Singapore is Asia’s premier destination for international business restructuring and insolvency proceedings. With its robust legal framework, efficient court system, and pro-business environment, Singapore offers comprehensive solutions for companies facing financial difficulties.

Singapore’s Legal Framework for International Restructuring

Key Legislation and Regulations

Singapore’s insolvency and restructuring framework is primarily governed by the Insolvency, Restructuring and Dissolution Act 2018 (IRDA). This comprehensive legislation incorporates international best practices and provides various options for distressed companies.

Key features of the framework include:

• Enhanced moratorium protection against creditor actions: The IRDA provides automatic moratoriums to protect distressed companies from creditor actions, allowing them time to restructure. 
• Rescue financing provisions: The Act introduces provisions to facilitate rescue financing, encouraging lenders to provide new financing to distressed companies by granting such financing priority over existing debts.
• Improved cram-down provisions for scheme approval: The IRDA allows for “cram-down” provisions, enabling a restructuring plan to be approved even if certain classes of creditors dissent, provided that the plan is fair and equitable.
• Cross-border recognition mechanisms: The Act incorporates provisions to enhance the recognition of foreign insolvency proceedings, aligning with international best practices and facilitating cross-border restructurings.

Liquidation Process for International Businesses

Types of Liquidation

Companies can undergo either voluntary or compulsory liquidation in Singapore:

• Voluntary Liquidation

Members’ Voluntary Winding Up: Shareholders can decide to wind up the company by passing a resolution and appointing a liquidator.
The winding-up process officially begins when the resolution is passed. This option is used when the company can fully pay its debts within 12 months of starting the liquidation. The directors must also submit a declaration of solvency.

Creditors’ Voluntary Winding Up: If the company cannot fulfil its financial obligations, it can organize a meeting with its creditors to propose a voluntary liquidation. If the creditors agree and pass a resolution, the company will proceed to appoint a liquidator, taking into account the creditors’ preference for who should take on this role.

• Compulsory Liquidation

Under section 124 of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA): A winding-up application can be filed with the High Court by the company, creditors, shareholders, liquidator, judicial manager, or the Minister. The applicant must pay a $10,400 deposit to the Official Receiver, and the Court can appoint either the Official Receiver or an insolvency practitioner as liquidator. The winding-up process officially begins on the date the application is submitted.

Common Grounds for Compulsory Winding Up (Legal basis: Section 125 of the Insolvency, Restructuring and Dissolution Act 2018):

Inability to Pay Debts: A company is considered unable to pay its debts if it owes more than S$15,000 and fails to pay within 3 weeks after a creditor serves a demand at its registered office.

Just and Equitable Grounds: The Court may order liquidation if it deems it fair and equitable to do so.

Step-by-Step Process

The liquidation process typically involves:

1. Appointment of Liquidator

In both voluntary and compulsory liquidations, a licensed insolvency practitioner is appointed as the liquidator to oversee the winding-up process. 

2. Notice of Liquidation to Stakeholders

Stakeholders, including creditors and shareholders, are informed of the liquidation through official notices. In compulsory liquidation, the court may require advertisements in local newspapers and the Government Gazette. 

3. Asset Realization and Distribution

The liquidator collects and sells the company’s assets. Proceeds are distributed to creditors based on the statutory priority, and any surplus is returned to shareholders. 

4. Final Accounts and Dissolution

Upon completing the liquidation, the liquidator prepares a final account of the winding-up. The company is then formally dissolved, ceasing its legal existence.

Corporate Restructuring Options

Judicial Management

Judicial management is a court-supervised process designed to rehabilitate financially distressed companies. Under the Insolvency, Restructuring and Dissolution Act 2018 (IRDA), a judicial manager is appointed to manage the company’s affairs, business, and property, with the primary aim of rehabilitating the company or achieving a better outcome for creditors than immediate liquidation.

Scheme of Arrangement

A scheme of arrangement is a court-approved agreement between a company and its creditors or shareholders to restructure the company’s debts or obligations. This flexible tool allows companies to propose a compromise or arrangement, which, if approved by the requisite majority and sanctioned by the court, becomes binding on all affected parties. 

Cross-border Considerations

Singapore has adopted the UNCITRAL Model Law on Cross-Border Insolvency, facilitating:

• Recognition of foreign proceedings
• Cooperation between courts
• Relief for foreign representatives

Practical Considerations

Timeline and Costs

The duration and costs vary depending on complexity:

• Simple liquidations: 12-18 months
• Complex restructurings: 2+ years
• Professional fees vary based on case complexity:

Deposit to the Official ReceiverWinding Up Application FeeFee for Every Bond with SuretiesFee for Subpoena or Summons IssuedFee for Sealing Court Judgments/OrdersOrder Adjourning a Public ExaminationFiling an AffidavitTaking/Re-taking Affidavit or DeclarationMarking Exhibits in AffidavitsCourt Applications (other than a winding-up application)

$10,400$75$10$4Open Court: $20/Chambers: $10$10$10$4 per person$1 per exhibit$50

(Legal basis: Rule 180(1) of the Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020)

Professional Assistance

Companies typically require:

• Insolvency practitioners

These professionals are appointed to manage the liquidation process, including the realization of assets and distribution to creditors. They may serve as liquidators, provisional liquidators, judicial managers, or receivers, depending on the specific circumstances of the insolvency.

• Legal counsel

Lawyers specializing in insolvency law provide essential legal advice, represent the company in court proceedings, and ensure compliance with statutory obligations throughout the liquidation or restructuring process.

• Financial advisors

These experts assess the company’s financial health, develop restructuring strategies, and assist in negotiations with creditors to achieve a viable outcome for the business.

• Valuation experts

Specialists in asset valuation determine the fair market value of the company’s assets, which is crucial for informed decision-making during liquidation or restructuring.

Conclusion

Singapore’s sophisticated legal framework, coupled with its experienced professionals and efficient courts, makes it an ideal jurisdiction for international business restructuring and liquidation. Companies considering these processes should seek early professional advice to maximize their chances of success.

Harley Miller Law Firm ”HMLF”

Head office: 14th floor, HM Tower Building, 421 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.

Phone number: +84 937215585

Email : [email protected]