Adaptations to Singapore’s insolvency regime in the post-pandemic era

Introduction

As global economies grapple with post-pandemic inflationary pressures, Singapore has braced itself for its maiden encounter with persistent inflation under its relatively recent omnibus insolvency legislation. Against a backdrop of challenging inflation coupled with high interest rates, businesses and stakeholders will require a robust insolvency regime, premised on a stable and sound legal system, to see them through tough times. Having earned a reputation as a restructuring and debt recovery hub, Singapore continues to innovate and reform its insolvency regime to meet the evolving needs of a post-pandemic world.

Growing concerns around inflation

In this high-inflation environment, increasing costs of raw materials, labour and other operational expenses are straining the financial viability of companies and pushing distressed businesses closer to insolvency. The challenges of debt recovery and the potential erosion of asset value are adding to the problem. Suppressed purchasing power driving up competitive pricing (a phenomenon called ‘pandemic pricing’) coupled with the complete phasing-out of pandemic-induced fiscal support has led to a unique inflationary dynamic in Singapore. Unpredictable geopolitical occurrences, such as Russia’s invasion of Ukraine, continue to cause supply chain disruptions. These factors have resulted in chronic inflation, and traditional cooling measures, such as increasing interest rates to curb spending, have not been able to contain it. For example, despite a steady climb in Singapore’s cost of borrowing^[1], in February 2023, Singapore’s overall inflation hit its highest level since the 2008 financial crisis.^[2] Although covid-19 posed obvious problems, the inflation generated by its retreat has taken Singapore by surprise.

As market adjustments are ongoing, Singapore has been quick to recognise that, although insolvency law may not be the panacea to tackle the financial problems caused by the pandemic and the current level of inflation, it plays a major role in supporting economic recovery by creating a conducive environment that promotes risk-taking and resilience while embracing business rescue and preservation.

Changes to omnibus and extending pandemic support

At the start of 2023, the Insolvency, Restructuring and Dissolution (Amendment) Bill^[3] (the Bill) tabled by the Ministry of Law was passed in Parliament^[4] and is expected to come into force by September 2023.^[5] When implemented, the Bill will introduce certain key amendments to Singapore’s Insolvency, Restructuring and Dissolution Act 2018 (IRDA).^[6]

The most notable change under the Bill is that, by default, all bankruptcy cases will be administered by private trustees in bankruptcy (PTIBs), save for in exceptional cases of public interest (eg, misappropriation of public funds, significant debts owed to the government or unpaid taxes), where the official assignee (OA) may consent to being appointed as a trustee.^[7] The inspiration for the shift comes from jurisdictions such as the United States and Canada, which have long adopted the practice of appointing PTIBs in bankruptcy cases.^[8] In his speech during the second reading for the bill, Second Minister for Law Edwin Tong noted that the proposed amendment would cut down on the use of public resources in cases of private debt recovery.^[9]

Under existing laws, creditors need to form a committee for the purposes of reaching an agreement with the PTIB on the latter’s remuneration. If there is no such committee, the PTIB’s remuneration would have to be determined at a meeting convened between creditors by way of a special resolution. To address feedback and concerns from industry players on the possible high costs and procedural obstacles associated with these processes, the IRDA will be amended such that creditors will be deemed to have agreed to the PTIB’s proposed remuneration if they do not raise the prescribed objection in a timely fashion. To preserve creditors’ interests, their right to object to the remuneration will be codified and, in the event of an objection, PTIBs will then have to either secure a special resolution at a creditors’ meeting or look to the Singaporean courts for approval.^[10] To further support the shift, a new section will also be added to the IRDA to provide that no bankruptcy order is to be made unless the OA or the PTIB has consented to being appointed.^[11]

To strike a balance between ensuring a smooth transition for impecunious individuals and not compromising the rights of creditors, the Bill envisions two new sections to the IRDA to further safeguard persons dealing with bankrupts in commercial transactions. First, to complement the existing rule against obtaining credit without disclosure of bankruptcy status, it will be an offence for a bankrupt to receive money or other consideration that is at least S$10,000 as advance payment for the supply of goods and services, unless the bankrupt has disclosed their bankruptcy status at the time that the money or other consideration is received.^[12]

It will be immaterial whether the payment is made in full or only partially, and whether it is received in the bankrupt’s own account or on behalf of someone else. Second, the undischarged bankrupt’s current employment status and employment history that have been submitted will be made available publicly^[13] to enhance transparency and to allow for more accurate due diligence checks when transacting with persons who are undischarged bankrupts. For consistency, the amendments will apply equally to bankrupts under the now-repealed Bankruptcy Act, which was replaced by the IRDA.^[14]

With respect to impecunious companies, the Bill also extends the validity of the Simplified Insolvency Programme (SIP),^[15] which offers suitable companies looking to restructure or wind up but are limited in terms of resources an easier solution that requires less involvement from the court and fewer procedural steps. The SIP was first instituted in 2021 at the height of the Covid-19 pandemic to help eligible micro and small companies (MSCs) – defined as having annual revenue of less than S$1 million and S$10 million, respectively^[16] – by optimising their restructuring options or, when met with the harsh reality that liquidation may be the best way out, by facilitating a winding up more quickly and with minimal costs.

The SIP essentially comprises two separate programmes: the Simplified Debt Restructuring Programme (SDRP)^[17] aimed at viable MSCs and the Simplified Winding-Up Programme (SWUP)^[18] for distressed MSCs headed towards a dissolution. In particular, the SDRP is an adaptation of the traditional pre-packaged scheme of arrangement mechanism under the IRDA. Unlike the latter, which requires approval of a majority representing at least 75 per cent in value of creditors (or class of creditors) present and voting, the SDRP reduces the required majority to two-thirds.^[19] Under the SWUP, which is fashioned on the existing voluntary winding-up regime under the IRDA, there is no need for a creditors’ meeting or a formal application to be made to the court and, where the company’s assets are seen to be insufficient to satisfy its liabilities, there is no need for a further investigation into the company’s affairs. The result is a reduction of the liquidator’s scope of functions.^[20]

Although temporary, the SIP’s utility cannot be overlooked. Initially intended to last for six months,^[21] the application period for MSCs to benefit from the SIP was subsequently extended; it will now end on 28 January 2026.^[22] This is a clear sign that Singapore’s insolvency authorities have recognised the need to assist MSCs that are struggling financially in the current business environment and in the foreseeable future.

Singapore as forum of choice

One of the standout features of Singapore’s insolvency ecosystem is the nation’s appeal to forum shoppers, given its efficient processes and well-designed restructuring framework. To further bolster its status as a one-stop shop for cross-border restructuring exercises, changes have been implemented to the Singapore International Commercial Court (SICC) Rules^[23] to allow for restructuring and insolvency matters that are commercial and international^[24] in nature to be heard in the SICC from 1 October 2022. Foreign lawyers may now be given permission to appear before the SICC and submit on factual matters and matters of foreign law.^[25] This was previously restricted to local lawyers only, and foreign law had to be proven as a matter of fact.

This practical move prioritises convenience for multinationals and does away with outdated procedural obstacles. The Ministry of Law is continuing to study refinements in this space^[26] and has also indicated future potential for the appointment of foreign insolvency practitioners to advise and work on cases that are heard in the SICC. This raises the bar for Singapore’s own insolvency practitioners and fosters healthy competition as the public at large stands to benefit from a larger pool of insolvency practitioners to choose from.

Under the SICC Rules, parties are under an obligation to consider the possibility of alternative dispute resolution.^[27] Although contentious restructuring activities can be arduous, mediation may serve as an alternative means of resolving individual creditor disputes – or even multiple-creditor disputes – with a common nexus of law or fact. Mediation may also be utilised as a means of arriving at a consensus to establish the restructuring plan between the debtor and the creditor. In situations where a debtor is subject to different insolvency regimes in a number of jurisdictions, mediation can also be helpful in getting creditors to agree on a scheme to rehabilitate the company.

The utility of mediation in the restructuring process obtained judicial stamp of approval in the Singapore High Court case Re IM Skaugen SE,^[28] where the following observation was made by the Honourable Justice Kannan Ramesh:

Another aspect, which surprisingly has not been resorted to by debtors and creditors, is to enlist the help of an experienced and skilled insolvency mediator to develop the restructuring plan, whether it be an individual or group restructuring plan. Frequently, the discussions on the plan are partisan, and the positions adopted are therefore reflective of that. I see tremendous utility in deploying the services of a neutral third party skilled in mediation techniques, and with the relevant domain knowledge. Such a party can play the invaluable role of building consensus between the debtor and the creditors in the development of the restructuring plan, and build trust in the process. In this way, the mediator can assist to iron out many of the wrinkles and creases that frequently erupt in a restructuring and which perhaps are not best resolved in the adversarial cauldron of the court. It is important that this be explored with vigour, as it seems to me to be self-evident that bridging differences and the trust divide is fundamental to a successful restructuring outcome. While there is always a place for the jousting that is typical of an adversarial process, a more considered, constructive and measured approach in restructuring can often lead to better outcomes for all parties involved. One must not lose sight of the fact that the end objective of the process, after all, is to make a considered assessment of whether a feasible and acceptable economic solution to the financial problems of the debtor is possible, and if so, how that can be facilitated with the interests of the relevant stakeholders in mind. To this end, facilitating discussions between the debtor and creditors, secured and unsecured, and promoting a more cooperative, collaborative and transparent environment wherein all parties involved work towards a common objective of attaining an effective and sustainable restructuring, seems to be quite clearly the correct approach.^[29]

Although obtaining the consent of all stakeholders involved in multi-creditor restructurings may sometimes be onerous, success stories such as that of the Singapore-listed China Fishery Group^[30] and Thai-owned Dean & Deluca^[31] have breathed fresh life into this approach. We expect mediation-driven restructurings to pick up momentum going forwards.

Lessons and takeaways from recent Singaporean court cases

For conglomerates with an international footprint, a primary concern is the need to avoid parallel proceedings when faced with a situation where creditors apply pressure from every direction (and jurisdiction). The Singapore Model Law^[32] assists in harmonising the restructuring process across various jurisdictions.

Re Ascentra Holdings, Inc (in official liquidation) and others (SPGK Pte Ltd, non-party)

In Re Ascentra Holdings, Inc (in official liquidation) and others (SPGK Pte Ltd, non-party)^[33] (Re Ascentra), the Singapore High Court contemplated whether the liquidation in another jurisdiction of a company that is neither insolvent nor in severe financial distress is a foreign proceeding for the purposes of recognition under the Singapore Model Law. At the centre of the issue was Ascentra Holdings, which had been put into members’ voluntary liquidation in the Cayman Islands, its home jurisdiction. As Ascentra Holdings had a global presence, the appointed liquidators sought international recognition of their role, including in Singapore under the Singapore Model Law.

In Singapore, the High Court’s power to extend recognition to a proceeding is limited to one that falls within the meaning of a ‘foreign proceeding’ in article 2(h) of the Third Schedule to the IRDA, which is defined as:

a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, under a law relating to insolvency or adjustment of debt in which proceeding the property and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.^[34]

The High Court in Re Ascentra focused on the phrase ‘law relating to insolvency’, dissecting it further into ‘law’, ‘relating to’ and ‘insolvency’ to ascertain their meanings separately. At the crux of the dispute was whether the terms ‘law’ and ‘relating to’ should be viewed broadly as referring to the entire Cayman Companies Act related to the subject matter of insolvency or whether it should be construed more narrowly to a ‘coherent and sufficiently discrete subset of the provisions’ within the Act.^[35] The Singapore High Court favoured the latter approach, explaining that finding otherwise would subordinate substance entirely to form^[36] as any type of proceeding would come under the ambit of article 2(h) simply because it remotely engaged the general topic of insolvency.^[37]

The High Court ultimately interpreted ‘insolvency’ as being a ‘company’s inability to pay debts [that] have already fallen due or [that] will fall due within the reasonably near future’.^[38] In this regard, the Singapore High Court found that Ascentra Holdings was, and had at all material times been, ‘hopelessly and irretrievably solvent’.^[39] As a result, the application for recognition under the Singapore Model Law was not allowed.

Interestingly, Ascentra Holdings’ liquidators had already gained recognition in the United States;^[40] therefore, the directions taken by the US and Singaporean courts raised questions of consistency and comity.^[41] Although the Singapore High Court recognised that the Model Law was conceived to advance the principle of modified universalism,^[42] the High Court did not accept that the inclusive stance taken in the United States should be given special weight.^[43] It stressed that ‘national courts should not slavishly follow the decisions of [others]’^[44] insofar as the latter’s interpretation of the relevant UNCITRAL Model Law provision is based on different adaptations of the Law or do not accord with the ‘universe of extrinsic material’ relied on for the construction of the Law.^[45]

In Re Ascentra, the Singapore High Court was satisfied that its decision was aligned with underlying parliamentary intent and that following the US approach would detract from the object of the Singapore Model Law.^[46] The outcome ultimately underscored the jurisdictional right to apply the UNCITRAL Model Law differently with modifications according to each country-specific context.

Re Tantleff, Alan

A similarly conservative take on the applicability of the Singapore Model Law also prevailed in Re Tantleff, Alan,^[47] where the Singapore High Court rejected an application for mutual recognition of the appointment of the applicant as the representative of a real estate investment trust (REIT) in US Chapter 11 proceedings, as the Singapore Model Law was not applicable to REITs. The application was brought by Alan Tantleff in his capacity as a foreign representative for three entities, namely Eagle Hospitality Real Estate Investment Trust (EH-REIT) and its two Singapore-incorporated subsidiary holding companies (the Subsidiaries), which formed part of a group of companies involved in the hospitality industry.

In reaching its judgment, the Singapore High Court touched on the meaning of ‘foreign proceedings’ under the Singapore Model Law and held that a debtor within the meaning of article 2(c) of the Third Schedule to the IRDA referred to a corporate entity.^[48] The High Court traced the origins of the Singapore Model Law in Part 11 of the IRDA, noting that the IRDA dealt solely with corporate entities, not collective investment schemes such as REITs (which fall under Singapore’s Securities and Futures Act 2001 and are dealt with in other pieces of legislation, such as the Business Trust Act 2004). EH-REIT was not a corporation and, consequently, not a debtor for the purposes of the Singapore Model Law.^[49]

The decision departed from the contrary position in Rubin and another v Eurofinance SA and others,^[50] wherein it was found that the UNCITRAL Model Law could apply to business trusts.^[51] The Singapore High Court attributed the domestic differences to the exclusionary effect of the Singapore Model Law, by way of the relevant minister’s orders under section 252(1) of the IRDA, and reiterated that its decision was therefore on par with legislative intent.^[52] Although the High Court refused the REIT’s application in this instance, it did not shut the door to recognition completely; it suggested that the REIT could still apply for common law recognition through its trustee, although the merits of such an application were not addressed.^[53]

As for the Subsidiaries and their US Chapter 11 proceedings, their status as foreign proceedings under article 2(h) of the Singapore Model Law was not controversial. The question was whether they were foreign main proceedings (ie, the place of the foreign proceedings coincides with the debtor’s centre of main interest (COMI)) or foreign non-main proceedings.^[54] In Re Tantleff, Alan, despite the Subsidiaries’ incorporation in Singapore, which gave rise to a presumptive COMI in Singapore, the Singapore High Court held that their US Chapter 11 proceedings should nevertheless be considered the foreign main proceedings as there were other factors (eg, the central administration and operations, assets and creditors being based in the United States) that rebutted and displaced the presumption and pointed to United States being the COMI.^[55] For completeness, the High Court clarified that the fact that US Chapter 11 proceedings were ongoing did not affect the determination of COMI; the ‘jurisprudential basis’ of the analysis was to look at ‘where it [(ie, the insolvent company)] was centred while it was alive and flourishing – in other words, a corporation’s real home. A hospital bed, or a crypt, [did] not count’.^[56]

The Singapore High Court also declined to use the location of the foreign representative as a means of determining the COMI to prevent parties from being able to artificially pick their COMIs.^[57] Having brought the Subsidiaries’ US Chapter 11 proceedings within the ambit of the Singapore Model Law, the High Court also lent local recognition to ancillary orders made in the Subsidiaries’ US Chapter 11 venture, thereby ruling that Singapore courts can recognise foreign insolvency-related judgments and possibly apply foreign insolvency law under the Singapore Model Law.^[58]

Wang Aifeng v Sunmax

In the realm of personal insolvency, a noteworthy case is Wang Aifeng v Sunmax,^[59] wherein the Singapore High Court identified which factors it would take into account when exercising its discretion to grant permission for the continuation or commencement of proceedings against a bankrupt.

The underlying policy consideration behind the requirement for permission is that a trustee management of the bankrupt’s affairs should not be unduly burdened by the multiplicity of actions, which may potentially cause disruption to the pari passu principle of distribution.^[60] That being said, the scale is not tipped all the way in the bankrupt’s favour, although the discretion to grant permission to continue or commence has to be exercised rationally.

In this case, the plaintiff-investor had originally commenced an action against the first defendant (a Singapore-based investment company) and the second defendant (the first defendant’s director), alleging that he had relied on and had been induced by the latter’s misrepresentations, and also alleging an unlawful means conspiracy. Subsequently, the second defendant was declared bankrupt and the first defendant was ordered to be wound up. The plaintiff sought to maintain its original action, for which leave was granted.

Taking guidance from local cases where discretion was exercised in relation to insolvent companies^[61] as well as foreign jurisprudence,^[62] the High Court set out a non-exhaustive list of factors (ie, timing, nature, prejudice, remedies and merits of the underlying claim) that are relevant considerations when exercising its discretion.^[63] This was the first reported case in which the High Court has explored its discretion to allow the commencement or continuation of proceedings against a bankrupt.

Crypto winter in sunny Singapore

It may be summer year-round in Singapore, but the country was not spared from the ripple effects of the crypto winter; however, Singapore has been quick to pivot amid the turmoil that the crypto sector has been facing. This signals its willingness to accommodate crypto-related restructurings, which remain a grey area – the uncertainty surrounding the legal character of cryptoassets and whether they would hold any value in insolvency remain causes for concern. The Singaporean take on this subject points to cryptocurrencies likely being treated as property, as confirmed by the Singapore High Court in CLM v CLN and others^[64] (CLM v CLN).

Key cases

In CLM v CLN, the High Court encountered the interaction between cryptocurrency and the ease with which wrongdoers may escape under the blanket of anonymity, as cryptoassets may be easily hidden away in cyberspace. The plaintiff sought to trace and recover ethereum, which he claimed had been misappropriated by unidentified individuals. Although the High Court went on to deal with several novel issues, such as whether an injunction can be granted against persons whose identities remained unknown, a key fundamental issue was whether cryptocurrency was capable of being classified as proprietary rights that could be protected by way of a proprietary injunction.

Prior to this case, the SICC had already held in B2C2 Ltd v Quoine Pte Ltd^[65] that cryptocurrencies possessed the ‘fundamental characteristic of intangible property as being an identifiable thing of value’,^[66] and the Court of Appeal in Quoine Pte Ltd v B2C2 Ltd^[67] lent credence to this view. The Singapore High Court in CLM v CLN further cemented this position by analysing the qualities of a cryptocurrency and finding that it fits within traditional definitions of property rights (ie, that it ‘must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability).^[68]

The Singapore High Court in CLM v CLN referred to the UK case of National Provincial Bank Ltd v Ainsworth,^[69] which was cited in the New Zealand case of Ruscoe v Cryptopia Ltd (in liq)^[70] where the New Zealand court provided a succinct breakdown of the characteristics of cryptocurrencies that placed them squarely within the classic construction of property rights.^[71]

Looking ahead

CLM v CLN broke new ground by granting a worldwide freezing injunction and a proprietary injunction against unknown perpetrators, thereby offering some recourse for victims of sophisticated criminal enterprises, which are a rising risk in the crypto field. In the process, it also settled the discourse on the recognition of digital assets as property rights, enabling the valuation of assets and the priority of creditors prior to the realisation of cryptoassets in the event of an insolvency. However, there remain several practical difficulties that would need to be overcome to recover cryptoassets – the tracing and investigation process can be expected to be a complicated, time-intensive and costly exercise. This is a developing situation and the time is now ripe for the courts to take on this issue in the wake of a recent chain of crypto crashes.

Under the IRDA and Companies Act 1967 (CA), foreign companies that are looking to restructure in Singapore must have a substantial connection with Singapore. However, crypto exchanges tend to operate in a decentralised manner scattered across different jurisdictions, which can potentially complicate restructuring efforts for crypto exchanges. Re Zipmex Co Ltd and other matters^[72] (Re Zipmex) is a positive example of Singapore’s commercial pragmatism and flexibility in establishing substantial connections through non-conventional means for crypto exchanges with decentralised operations.

In Re Zipmex, the Singapore High Court determined that Singapore was the centre of operations due to the consolidation of the on-exchange assets of the applicant group of companies in a hot wallet hosted by the group’s holding company in Singapore.^[73] It also helped that the direction and control of the group of companies came from Singapore, although the High Court noted the connection would have been even stronger if the location of the management had been more easily ascertainable to the creditors.^[74] The applicant group of companies was therefore granted a moratorium, bringing the group under the protective umbrella of Singapore’s restructuring regime.

Outlook

Singapore’s insolvency regime stands as an example of a framework built to weather inflationary and other unforeseen economic uncertainties. This evolving space holds great intrigue and potential as we anticipate the impact of recent legislative changes and observe how they will unfold in real time.

Notes