Rajah & Tann

The Singapore Court of Appeal’s First Reported Decision on the Model Law on Cross-Border Insolvency

The Singapore Court of Appeal considered for the first time in United Securities Sdn Bhd v United Overseas Bank Ltd (“USSB v UOB”) the principles applicable to recognition of foreign proceedings under the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”) as enacted in Singapore by way of s 252 of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) (“SG Model Law”).

Singapore Court Issues First Decision on Classification of Creditors in Lock-Up Agreements for Schemes of Arrangement

The success of a scheme of arrangement in restructuring depends largely on the consent of the requisite statutory majority of the scheme creditors. To incentivise the creditors to commit to the proposal at an early stage, scheme companies may seek to enter into a lock-up agreement with the creditor, in which the creditor provides an undertaking to vote in favour of the scheme in exchange for certain benefits, such as consent fees.

While lockup agreements are advantageous tools in the hands of a scheme company, the principles underlying such agreements have not been considered in detail by the Singapore Court. In Re Brightoil Petroleum (S’pore) Pte Ltd [2022] SGHC 35, the Singapore High Court, for the first time, issued the grounds of its decision on whether creditors who enter into lockup agreements should be placed in a separate class from the other creditors for the purpose of voting on a scheme of arrangement.

High Court Issues Key Decisions on Schemes of Arrangement

In the recent decision of the Malaysian High Court in Re Top Builders Capital Bhd & Ors [2022] MLJU 1 (“Top Builders”), Ong Chee Kwan JC reaffirmed certain principles for the sanction of a scheme of
arrangement (“SOA”) and also decided on some novel issues:

1) the classification of creditors;
2) the threshold test for disclosures in the explanatory scheme;

3) the validity of virtual scheme meetings;

4) the extension of time for submission of proofs of debt (“PODs”);

5) the inspection of other scheme creditors’ PODs; and

6) the discounting of scheme creditors’ votes.

This Update provides a summary of the above principles.

Singapore Court Provides Guidance on the Conduct of a Debtor's Bankruptcy Application

Debtor’s bankruptcy applications may be seen as being less common than creditors’ bankruptcy applications. The law regarding the conduct of debtor’s bankruptcy applications, including the relevant tests and the burden of proof, is thus less often explored. In Re Then Feng [2022] SGHCR 1, the Singapore High Court provided guidance in this regard.

Further Extension of Relief Periods for Built Environment Sector under COVID-19 (Temporary Measures) Act

COVID19 has adversely affected the Built Environment (“BE“) sector in a multitude of aspects, causing delays in projects, increased costs and shortages of materials and manpower. To address this, the Government has provided legislative relief for the sector through the COVID19 (Temporary Measures) Act (“Act“).

Singapore and Malaysia Announce Protocols for Court-to-Court Cooperation in Cross-Border Insolvency and Shipping

Commercial transactions and disputes are increasingly likely to contain a cross-border element. As such, the ability of Courts to cooperate on the management of proceedings that span their respective jurisdictions will facilitate the efficient resolution of cross-border issues. In this regard, the Singapore and Malaysia Courts have demonstrated a commitment to judicial cooperation between the two countries.

Singapore Court of Appeal Considers Application of UNCITRAL Model Law on Cross-Border Insolvency for the First Time

As Singapore continues to advance its position as an international hub for restructuring and insolvency, it has implemented a number of changes to its legislative framework. One of the key developments has been the adoption of the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”), which has been given force of law in Singapore. The Model Law provides procedural mechanisms to facilitate the conduct of cross-border insolvencies.

Recent Malaysian Court Decision Sheds Light on Proof of Debt Exercise in Scheme of Arrangement and the Test for Granting Leave to Proceed against Restraining Order

In the recent decision of the Malaysian High Court in Re Top Builders Capital Bhd & Ors [2021] 10 MLJ 327 (“Top Builders”), Ong Chee Kwan JC examines the proof of debt exercise in a scheme of arrangement (“SOA”) and the guiding principles governing the granting of leave to proceed with legal proceedings against a financially distressed company that has obtained a restraining order (moratorium) pursuant to a SOA.

Cautions against Using Statutory Demands Based on Adjudication Determinations

In Diamond Glass Enterprise Pte Ltd v Zhong Kai Construction Co Pte Ltd [2021] SGCA 61, the Singapore Court of Appeal had the occasion of considering the interaction between the temporary finality of adjudication determinations under the statutory adjudication regime in the Building and Construction Industry Security of Industry Act (Cap 30B, 2006 Rev Ed) (“SOPA”) and the corporate insolvency regime.

Application Period for Simplified Insolvency Programme Extended to 28 July 2022

The Ministry of Law (“MinLaw”) has announced that the application period for the Simplified Insolvency Programme (“SIP”) has been extended to 28 July 2022. The application period was originally set at six months (from 29 January 2021 to 28 July 2021). However, in light of the continued challenges in the business environment arising from the COVID-19 pandemic, MinLaw has extended the application period for another year.

Bankruptcy and Family Proceedings: The Court's Ratification of Division of Assets Amidst Bankruptcy

Under Singapore bankruptcy law, when a person is adjudged bankrupt, any disposition of property made by him from the date of the bankruptcy application is void unless the court consents to or ratifies the disposition. However, will the court ratify the disposition of assets made pursuant to an order for division of assets in divorce proceedings, and in what circumstances will it do so? These were the issues considered in the Singapore High Court case of Ong Dan Tze Magdalene v Chee Yoh Chuang & Anor [2021] SGHC 129.

Appeals Against a Winding-Up Order: Who Should Control the Appeal and Who Should Pay?

In Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd [2021] SGCA 60, the Singapore Court of Appeal had the opportunity to consider some vital questions relating to insolvency proceedings. In the context of an appeal against a winding-up order, the Court considered whether the company’s directors should be entitled to control the appeal, and who should be responsible for the costs of the appeal.

High Court Issues Largest Award for Fraudulent Trading in Singapore

If the business of a company has been carried on with the intent to defraud creditors, directors and officers who were knowingly a party to the carrying of business in that manner may be liable for fraudulent trading. Under Singapore’s restructuring and insolvency regime, they may be held personally liable for all or any the company’s debts. In Tendcare Medical Group Holdings v Gong Ruizhong [2021] SGHC 80, the High Court issued the largest award for fraudulent trading in Singapore so far, holding a company director (and a company owned and controlled by him) liable for substantially all the debts of the company in the sum of US$65,207,538.03. In addition, the Court found the director to be liable for breaches of fiduciary duties for US$35 million and S$500,000.