to accelerate repayment terms and exercise set-off rights, which restricted Hyflux’s cash flow and exacerbated the company’s financial position. Hence, there was no ceding of control by the Senior Lenders releasing their security in the charges, not any waiver or decrystallisation. A company under judicial management is still required to submit its income tax return (Form C-S/C), audited/unaudited financial statements and tax computations to the Inland Revenue Authority of Singapore (“IRAS”) annually. Under Company Law, it is the duty of Directors to wind up an insolvent company. If the employees continue to work for the company after the 28-day period, the judicial manager may be personally liable for their wages. A scheme of arrangement may be proposed by the company to its creditors on a standalone basis, or may be proposed by a judicial manager as part of the judicial management process (with some differences in the judicial management context). On the same day, Glencore filed a winding-up petition against JAC (“Winding-up Application”). The Defendants resisted the Plaintiffs’ claims, contending essentially that set-off is available by operation of law. An application may be made to the Singapore Courts by the foreign representative for recognition of the foreign restructuring or insolvency proceedings, where the main proceeding takes place in the state where the debtor has its centre of main interests or if the debtor has an establishment within the foreign state for non-main proceedings. Section 88(1) of the Bankruptcy essentially prescribes a requirement of mutuality for insolvency set-off to operate – only strictly “mutual credits, mutual debts or other mutual dealings between a bankrupt and any creditor … shall be set-off against each other”. 2.1        What duties and potential liabilities should the directors/managers have regard to when managing a company in financial difficulties? A raft of substantial amendments to the Act were introduced in 2017 and include in particular enhanced stay and cram-down provisions in support of schemes of arrangements, super priority for rescue financing in relation to both schemes of arrangement and judicial management and the adoption of the UNCITRAL Model Law. Are there any restrictions on the action that they can take against the company? 3.4        Who manages each process? The Singapore Government has just passed the Companies (Amendment) Bill 13/2017 (the Bill), which contains major changes to Singapore’s restructuring and insolvency laws.As planned, these changes are expected to come into effect at the latest by the second quarter of 2017, 1 and will be a major shake-up to the restructuring landscape of the region. In addition to their usual duties, when a company is insolvent or close to insolvency, directors in carrying out their duties must act in good faith and give particular regard to the interests of creditors of the company generally rather than the shareholders, and failure to do so may give rise to a breach of fiduciary duties. In the case of a compulsory winding up, the Court is required to exercise its discretion whether to place a company into winding up or not. Is any protection given to rescue financing? (3) Insolvency set-off . In January 2016, the Senior Lenders agreed to provide further funding to JAC to support the Receivers’ recommendations to toll the Plant with BP and Glencore (“Tolling”) while undertaking, in parallel, an international sale process. The Court is involved at key points in the process, namely deciding whether any long term moratorium protection should be extended to the company, whether a meeting of shareholders or creditors should be summoned to consider the scheme and whether the scheme should be made binding after the requisite approval of the shareholders or creditors has been obtained. The Court may in appropriate circumstances order that: 4.1        What is/are the key insolvency procedure(s) available to wind up a company? Schemes of arrangement are debtor in possession regimes, and are generally less costly than judicial management. It is perhaps the most expensive form of set off. This country-specific Q&A provides an overview of Restructuring & Insolvency laws and regulations applicable in Singapore. Moratoria are available in support of schemes of arrangement and as part of the judicial management regime, and preclude, amongst other things: the commencement/continuation of proceedings against the company; the enforcement of security over property of the company; and repossession of goods held by the company under, amongst others, retention of title agreements and the enforcement of any right of re-entry or forfeiture under any lease of premises occupied by the company, save with leave of Court. Rights of set-off after insolvency: Paget's Law of Banking paras 29.32-29.40. If the creditors and/or shareholders do not agree with the decisions of the liquidator, the liquidator, creditor or shareholder may apply to Court for directions. In this article, which is the first of five in a series of articles covering various aspects of IRDA, we will provide an overview of its main features. set-off arising by analogy with the Statutes of Set-Off (ie where all of the conditions for statutory set-off are present but one of the claims is equitable, rather than legal) Statutory set-off was originally contained in the Insolvent Debtors Relief Act 1729 and the Debts Relief Amendment Act 1735 (known together as the Statutes of Set-Off). In particular: If the statutory requirements are met, the transaction will be voided and the relevant counterparties will be required to take the necessary steps to reverse the transaction. Is there a specific point at which a company must enter a restructuring or insolvency process? After securing control over the assets of JAC, the Receivers undertook a detailed review of JAC’s operational and financial position and recommended that the Senior Lenders support tolling the Plant. On the disputes front, Jia Min has assisted in a number of high-value commercial suits and arbitrations, representing government bodies, banks and multinational corporations in matters including shareholder disputes, contentious trust matters and breaches of directors’ duties. Jia Min graduated from the National University of Singapore in 2015, was called to the Singapore Bar in 2016 and has been with Allen & Gledhill since. Research the key issues surrounding Restructuring & Insolvency law in Singapore. The Insolvency, Restructuring and Dissolution Act 2018 (the "IRDA") came into force on 30 July 2020. A liquidator (or, with Court sanction, a judicial manager) may apply to reverse or set aside certain transactions entered into before the commencement of winding up or the making of a judicial management order. There was also an assignment between JAC and the Agent on 28 April 2011 (“Assignment”), under which receivables payable to JAC under the Glencore FSA and Glencore POA amongst other agreements, were assigned to the Senior Lenders. There are broadly two types of winding up: (1) voluntary winding up and (2) compulsory winding up. On 3 October 2018, the High Court of the Republic of Singapore (“Singapore Court”) handed down its judgment in Jurong Aromatics Corporation Pte Ltd (Receivers and Managers Appointed) & 2 Ors vs BP Singapore Pte Ltd and Glencore Singapore Pte Ltd (in OS 1178 and OS 1180 respectively) ruling entirely in the favour of the Plaintiffs. The liquidator may, with leave of Court or the Committee of Inspection, disclaim onerous property or unprofitable contracts if such disclaimer would facilitate the liquidation process. The Singapore Court of Appeal in Good Property Land Development Pte Ltd (in liquidation) v Societe-Generale [1996] 1 SLR(R) 884 (“Good Property”) has held (at [18]) that for such requirement of mutuality to exist, the following two conditions must be satisfied: Justice Aedit Abdullah (“Justice Aedit”) held that as the Relevant Debts were charged to the Senior Lenders, mutuality between the Relevant Debts and the Feedstock Debt was destroyed and insolvency set-off is therefore inapplicable. Under section 124 of the Insolvency, Restructuring and Dissolution Act 2018, the company itself, creditors, contributories, liquidator, judicial manager or the Minister may present a winding up application to the High Court. The Plaintiffs also sought a declaration that in failing to pay the Relevant Debts due, the Defendants are in breach of the relevant agreements, with damages to-be assessed. The Trustee thereafter applied to the Singapore court for full recognition with the hearing taking place on 19 November 2018. Voluntary winding up may be divided into two further categories: members’ voluntary winding up; or creditors’ voluntary winding up. Can you cram-down dissenting classes of stakeholder? 7.3        Do companies incorporated in your jurisdiction restructure or enter into insolvency proceedings in other jurisdictions? The liquidation or winding up of a company is a process by which the company’s assets are pooled together and realised in order to pay off the company’s debts. Corporate insolvency and bankruptcy proceedings fall under the jurisdiction of the Singapore High Court (Court). The central question of law before the Singapore Court that needed to be addressed was whether the Relevant Debts are subject to mandatory [insolvency] set-off by operation of law, pursuant to Section 88(1) of the Bankruptcy Act, read with Section 327(2) of the Companies Act. Singapore: Restructuring & Insolvency Laws & Regulations 2020. Singapore: Insolvency Law Review Committee Recommendations. Right of Set Off. Contributor, Singapore Academy of Law Annual Review on Insolvency Law , 10 SAL Ann Rev 340 (2009) “The Downward Spiral”, Inter Se, published by Singapore Academy of Law (July - Dec 2009 issue) Contributor, Singapore Academy of Law Annual Review on Insolvency Law , 9 SAL Ann Rev 330 (2008) This means that the rule cannot be contracted out of by the parties involved, nor can they waive its operation. Insolvency set-off—'The mutuality of assignment in subordination' (2014) 5 CRI 187 Log in Insolvency and Restructuring in Singapore . Financial Investigations, Forensic Accounting & Expert Evidence, Corporate Advisory, Directorships & Valuations, the August 2017 tolling fee debt arising from the Tolling Agreement (“, a final payment amount arising from the Transitional Supplemental Agreement (“, in relation to Glencore, debt arising from the Set-Off Agreement (“, the Relevant Debts owed by them to JAC; and, debts owed to them by JAC under the BP FSA and Glencore FSA (“, each claimant must be personally liable for the debt it owes to the other claimant. Restructuring professionals should be consulted when directors become aware of signs of distress in order to reduce the likelihood of directors becoming personally liable and to increase the chances of a successful restructuring. 30 July 2020, the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) will finally come into effect. Section 88(1) of the Bankruptcy Act reads: “Where there have been any mutual credits, mutual debts or other mutual dealings between a bankrupt and any creditor, the debts and liabilities to which each party is or may become subject as a result of such mutual credits, debts or dealings shall be set-off against each other and only the balance shall be a debt provable in bankruptcy”. What remedies are available? Set-off and Netting, and Client Clearing (Singapore) 1. The Court’s general approach would be to exercise that discretion carefully and judicially, bearing in mind that in some instances, a winding up ought to be reversed to ensure fairness and justice. Judicial management, on the other hand, is initiated upon a successful application to Court for a judicial management order. While substantially a consolidating statute preserving most of the provisions that have been collated under its ambit, key changes have been made to certain aspects of Singapore’s corporate insolvency and restructuring regime. Introduction. The consolidation of all personal and corporate insolvency and debt restructuring legislation into a single statute, along with other legislative changes, seeks to further strengthen Singapore's position as an international debt restructuring hub. 2017 declarations against BP Singapore Pte Ltd (“BP”) and Glencore Singapore Pte Ltd (“Glencore”) respectively (collectively “the Defendants”) that the Defendants are not entitled to set-off debts owed to the Plaintiffs under various agreements between the parties. Compulsory winding up is usually initiated by creditors, rather than by the shareholders. prohibition of assignment clauses – there was never any point at which the prohibition against assignment clauses could operate. 40 of 2018) ... who if within Singapore would be liable to be summoned to appear before it and examined under this section, is to be examined in Singapore or elsewhere. Hence, the solutions offered may not be well suited for distressed micro and small businesses, particularly those that have depleted their resources as a result of the pandemic. When a company is put into liquidation, creditors and/or shareholders will not be able to commence or continue proceedings against the company without leave of Court. the provision of credit on terms which require grossly exorbitant payments, or are harsh and unconscionable or substantially unfair having regard to the risk accepted by the creditor; floating charges granted by the company for insufficient or nil consideration; and. The Court of Appeal in Koh Lin Yee v Terrestrial Pte Ltd [2015] SGCA 6 (“Koh Lin Yee”) has decided that a contractual clause excluding a right of set-off is subject to the requirement of reasonableness in the Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) (“UCTA”). Introduction 1.1 We have been asked to provide an opinion in respect of the laws of Singapore in response to certain questions raised by LCH.Clearnet Limited ("LCH") in relation to matters concerning membership, insolvency, security, set-off and netting, and client clearing, Where a creditor proves in a liquidation, administration or bankruptcy, an account must be taken of the mutual dealings between the creditor and either the company … Applicants must show that they have taken reasonable steps, but were unable to appoint a private liquidator, and they must obtain the consent of the Official Receiver; a new “wrongful trading” provision will replace the current “insolvent trading” regime at Sections 339 and 340 of the Act; in relation to schemes of arrangement, certain specified proceedings may be allowed to proceed unaffected by moratoria if so prescribed by regulations; and. Our statutes do not directly address informal work-outs, and debtors and creditors are free to reach agreements to restructure financial obligations inter se. The Court left open the possibility that such control may be relinquished without the express consent of the secured lender (e.g., where the company trades with an unsecured creditor who has no knowledge that the company is in receivership). The result of a set-off is that the original claim is cancelled out or reduced by the cross-claim. She also has extensive experience with restructuring and insolvency-related litigation involving schemes of arrangement, judicial management and winding up. 1.1        Where would you place your jurisdiction on the spectrum of debtor to creditor-friendly jurisdictions? During the sale process, ExxonMobil indicated that a ‘hot transition’ of the Plant was preferable as it would minimise any operational risks and costs associated with shutting down and restarting the Plant. The stakeholders that can influence a company’s situation will vary depending on the type of business carried out by the company and the assets held by the company. Directors of companies which are insolvent or close to insolvency also should be wary of committing offences under the Act which include, in particular, causing the company to contract a debt when, at the time the debt was contracted, the director had no reasonable expectation that the company would be able to pay it. While a judicial management order is in effect, and where moratorium protection has been sought to facilitate the proposal of a scheme of arrangement, creditors will not be able to commence or continue proceedings against the company without leave of Court. The Singapore Courts retain the power to approve a scheme of arrangement despite there being dissenting classes of creditors, if the Court is satisfied that, amongst other things, the scheme does not discriminate unfairly between classes of creditors, and is fair and equitable to the dissenting class(es). The Singapore Courts have the discretion to wind up a foreign company if the company has a substantial connection with Singapore. If formal restructuring is unsuccessful, or deemed unlikely to succeed, the debtor company may be placed into voluntary liquidation by resolution of its shareholders and/or creditors, or into compulsory liquidation by order of Court. Tolling negotiations concluded on 19 April 2016 (“Tolling Agreement”) and the Plant successfully started up on 12 July 2016. Once the Court has made such a declaration, proceedings may be taken as they might have been taken if the company had not been dissolved. Rajah & Tann Singapore LLP has over 25 lawyers in its restructuring and insolvency team in Singapore. The Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) takes effect from 30 July 2020. The ruling found that the Plaintiffs are entitled to the Relevant Debts from the Defendants and that no set-off is available. The scheme of arrangement process is managed by a scheme manager, who is generally appointed by the debtor company. 30 July 2020, the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) will finally come into effect. Generally, compulsory winding up and creditors’ voluntary winding up apply to insolvent companies, and only solvent companies should be placed into members’ voluntary winding up. ... Save that mandatory insolvency set-off of mutual debts will displace contractual rights of set-off, the commencement of winding up generally does not, without more, affect existing contracts. Recognition with the hearing taking place on 19 November 2018 bankrupt ’ s.. 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