensus and agreeing to a compromise in the midst of competing private and public interests, and of course, also dealing with different class of creditors, different nature of securities and so on.
b. Each case, whether successful or otherwise, nonetheless
i. provides valuable guidance; and
ii. also increases certainty as to the application of the Singapore restructuring regime in a particular scenario.
As I mentioned, our thought leadership is also growing. Our bench has been proactive, forward leaning, and there has been a growing body of caselaw on some of the key planks in the restructuring process. Let me touch on a few:
a. For example, on the jurisdictional basis for foreign companies restructuring in the Singapore courts:
i. You would be familiar with MNC Investama, where the High Court viewed that a foreign company had substantial connection with Singapore in light of its substantial business activity that was not transient and the fact that its securities were listed on the Singapore Stock Exchange.
b. On the parameters for raising rescue financing:
i. In Re Design Studio Group: The High Court considered whether “roll-ups” were allowed under the rescue financing regime, and viewed that there was no legislative prohibition against it.
c. There has also been successful implementation of pre-packaged schemes:
i. Pacific International Lines: The restructuring of the world’s 12th largest liner company and South-East Asia’s largest carrier Pacific International Lines was completed very quickly, swiftly, with minimal hitches through a pre-packaged restructuring process.
ii. Modernland Realty: The restructuring of Indonesian real estate group through a pair of pre-packaged schemes in respect of two sets of New York-law governed notes worth US$240 million and another set worth US$150 million respectively.
d. Also, recognition and enforcement under the Singapore enactment of the UNCITRAL Model Law on Cross-Border Insolvency:
i. In United Securities v United Overseas Bank: The Singapore Court of Appeal considered, I think, for the first time the application of principles relating to the recognition of foreign proceedings and when local proceedings could be stayed in favour of foreign proceedings.
ii. China Fisheries: In a recent landmark decision, I think the judge has still not yet released the judgement, but looking at the order that has been made, the Singapore High Court recognised a US Chapter 11 plan and confirmation order, and the plan administrator as the foreign representative. CF Peru’s bankruptcy in the US was recognised as a foreign main proceeding, despite the company being incorporated in Singapore. This, I believe, is the first case of the Singapore court recognising a foreign insolvency order, by way of relief under the Model Law. I think it demonstrates Singapore’s continued assistance to foreign insolvency proceedings, and really our attitude and philosophy towards being a growing hub for restructuring.
- With growing guidance in the months and years ahead, stakeholders will have greater certainty of outcomes under Singapore’s restructuring framework. This will, no doubt, enhance the attractiveness of our framework.
- Second, let me touch on increasing recognition of Singapore proceedings by foreign courts. I think it is the other aspect of how I regard international recognition of Singapore as a hub as a jurisdiction for restructuring.
- International recognition provides assurance that restructuring efforts in Singapore, can be, will be recognised overseas. This in turn drives parties’ confidence in using Singapore as a forum of choice.
Some recent examples include:
a. United Kingdom: Recognition of the s 211B Companies Act moratorium in respect of the restructuring of H&C S Holdings Pte Ltd.
b. Brazil: Recognition of Singapore proceedings in respect of Norwegian Prosafe and its Singaporean subsidiary Prosafe Rigs. This is the first instance of recognition by a Brazilian court under its enactment of the Model Law.
- From time to time, there may be challenges arising from local rules and considerations unique to the jurisdiction in which recognition is sought, such as, as in this case, the rule in Gibbs. Local rules generally affect recognition of proceedings from all other jurisdictions. But local rules do not have cross-jurisdiction application and their adoption and use in each jurisdiction might differ. For example, in Singapore, the courts have declined to follow Gibbs after a careful, thought-provoking, detailed consideration.
- These are some of the indicators which, over time, will lend greater credence to our regime, and encourage more users to look at Singapore as a forum of choice.
III. Evolving Global Landscape
Changing landscape and developments
But beyond these, there are also broader socio-political and economic developments. Some represent opportunities, some are also headwinds which we have to be mindful of:
a. US-China relations have, of course, recently been rocky, with acrimonious rhetoric raised by both sides – trade protectionism being implemented on both sides.
b. The multilateral system, already fragile pre-COVID-19, has become even more fragmented, as countries and regions turn increasingly inwards to look at preserving their own interests.
c. More recently, there have also been concerted efforts to change international tax rules, which will add to challenges that trade- and investment-dependent countries like our country, Singapore, will face.
- In the medium to longer term, while GDP figures might recover quantitatively1 in terms of absolute numbers, economies are likely to be qualitatively different.
- Some sectors will recover progressively, while others will be permanently changed. The recovery will also be unbalanced and uneven. Many, including large economies, will have to reinvent themselves.
We have seen the elephant in the room – the big shift towards the age of the digital, as people and businesses pivot online, such as what we are doing now.
a. But besides the digitalisation of consumer and business activities, I think insolvency professionals will also see their mode of work changing.
b. For example –
i. In judicial proceedings, the recently passed Courts Reform Bill supports the digitalisation of the Judiciary and litigation process. I’m sure many of you now are very familiar with dealing with remote hearings and on occasion, dispensation of oral arguments, appearing and making submissions on Zoom platforms like this. I have only been away from the Bar for about three, three and a half years, but it is a concept that is completely foreign to me. I have not done one of these hearings in the way that you have done so. So, the bar has really moved on and I think this is something that we do have to pay attention to and bear in mind.
ii. Equally, in insolvency proceedings, just as we have done for large scale meetings, remote meetings, creditors’ meetings, scheme meetings, and voting by correspondence are also supported under the IRDA. So, the framework is provided for remote meetings, voting, and occasionally also, challenging the voting.
IV. Forging Ahead: Challenges and Opportunities
Search for Nodal Jurisdictions
- Let me now look at some of the challenges and opportunities arising from what we see in the post-pandemic world, and changes that have set in even prior to the onset of COVID-19. The various developments and disruptors will, no doubt, pose difficult questions not just to insolvency professionals, but really across a spectrum of businesses, regardless of whether they operate in purely a domestic context, or in a multi-jurisdiction, cross-border context.
- But particularly for cross-border businesses, financial distress will likely intensify forum-shopping for what parties would regard as a friendly, or perhaps a “key nodal jurisdiction” for effective resolution of financial distress. This is something which I think, presents for us in Singapore, an opportunity to address.
- And I would like to touch on two areas which I think are likely to boost Singapore’s efforts:
First, to enhance the choice of Singapore as a forum of choice in international proceedings and restructurings, Parliament passed the Courts Reform Bill in September 2021, just last month. Amongst other things, the Bill clarifies the Singapore International Commercial Court’s (“SICC”) jurisdiction over international commercial cross-border insolvency matters.
a. The SICC was, of course, established to deal with, to hear transnational commercial disputes and is able to draw on the expertise of some of the world’s leading commercial judges.
b. The SICC provides a conducive, if not, perhaps natural forum, for cross-border insolvency matters that have a significant foreign element, which would otherwise not be heard in Singapore. These are cases which may not have come into Singapore; but having SICC as an option increases the prospect of having the case heard in Singapore. And in turn, this helps us to grow the pie in Singapore.
c. Foreign lawyers are already permitted to appear in the SICC in offshore cases.
d. Cross-border insolvency cases will often involve transnational and inter-connected issues with –
i. A good mix of foreign and local law; and
ii. Also a good mix of law and fact. For example, the practical effect of the restructuring plan on the debtor’s business and its operations across various jurisdictions.
e. So, in this regard, we are considering refinements to the Legal Profession Act to support the growth of international restructuring cases, which often have a multi-jurisdiction dimension, and have them heard by the SICC:
i. These changes include allowing foreign lawyers with full registration to appear in SICC restructuring and insolvency proceedings, subject generally to two restrictions:
First, in these cases, they must obtain the permission of the court in order to plead a matter; and
Second, they are nonetheless, not permitted to make a submission on a matter of Singapore law.
ii. This allows a foreign lawyer to come before the SICC to make submissions on matters of foreign law and factual matters particularly relating to the restructuring proceedings in the foreign jurisdiction. But submissions on IRDA, being a matter of Singapore law, or indeed on any matter or question arising out of Singapore law, these would typically require involvement of local counsel.
iii. These are changes which we expect to be looking at and making in the coming months.
Second, the formal incorporation of alternative dispute resolution (“ADR”) mechanisms, such as arbitration and mediation, where appropriate, into the restructuring and insolvency process, would I feel give the entire restructuring ecosystem a big lift.
a. Mediation, and I am sure many of you would agree with me, has already been part of what practitioners have been doing, perhaps informally – I recall doing that when I was in practice, over a coffee, having an informal meeting, getting a group of interested stakeholders together. Many of you, I am sure, still do that today:
i. To try to find consensus and reach outcomes, perhaps informally, in a way which all parties can be reasonably satisfied with. After all, in trying to get a scheme approved and passed, that is the common objective.
ii. So, you often see horse trading on the side of a large scheme creditors’ meeting or sometimes on the doorstep of going into court.
b. There is therefore real scope and potential for us to build into the framework ADR mechanisms to be used as a component of flexible insolvency frameworks.
c. Successful examples, particularly from the US, where the practice of insolvency mediation is already well-developed include:
i. Plan mediation in MF Global2: to achieve consensus in a restructuring plan or in cases where debtors are subject to dual insolvency proceedings in competing jurisdictions;
ii. Similar claims mediation in Lehman Brothers3: to facilitate the resolution of multiple claims within a common nexus of law or fact.
d. I think there is significant room to grow and integrate mediation and ADR, into debt restructuring and insolvency proceedings.
i. I would say that that is so, particularly, with the United Nations Convention on International Settlement Agreements Resulting from Mediation (otherwise known as the Singapore Convention on Mediation, or SCM).
ii. This addresses the issue of the enforcement of international commercial mediated settlement agreements, so it becomes enforceable across jurisdictions. On that note, I’m happy to tell all of you that just two days ago, Turkey ratified the SCM, bringing the total number of parties to the Convention now to eight. We hope to grow this a little more over the next couple of months. And once we do that, the options for enforcing mediated settlements arising from debt restructurings or contentious insolvencies, will grow.
- In conclusion, let me add that despite the global complexities, the headwinds that we see ahead of us, the significant economic shifts ahead, the uneven recovery across the region and also in the globe, the restructuring and insolvency space remains very much a centre of focus for us in the Government. We see this as a key part, a key plank of our economic strategies.
- We have made good progress over the last couple of years as I have outlined, and I think the indicators are that there are very promising signs for the future.
- There are many new opportunities for insolvency professionals, like all of you, to remain engaged, to remain involved in this area, to continue building talent, developing thought leadership, and also working on bringing in many more of the cases from around the region, if not the world, into Singapore.
- On that note, I wish all of you a very fruitful exchange of ideas and discussion, as you share thoughts – no one has a monopoly of good ideas – on both current and future insolvency issues over the next two days of this Conference.
- Thank you very much once again for inviting me here and I look forward to meeting all of you in person at some stage, sooner rather than later.
1. Growth fundamentals for this region remain unchanged: Economic growth in developing Asia is set to rebound to 7.1% in 2021 and 5.4% in 2022, according to the Asian Development Bank (Asian Development Outlook (ADO) Update, September 2021). ↩
2. re MF Global Holdings (11-150559 (MG) (Bankr SDNY)). ↩
3. Lehman Brothers Holdings Inc (08-13555 (JMP) (Bankr SDNY)). ↩
Last updated on 13 Oct 2021