Restructuring debt obligations under Singapore law can be an attractive option for companies seeking debtor-led reorganisations, as the country aims to be a centre for debt restructuring in Asia. There are options for non-Singapore companies to take advantage of the jurisdiction’s scheme of arrangement regime.
Over the last decade, the Singapore government has identified debt restructuring as one of its “push” areas for jurisprudential and international growth. As part of this effort, Singapore passed the Insolvency, Restructuring and Dissolution Act 2018 (IRDA). The IRDA is intended to be an omnibus legislation that centralizes and codifies various concepts relating to both personal and corporate insolvency. It also introduced new concepts designed to make the Singapore jurisdiction more attractive to debtor-led reorganisations, including a concerted movement away from Singapore’s traditional pro-creditor restructurings and corporate insolvency provisions.
This initiative has borne early fruit. Especially since 2020, we have seen a pronounced spike in the global popularity of the Singapore scheme of arrangement regime (akin to Chapter 11 bankruptcy proceedings in the United States) as a tool for restructuring both local (Singapore based) and international companies that qualify for restructuring in Singapore under Singapore’s laws.
Essentially, the emerging trend is that debtors in the Asia-Pacific region are looking to restructure in Singapore, rather than petitioning for Chapter 11 proceedings. The question is, why?
Why Singapore Is Seen as a Destination for Restructurings
There are various factors that may explain this increased attractiveness—factors that are not limited purely to the advantages of Singapore’s laws, but to Singapore’s standing and global reputation.
- Singapore’s courts are globally recognised and its judges are respected for their contribution to common law jurisprudence. Singapore is the top-ranked Asian country (17th globally) in the World Justice Project’s Rule of Law Index 2021, and the top-ranked Asian country (4th globally) in the Corruption Perceptions Index 2021. The addition of the Singapore International Commercial Court, a division of the Supreme Court of Singapore with a bench comprises multiple international judges from various jurisdictions including England & Wales, Canada, Japan, Hong Kong and the US Bankruptcy Court, only increases the Supreme Court’s standing.
- Similarly, the Singapore International Arbitration Centre is consistently ranked as the most preferred arbitral institution in the Asia Pacific, and as of 2022, Singapore is jointly ranked (with London) as the most popular arbitral seat in the world.
- Singapore’s economy, even during the COVID-19 pandemic, was and continues to be resilient to global factors. Singapore provides one of the world’s most business-friendly regulatory environments for local entrepreneurs and is ranked among the world’s most competitive economies.
- Singapore is an established financial hub. As such, its moratoriums are particularly effective—it is difficult for an international company or creditor to avoid having any connection with Singapore. This is especially so given Singapore’s competitive corporate tax rate, which is capped at 17%.
- Singapore’s geographical position within Asia means that it is ideally placed to attract restructuring work in the region that would have previously had to go to United States (under Chapter 11) or the United Kingdom (under a restructuring plan/scheme of arrangement) for similar debtor-friendly terms.
- The IRDA codifies and introduces multiple debtor-friendly concepts, including the following:
- An automatic 30-day moratorium (akin to an automatic stay in the United States) against proceedings and enforcement, which can (1) be extended by further application; and (2) have global effect (if such orders are sought) over creditors over whom the Singapore Court has jurisdiction.
- The statutory ability to bring related companies into the same moratorium on further application by the debtor company.
- Super-priority for rescue financing, which is a concept adopted from US Chapter 11 debtor-in-possession financing provisions, allowing lenders to extend emergency funding to distressed companies at a higher priority than existing creditors.
- “Pre-packaged” restructurings, which allow for significant cost savings in appropriate cases where creditors are in agreement that the terms of the restructuring would be in their best interests.
- The potential extraterritorial effect of moratorium orders, as debtors can request for the restraints to apply to any act of any person in Singapore or within the jurisdiction of the court, whether the act takes place in Singapore or elsewhere.
- Adoption of the UNCITRAL Model Law on Cross-Border Insolvency (Model Law). This makes it significantly easier for Singapore’s restructuring orders to be recognised and enforced worldwide—including in major jurisdictions, like the United States and United Kingdom, that are signatories to the same Model Law.
- Finally, while several other countries in the region still impose travel restrictions to combat the spread of COVID-19, Singapore’s restrictions have been lifted for fully vaccinated travelers since April 2022, and Singapore actively promotes and welcomes the influx of visitors and business travelers to the country.
By enhancing its insolvency framework, coupled with the sophistication of its judiciary and its position as a global business hub, Singapore has taken firm steps toward attracting foreign restructurings from the Asia-Pacific region and beyond.
How Foreign Companies Can Qualify for Singapore-Based Restructurings
Under Singapore law, foreign companies may apply under Section 63 of the IRDA to propose a compromise or arrangement (i.e., a scheme of arrangement) to its creditors. To do so, the foreign company must show that it has a “substantial connection” with Singapore.
Factors that the Singapore courts will consider to establish such jurisdiction have included the following:
- Singapore is the centre of main interests (COMI) of the foreign company.
- The foreign company is carrying on or has a place of business in Singapore.
- The foreign company is registered as a foreign company in Singapore.
- The foreign company has substantial assets in Singapore.
- The foreign company has chosen Singapore law as the law governing a loan or other transactions, or the law governing the resolution of one or more disputes arising out of or in connection with a loan or other transaction.
- The foreign company has submitted to the jurisdiction of the Singapore courts for the resolution of one or more disputes relating to a loan or other transaction.
Recent COMI Determinations
- The Supreme Court decided that an applicant’s COMI was Singapore, as it was incorporated in Singapore, for the purposes of granting recognition to Chapter 11 proceedings as a foreign non-main proceeding under the Model Law.
- The Court considered the fact that the central management and direction of a Singapore company (Zetta Jet Singapore) was conducted from the United States, and a substantial portion of its creditors were located in the United States, in determining that the company’s COMI was actually the United States (not Singapore).
- The issue of notes that were listed on the Singapore Exchange (SGX) was sufficient to establish that a company (PT MNC Investama TBK) had established a substantial connection with Singapore.
- In a recent case argued by our Singapore lawyers, the Singapore High Court held that the Singapore location of the “hot wallet” holding a crypto exchange group’s cryptoassets was one of the relevant factors in determining that the COMI of the cryptoexchange’s foreign subsidiaries was in Singapore.
While it is acknowledged that the steps to establish such a connection (and thus to qualify for restructuring relief in Singapore) are not potentially as straightforward as in the United States (where the depositing of money to retain New York lawyers was sufficient to establish a substantial connection), they are also not overly restrictive.
For example, many international organisations or companies have a representative or branch office in Singapore. Most have established offices there to take advantage of the Singapore corporate tax rate. With such establishment of operations comes the need to open local bank accounts and enter into local transactions with lenders based in Singapore or in the Asia-Pacific region—leading to the deposit of substantial assets and/or the prospective choice of Singapore law as the governing law for a loan agreement or other transactions.
By showing a substantial connection to Singapore, the foreign company can then take advantage of Singapore’s debtor-friendly restructuring laws, potentially the most attractive being the automatic and potentially global moratorium (that can be extended by order of the court) that gives a distressed company breathing space to strategize and negotiate a restructuring with its creditors.
By virtue of Singapore’s adoption of the Model Law, its courts’ orders can also be recognised in multiple signatory jurisdictions, ensuring that any orders made by the Singapore Court for a foreign company’s restructuring can be recognised by major jurisdictions worldwide—a blanket protection for the debtor company that will be utilised more and more as Singapore’s insolvency jurisprudence matures.
For the reasons above, foreign companies should consider the viability of Singapore as a destination for their prospective restructuring efforts—and in so doing, begin laying the groundwork (if not already done) to establish a substantial connection with the Singapore jurisdiction.
How We Can Help
Our restructuring practice in Singapore regularly acts for high-profile companies in contentious restructuring and scheme of arrangement proceedings. We have obtained extended moratoria for both private and publicly listed companies and focus on arranging rescue financing for clients (on the debtor side) and advising clients of their rights in ongoing restructuring proceedings (on the creditor side). We have successfully obtained approvals for foreign debtors to commence their restructurings under Singapore’s insolvency framework, and are active in the fintech and cryptocurrency restructuring space.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:
Joo Khin Ng*
Andrew J. Gallo
John C. Goodchild, III
*A solicitor of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated with Morgan, Lewis & Bockius LLP