Singapore

The most commonly available corporate insolvency procedures are schemes, judicial management and winding up.

A scheme of arrangement is a binding, court-sanctioned compromise or arrangement entered into by a company with its creditors, primarily intended to help a company in financial distress to address its debt obligations and return to normal operations.

Judicial management involves the appointment of a judicial manager to take over a distressed company, aiming to save the company as a going concern, implement a scheme or achieve a better asset realisation than through liquidation.

A company may be wound up compulsorily by court order on grounds including insolvency or voluntarily wound up by a members’ special resolution.

A debtor intending to propose a scheme to its creditors may apply to court for a moratorium. Upon applying, an automatic moratorium remains until the earlier of 30 days from the date of the application or the date on which the application is decided by the court.

A debtor that has applied for judicial management may also benefit from an automatic moratorium. This arises in two situations: when a court application for judicial management has been made; or when a notice of the appointment of an interim judicial manager pursuant to a board or company’s resolution has been filed. Where the moratorium arises from a court application, it remains in place until the court decides on the application. Where it arises from the filing of a notice of interim judicial management, it remains in place until the earliest of the appointment of the judicial manager, the expiry of the interim judicial manager’s term (i.e. 30 days after the appointment), or the rejection of the resolution to place the company under judicial management at a meeting of creditors.

Moratoria in the context of a scheme of arrangement or judicial management prevent creditors from attempting to wind up, commence or continue certain proceedings or take certain enforcement actions against the debtor, although creditors may continue to exercise their right of set-off and netting.

A scheme moratorium may have extraterritorial effect, in that the court can extend a moratorium to restrain actions outside Singapore. A moratorium granted pursuant to judicial management, however, has no extraterritorial effect.

Parties acting in breach of a moratorium may be held in contempt of court.

The main formal debtor-in-possession restructuring process is a scheme of arrangement.

A scheme of arrangement is a binding, court-sanctioned compromise or arrangement entered into by a company with its creditors, primarily intended to help a company in financial distress to address its debt obligations and return to normal operations.

Aside from schemes of arrangement, out-of-court workouts are also common, where a company restructures its debt obligations by entering into formal agreements with all relevant parties.

3.1 What are the conditions to entry?

For a company to be restructured by way of a scheme of arrangement, it must either be incorporated in Singapore or have a substantial connection to Singapore.

The scheme process involves two key stages. First, the company proposing the scheme must apply to court for leave to convene a creditors’ meeting to consider and, if thought fit, approve the scheme. Second, if at the meeting a majority in number representing 75% in value of each class of creditors’ claims vote in favour of the proposed scheme, the company can apply to court for approval of the scheme, and if granted and properly filed, the scheme becomes effective and binding on the creditors and the company.

3.2 Can creditor claims be compromised “within a class”?

Yes, if at the creditors’ meeting a majority in number representing 75% in value of each class of creditors’ claims votes in favour of the proposed scheme.

3.3 Is there a “cross-class cramdown”?

Yes. If a majority in number representing at least 75% in value of the creditors present and voting at the meeting approves the scheme, the court may sanction it, even if one or more classes of creditors dissent. In doing so, the court must be satisfied that the scheme does not unfairly discriminate between the classes of creditors and is fair and equitable to each dissenting class.

3.4 Can shareholder claims be compromised?

Yes, shareholder claims can be compromised under a scheme that includes shareholders as a class.

3.5 Can secured creditors’ claims be compromised? Are deficiency claims treated differently?

Yes, secured creditors’ claims may be compromised if at the creditors’ meeting a majority in number representing 75% in value of each class of creditors approves the scheme or if the requirements for a cross-class cramdown are met, and the court sanctions the scheme.

Whether deficiency claims will be treated as unsecured claims is not entirely clear at this time.

3.6 Can creditors propose competing plans?

Yes.

3.7 What level of court or other third-party supervision is there of the process(es)?

The court must approve the scheme for it to be effective and binding. The court may also appoint a scheme manager to oversee the scheme process prior to its implementation.

4.1 What is the applicable law that provides for clawback and/or antecedent transaction claims?

The key clawback claims under Singapore’s insolvency legislation are:

• Transactions at an undervalue. This occurs when the company makes a gift to a person or enters into a transaction for: (i) no consideration; or (ii) consideration valued significantly lesser than that provided by the company. The company must have been insolvent or become insolvent in consequence of the transaction.
• Unfair preference. This arises if the transaction benefits a creditor or guarantor by placing them in a better position in the event of the company’s winding up than if the transaction had not occurred and the company was influenced by a desire to place that person in that better position. The company must have been insolvent at the time of or become insolvent in consequence of giving the preference.
• Extortionate credit transactions. These are transactions where the company becomes party to a transaction for or involving the provision of extortionate credit to the company. A transaction is presumed to be extortionate if, having regard to the risk accepted by the person providing the credit, its terms are or were such as to require grossly exorbitant payments to be made in respect of the provision of credit, or it is harsh and unconscionable or substantially unfair.
• Avoidance of certain floating charges. If a company was insolvent at the time a floating charge was created or became insolvent in consequence of creating that floating charge, that floating charge will be valid only to the extent of the aggregate of the value received by the company.
• Fraudulent trading. A company trades fraudulently if it appears that the business of the company has been carried on with intent to defraud creditors or for any fraudulent purpose.
• Wrongful trading. A company trades wrongfully if it appears that the company has incurred debts or liabilities when insolvent (or because of which the company becomes insolvent) without a reasonable prospect of meeting them in full.

4.2 What are the relevant “look-back” periods for claims?

The “look-back” periods end on the date of commencement of winding up or judicial management and are as follows:

• Transaction at an undervalue. Three years.
• Unfair preference. One year, or two years if the preferred person is a person connected with the company (otherwise than by reason only of being the company’s employee).
• Extortionate credit transactions. Three years.
• Avoidance of certain floating charges. One year, or two years if the charge is created in favour of a person who is connected with the company.
• Fraudulent trading and wrongful trading. No time limit.

4.3 Who can pursue the claims?

Transaction at an undervalue, unfair preference, extortionate credit transactions and avoidance of certain floating charges. Generally, a liquidator (with authorisation from either the court or the committee of inspection) or a judicial manager.

Fraudulent trading. The liquidator, judicial manager or any creditor or contributory of the company.

Wrongful trading. The liquidator, judicial manager or, with the permission of the liquidator, judicial manager or court, any creditor or contributory of the company.

4.4 What remedies are available and how do they operate in practice?

Transaction at an undervalue and unfair preference. The court may make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction or had not given that unfair preference.

Extortionate credit transactions. The court has the power to set aside or vary the transaction.

Avoidance of certain floating charges. The floating charge will be invalid in whole or in part.

Fraudulent or wrongful trading. Any person held liable for fraudulent trading or wrongful trading may face criminal and civil liability and be personally liable for all or any of the debts or other liabilities of the company.

4.5 What defences are available?

Transaction at an undervalue. The court will not set aside a transaction at an undervalue if it can be shown that the company entered into the transaction in good faith and for carrying on its business, and at the time of the transaction, there were reasonable grounds for believing that the transaction would benefit the company. A third party who acquires property from a counterparty that entered into the transaction with the company, or a third party who receives a benefit from such a transaction, is protected if he or she acquires it in good faith and for value.

Unfair preference. The court will not set aside the transaction if there was no desire to prefer the relevant creditor. A third party who acquires property from a creditor which was unfairly preferred or who receives a benefit from the preference and is not at the relevant time a creditor of the company, is protected if he or she acquires it in good faith and for value.

Wrongful trading. Any person may be relieved from personal liability if it is established that the person acted honestly and, having regard to all circumstances, that person ought fairly to be relieved.

4.6 Is there a general right of action in respect of transactions defrauding creditors or Actio Pauliana claims?

Yes, where a debtor enters into a transaction at an undervalue, and the court is satisfied that the transaction was for the purpose of putting assets beyond the reach of or prejudices the interests of a person who has or may have a claim against the debtor.

4.7 Who can pursue the claims?

Any victim of the transaction can pursue the claims. Additionally, if the company is in a formal insolvency process, the trustee, Official Receiver, the liquidator or judicial manager can pursue the claims.

4.8 What remedies are available and how do they operate in practice?

The court may make an order restoring the position to what it would have been if the transaction had not been entered into and to protect the interests of any person who is or is capable of being prejudiced by the transaction, including orders for the release of any security given by the debtor.

4.9 What defences are available?

There are no defences available. However, the court may not make any order that would prejudice any interest in property acquired in good faith, for value and without notice of the relevant circumstances from a person other than the debtor, or that would require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum (unless the person who received the benefit was a party to the transaction).

5.1 What are the duties of directors and managers?

Directors must act bona fide in the best interests of the company and exercise due care, skill and diligence in the discharge of their duties. They must act honestly and not make improper use of their position as the company’s officer or agent or any information acquired by virtue of their position as the company’s officer or agent to gain an advantage personally or for any other person or to cause the company detriment. They must also not place themselves in a position where their duty and interest conflict.

When the company is insolvent or in a parlous financial position, directors have a duty to consider the interests of the company’s creditors when making decisions on behalf of the company.

5.2 What claims can be brought against directors and managers arising from breaches of those duties?

• Breach of duties. A director is potentially personally liable for any loss suffered by the company resulting from their breach of duty. A director or manager may also be liable to the company for any profit made by themselves or for any damage suffered by the company as a result of the breach.
• Fraudulent trading. A director or manager may be personally liable for any debts of the company if the director or manager was knowingly a party to fraudulent trading.
• Wrongful trading. A director or manager may be personally liable for any debts of the company if the director or manager knew or ought to have known that the company incurred debts without reasonable prospect of meeting them in full when insolvent, or as a result of incurring such debts became insolvent and was party to such wrongful trading.
• Proceedings against delinquent officers. If it appears that any director or manager has misapplied or retained or become liable or accountable for any property of the company or been guilty of any misfeasance or breach of trust or duty in relation to the company, the court may examine that officer’s or person’s conduct, and compel such director or manager to repay or restore the property with interest, or contribute such sum to the property by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust or duty.

5.3 Who can pursue the claims?

Generally, a liquidator (with authorisation from either the court or the committee of inspection) or a judicial manager can pursue the claims. In certain situations, the law allows a wider range of persons (such as creditors and contributories) to pursue claims.

5.4 Do directors have, at any time, a strict obligation to file for insolvency and, if so, when does that arise?

There is no strict statutory obligation for directors of a company to file for insolvency upon the debtor becoming financially distressed. However, directors may incur criminal and civil liability if they knew or ought to have known that the distressed or insolvent company incurred debts without reasonable prospect of meeting them in full.

5.5 Can directors and managers be found liable for the increase in sums owed to creditors after a company becomes insolvent?

Yes, see Question 5.2, above, “wrongful trading”.

5.6 In what other circumstances can directors and managers be found liable directly to creditors of the company?

Directors and managers generally do not have direct liability to the company’s creditors, save for the circumstances where they may be held personally liable for the company’s debts as set out in Question 5.2, above, or if they have provided personal guarantees for the company’s debts.

6.1 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

Office holders may obtain information concerning the company and its promotion, formation, business, dealings, affairs or property.

6.2 How is that information obtained in practice?

A liquidator or judicial manager may reasonably require information concerning the company from, among others, any past or present officer of the company, or any person who has taken part in the formation of the company at any time within the period of one year before the commencement of the winding up or judicial management.

6.3 Can the court assist in obtaining that information and how does that work in practice?

The court may require any person who possesses or controls any property, books, papers or records to which the company is entitled to surrender or transfer these to the judicial manager or liquidator.

On the application of the Official Receiver, liquidator or judicial manager, or, with the court’s permission, a creditor or contributory of the company, the court may also summon any past or present officer of the company or any person whom the court thinks capable of giving information concerning the company. The court may require that person to provide an account of the person’s dealings with the company or produce or deliver any books, papers or other records in the person’s possession relating to the company.

7.1 Is the UNCITRAL Model Law on Cross-Border Insolvency adopted?

Yes.

7.2 Is it possible to recognise office holders from other jurisdictions?

Yes.

7.3 What is the process and what are the conditions for recognition?

A foreign restructuring representative can apply to the Singapore courts for the recognition of and assistance to a foreign restructuring proceeding in which he or she has been appointed. Upon recognition, the foreign representative can participate in a restructuring proceeding regarding the debtor and intervene in any proceedings in which the debtor is a party.

Unless contrary to Singapore’s public policy, the Singapore court must recognise a proceeding if it is a foreign proceeding, the person applying for recognition is a foreign representative, the application complies with statutory documentary requirements and the application has been submitted to the Singapore court.

7.4 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

The Singapore court may, upon recognition of the foreign proceeding, grant additional relief to the foreign representative, including providing for witness examination, the taking of evidence or delivery of information concerning the debtor’s property, affairs, rights, obligations or liabilities.

7.5 What steps can a foreign office holder take to recover assets belonging to the debtor?

The Singapore court may, upon recognition of the foreign proceeding, grant additional relief to the foreign representative, including entrusting the administration or realisation of the debtor’s property located in Singapore to the foreign representative, or any additional relief that may be available to a Singapore insolvency office holder.

7.6 Is a foreign office holder able to bring clawback claims or fraudulent transaction claims?

The Singapore court may, upon recognition of the foreign proceeding, make an order under or in connection with the clawback provisions outlined Question 4.1, above. Such an application may be refused where it conflicts with an obligation of Singapore arising out of any treaty or other form of agreement to which it is a party with other state(s) or where it is contrary to Singapore’s public policy.

In Singapore, insolvency practitioners must be licensed by the Ministry of Law under the Insolvency, Restructuring and Dissolution Act 2018. They are regulated by, amongst others, the Insolvency Practitioners Regulations and a Code of Conduct, which set out key ethical obligations including independence, integrity, and avoidance of conflicts of interest.

8.1 Can a foreign office holder take appointments?

Yes, if he or she holds an insolvency practitioner’s licence.

8.2 What are the conditions for becoming an office holder?

An office holder, foreign or otherwise, must hold an insolvency practitioner’s licence.

To be eligible for an insolvency practitioner’s licence, the office holder must be a qualified person, namely, an advocate or solicitor qualified to practise in Singapore, or a public accountant or chartered accountant licensed in Singapore, and must have relevant work experience such as acting as or assisting an insolvency practitioner in relation to a corporation or individual subject to insolvency proceedings.

If the office holder wishes to take appointments in respect of a company or foreign company subject to insolvency proceedings before the Singapore International Commercial Court, the office holder must meet additional requirements, such as holding and having held for a minimum of three continuous years the equivalent of an insolvency practitioner’s licence in a foreign jurisdiction.

8.3 What are the main rules of professional conduct?

Insolvency office holders are subject to the professional conduct rules applicable to their profession. For instance, an office holder who is a public accountant must adhere to the Code of Professional Conduct and Ethics for public accountants, and a licensee who is a solicitor must adhere to the Legal Professional (Professional Conduct) Rules 2015.

In addition, the Insolvency Practitioners Association of Singapore has published a code of professional conduct and ethics to provide guidance.