As its name suggests, the practice area of Restructuring & Insolvency (“R&I”) consists of two main areas. Insolvency refers to companies seeking liquidation via an orderly procedure of asset-distribution against the claims of their various creditors and stakeholders, while Restructuring refers to companies seeking to save themselves from insolvency by working out alternative financing and repayment arrangements to facilitate a turn-around/rescue.
In Singapore, the law on R&I is governed by the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”), an omnibus legislation which consolidates and, in some areas, reforms the laws on corporate insolvency and restructuring under the Companies Act (Cap. 50) and personal bankruptcy under the Bankruptcy Act (Cap. 20).
Lawyers practicing in R&I can expect not only to provide advice on cases within the domestic landscape, but also across a wide variety of industries and geographies with a diverse range of clients including individuals, start-ups, multinational corporations, private equity funds, banks, and sometimes even state governments. Singapore, along with many other major jurisdictions, has adopted the UNCITRAL Model Law on Cross-Border Insolvency to varying extents, thereby consolidating cross-border insolvency procedures amongst signatory jurisdictions in general.
Non-Contentious R&I refers to a procedure conducted with little to no involvement of the courts, and hence does not include formal insolvency procedures (such as the winding up and restructuring proceedings covered further below). An example of a non-contentious R&I arrangement is a Workout, which is a purely contractual, out-of-court agreement between the debtor company and its creditors. The benefits of a workout lie in the significant costs that a company saves by not needing to hire lawyers, trustees, receivers, etc., and indirect costs saved from the reduction of potential reputational damage and negative publicity. An out-of-court workout also allows more flexibility in terms of the agreement between creditors and debtor, and in the timeline for its implementation. On the other hand, due to the unanimity rule, the modification of a contract or debt by a debtor company requires consent from each and every party, including all the rest of its creditors. In some situations, the lack of consensus amongst creditors may create holdout problems. The absence of court involvement also signifies that directors are not personally liable for avoidance actions, and there will be no punishment imposed on any party for opportunistic behaviour. There is no specific statutory regime governing out-of-court workouts, although the Association of Banks in Singapore has promulgated a facilitative – but not binding – set of principles.
A Contentious R&I procedure is kick-started via a court application, which provides opportunities for a debtor company to utilise insolvency and/or restructuring proceedings. Starting first with a Winding Up/Insolvency proceeding, this is a collective procedure with the purposes of allowing a legitimate realisation of assets and orderly distribution of proceeds to creditors of the debtor company according to their level of priority. In Singapore, a winding up proceeding can be initiated by a court application to liquidate the company, either via a voluntary winding up or a compulsory winding up.
Voluntary Winding Up – A voluntary winding up can either be initiated by a company’s members (members’ voluntary winding up) or creditors (creditors’ voluntary winding up), depending on its solvency. In voluntary winding up proceedings, court supervision is not required. If a company is solvent, and its directors provide a statutory declaration of solvency, it may voluntarily liquidate via a members’ voluntary winding up procedure, where members of the company liquidate the company via a special resolution. The directors must then immediately appoint a licensed insolvency practitioner to be the provisional liquidator. If a company is insolvent, the winding up process is conducted through a creditors’ voluntary winding up, in which case the creditors play a more important role and enjoy greater powers given that their interests become more relevant when a company is unable to pay its debts. A creditors’ voluntary winding up is initiated via approval from a creditors’ meeting.
Compulsory Winding Up – In a compulsory winding up, the involvement of the court is necessary. The persons who are given standing to apply to the court for the initiation of a compulsory winding up procedure include the company’s directors, creditors, members, appointed judicial manager, and the company itself. After the filing of a winding up application but before the order is made, the court may appoint the Official Receiver or an approved provisional liquidator. Typically, a winding up order may be granted if the court is satisfied that the company is unable to pay its debts
A members’ voluntary winding up can be converted into a creditors’ voluntary winding up if the liquidator appointed concludes that the company is unable to pay debts (i.e. legally considered insolvent), contrary to the declaration of solvency. A creditors’ voluntary liquidation can also be converted into a compulsory liquidation by an application to the court.
For Restructuring proceedings, there are two main procedures available in Singapore for a distressed company looking to restructure its debts and/or operations: scheme of arrangement and judicial management.
Scheme of Arrangement (“scheme”) – This is broadly considered as an agreement between the company and its creditors (generally split into different classes based on the similarity of their rights for the purposes of voting) containing terms that allow the company to restructure and meet its debt obligations. A scheme in Singapore can be commenced while a company is still solvent, before it becomes unable to pay its debts. Unlike other forms of restructuring procedures, a scheme is mainly a debtor-in-possession process where the company’s existing management is not replaced in favour of a court-appointed officer, though a scheme manager is usually appointed to oversee the implementation of the scheme. Although a scheme is sometimes seen as contractual in nature as it is grounded in the scheme document, it can also bind dissenting creditors to the arrangement upon certain conditions (including the convening of a creditors’ meeting, at which the proposed scheme is approved by a majority of the creditors present and voting in each class representing 75% in value of the voting class, and the court sanctions/approves the scheme).
Judicial Management – This process is also fundamentally a rehabilitation process for potentially viable companies to restructure their liabilities and rehabilitate. While a scheme is generally a debtor-in-possession regime, the judicial manager appointed in judicial management is an independent third party who takes over the running of the company from its management. The judicial manager has a statutory duty to act in the interest of the company’s creditors as a whole and to act quickly and efficiently. To this end, a judicial manager has coercive powers to compel the production of documents or information from the previous management. A judicial management process is usually initiated either by court order or creditor vote, with the law allowing companies to be placed under judicial management if the court is satisfied that the company is or is likely to become unable to pay its debts. A judicial management order is temporary in nature and generally lasts for 180 days, unless extended by the court. Due to the removal of the company’s directors from immediate control of the company’s operations and restructuring, judicial management tends to be the preferred mode of restructuring in situations where there are allegations of financial misconduct or fraud on the company, or where creditors generally doubt or distrust the company management’s ability to rehabilitate the company.
In recent years, significant tools have also been introduced to better facilitate the restructuring process.
Amidst Covid-19, the IRDA (Amendment) Act 2020 was passed which establishes a Simplified Insolvency Programme (“SIP”) to provide assistance to micro and small companies with a quick and low-cost manner to either restructure their debts to rehabilitate their business or wind up the company, where the business has ceased to be viable. Compared to a typical scheme of arrangement, the simplified debt restructuring process will likely only require one application to the court, have a lower creditor approval threshold, while still being subject to a statutory moratorium and restriction of ipso facto clauses. Furthermore, a Restructuring Advisor will be appointed to assist the company.
It bears noting that in January 2025, Parliament passed a Bill introducing a refined SIP, dubbed the SIP 2.0, making the SIP a permanent feature of the IRDA, and allowing companies who are not micro and small companies to also benefit from it.
In a Winding Up proceeding, the steps/matters faced by the debtor company include the following:
Upon a court-ordered winding up, an independent officer of the court (“the liquidator”) is appointed to take over the affairs of the applicant company, realise the company’s assets, and distribute the assets to the company’s creditors and contributories, before the company is terminated. The liquidator also has the statutory power to undertake ‘claw back’ actions against acts of avoidance of pre-insolvency transactions and wrongful trading. Most of such actions fall within one of two categories: unfair preference (transactions favouring some creditors over others equally situated, with desire to prefer being a condition, except for related parties) and transactions at an undervalue (transactions where the debtor receives lower consideration or no consideration at all). Further, the company must either be insolvent or become insolvent as a result of the transactions.
Where a company has acts of avoidance of pre-insolvency transactions and wrongful trading, any person who is a party to such acts can be made personally responsible for the debts or liabilities of the company, if that person knew or ought to have known that the company was trading wrongfully. Such person may also be guilty of a criminal offence and subject to a fine and/or imprisonment.
Once the bankruptcy order is made, creditors cannot commence or continue with any individual enforcement action against the company to recover their pre-bankruptcy security or debt. Creditors who are owed pre-bankruptcy debts need to file a Proof of Debt with the Official Assignee. Debts that are incurred after the date of the making of the bankruptcy order are not claimable against the bankruptcy estate.
During the winding up process, the company’s assets are seized and realised, i.e. converted into cash, in order for the proceeds from the seized assets to be used to pay off the company’s debts and liabilities. The main benefit of a court-directed insolvency procedure is that it ensures a fair distribution of the company’s assets amongst its creditors and members and repays its debts and liabilities, according to the order of priority and the pari passu principle (treating like members alike).
In winding up, the order of repayment of creditors and members must be strictly followed, subject to the amount of funds available for distribution. Assets encumbered by a valid security are not available for distribution amongst the debtor company’s general unsecured creditors. Therefore, liquidators cannot dispose of secured assets without secured creditors’ consent. Further, secured creditors may typically appoint a receiver to realise the secured assets, hence reducing the liquidator’s role in directly dealing with secured assets. As for the unencumbered assets, the proceeds will be distributed amongst the company’s creditors and members in the following order: preferred creditors (as provided for under IRDA), creditors who have a floating charge over the company’s assets, unsecured (general) creditors, and members of the company. If the company does not have enough proceeds to repay its unsecured creditors, the debts owed to them may be reduced in equal proportions (pari passu principle) or left unpaid entirely. If the company does not have enough proceeds after repaying all its creditors, the members will not be repaid entirely.
Once the company is wound up, its businesses are shut down, its assets sold, and its creditors (and members if any) are repaid to the extent of a discharge of the company’s debt and liabilities. The liquidator is required to draw up an account showing how the winding up had been conducted and how the properties had been disposed of. Once the account is prepared, the liquidator must call for, via an advertisement, either a general meeting of the company (where there was a members’ voluntary winding up) or a meeting amongst members and creditors of the company (where there was a creditors’ voluntary winding up or court-ordered winding up) to explain his account. The liquidator must then, within 7 days, lodge with ACRA and Official Receiver a return of the holding and date of the meeting. After 3 months from the lodging of the return, the company will be dissolved.
In a Restructuring proceeding, some of the significant tools that a debtor company can enjoy (which would not be available in Workout) include:
Moratorium – In both schemes of arrangement and judicial management, a moratorium is a stay on proceedings against the company which prevents creditors from enforcing their security interests while the company undergoes restructuring. This gives the company some breathing space against litigation and allows it to focus on restructuring its liabilities. Currently, there is an automatic moratorium of 30 days upon the filing of an application for a moratorium, and the court can grant a longer moratorium where deemed appropriate. The moratorium can also be granted on a company’s holding company or subsidiary, hence facilitating group-wide restructurings. Such a moratorium may also have extraterritorial application.
Rescue financing – Rescue financing refers to new financing provided to a debtor company to facilitate the survival of the company or more advantageous realisation of the assets. It can be provided either by existing creditors or new creditors (some of which are known as “white knights”). As lenders would generally be reluctant to provide rescue financing for an already distressed company, the court has the power to order a “super priority” for debts incurred by the company in respect of rescue financing, as the priority of being repaid first would incentivise potential lenders in extending loans necessary for the company’s survival or to achieve a more advantageous realisation of the company’s assets (compared to winding up). Rescue financing can be obtained in both a scheme of arrangement and judicial management process.
Third Party Funding is increasingly viewed as an enabler for distressed companies without sufficient funds to still commence legal proceedings that may yield returns for creditors. For claims in relation to transactions at undervalue, unfair preference transactions, extortionate credit transactions, fraudulent trading, wrongful trading and assessment of damages against delinquent officers of the company, third-party funding agreements can be entered into upon obtaining court approval or authorisation of the committee of inspection.
The IRDA has restricted the invoking of ipso facto clauses, with the effect being that (save for certain exceptions) a party is prohibited from terminating a contract or accelerating a payment based only on the reason that the counterparty has commenced proceedings for judicial management or a scheme of arrangement or that the company is insolvent. This was intended to increase the chances of a distressed companies preserving their business contracts and thus having a higher likelihood of a rescue or a turn-around.
On a day-to-day basis, a R&I lawyer can expect to correspond regularly with the client and other counsels and professionals (e.g. accountants). Non-contentious work can involve (i) drafting and reviewing documents such as term sheets, standstill agreements, restructuring support agreements (or lock-up agreements), scheme documents, inter-creditor agreements, (ii) finalizing out-of-court agreements on re-financing and extension of credit facilities, and (iii) conducting debt sales and/or sub-participation arrangements.
Contentious work will involve court documents such as the scheme document, explanatory statements, affidavits (if necessary), etc. Depending on who you represent, (i) acting for the debtor company will require interaction with many other lawyers and advisors representing a multitude of creditor groups as well as court-appointed representatives, (ii) acting for a creditor will usually be a more limited role as the interaction will mainly be with the debtor company, enforcing any security and assessing the strength/seniority of your claim against other creditors and (iii) advising a liquidator can be a complex exercise where the debtor company has a multitude of issues such as having to settle pre-payments, handle consignors and facing potential claw-back transactions.
As a R&I lawyer, financial awareness and commercial acumen is as important as knowing the law, as advising and saving a distressed company cannot be done purely using the law but also requires you to understand their financial numbers, the viability of each business segment (and which should be closed down or streamlined) and balance the differing priorities and objectives of each stakeholder. Within the legal realm, you will also need touch upon many other areas such as banking & finance, real estate, intellectual property, tax, employment etc.