Spotlight on recent developments in restructuring and insolvency in Singapore
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Overview of Restructuring and Insolvency Activity
Following the entry into force of the Omnibus Insolvency, Restructuring and Dissolution Act (IRDA) on July 30, 2020, Singapore courts have continued to interpret, apply and provide guidance on the application of the provisions of the IRDA. We discuss here these recent developments in the law.
Recent legal developments
Here we highlight some key legal developments following the previous edition of this publication.
In Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd (formerly known as Tong Teik Pte Ltd)  SGCA 60, the Court of Appeal departed from previous decisions that applied both the cash flow and balance sheet test to determine a company’s solvency. For the purposes of determining whether the company was unable to pay its debts under a winding-up petition, the Court held that the only determinative test was the cash flow test (i.e. whether the assets the company’s current liabilities (realizable within 12 months) exceed its short-term debts (maturing within 12 months), so the company has been able to service all debts over time. as they mature).
In Regarding Brightoil Petroleum (S’pore) Pte Ltd  SGHC 35, the Singapore court considered, for the first time, the effect of payment of blocking fees on the classification of creditors for purposes of voting on a plan of arrangement. In this case, creditors holding more than 57% of the total value of the debt had entered into lock-up agreements with the company to vote in favor of the plan in exchange for the payment of certain sums. The Court ruled that locked-in creditors could be categorized with other unsecured lenders because the monies paid under the lock-up agreements were not so large in relation to the potential recovery under the scheme or liquidation that they could influence creditors. The Court set out the following non-exhaustive factors to consider in determining whether creditors who enter into a blocking agreement should be classified separately.
The crucial question in each case is whether the benefit conferred is so great that it would significantly influence the decision of a reasonable creditor when voting in favor of the proposed regime.
The lock-up agreement must have been made available to all creditors of the scheme within the relevant class so that they all had the same right to enter into the agreement, and the agreements entered into with each creditor must be on substantially the same terms (as was the case there).
Use of the non-assignment agreement must also be in good faith without misleading creditors.
In Rothstar Group Ltd v Leow Quek Shiong  SGCA 25, the Singapore court held that the posting of a new guarantee by an insolvent party for its own existing debt did not constitute an undervalued transaction. However, if the granting of security relates to the existing debt of a third party, this may amount to an undervalued transaction. In considering the latter, the value comparison exercise is undertaken from the perspective of the insolvent grantor. Consideration need not be received directly by the settlor, but the value of that consideration is relevant insofar as it accrues to the settlor. Mere perception of value by the settlor is not enough and the value of the consideration must be measured in monetary terms.
In United Securities Sdn Bhd (in receivership and liquidation) and Anor v United Overseas Bank Ltd  SGCA 78, the court refused to stay a secured creditor’s claim, despite recognition of a Malaysian liquidation proceeding as a foreign main proceeding. The automatic stay under Section 20(1) of the Singapore Model Law on the Recognition of Foreign Main Proceedings is limited to the scope and effect of a stay that would have taken effect had the company been wound up in Singapore, and would also be subject to any exclusion that would apply to a Singapore moratorium (see Articles 20(2) and 20(3) of the Singapore Model Law). In this case, the petitioner asserted that it was a secured creditor. To the extent that a secured creditor can enforce its security right through self-help remedies, this would not be impeded by the automatic stay. Furthermore, to the extent that the secured creditor requires legal proceedings to establish and enforce the security interests, the Singapore court would happily allow secured creditors to pursue proceedings to enforce their security interests, so long as the secured creditor has shown in good faith At first glance Case.
As to the discretionary stay of proceedings under Article 21(1)(a) of the Singapore Model Law, the Court declined to grant it as it held that a stay was not necessary to protect the property of the company or the interests of creditors.
The Court has also provided guidance on whether and when a proceeding constitutes a “foreign proceeding” within the meaning of the Singapore Model Law. It must be demonstrated that the following four factors are present:
- the procedure must collectively involve the creditors;
- the proceeding must be based on an insolvency law;
- the court must exercise control or supervision over the property and affairs of the debtor in the proceedings; and
- the object of the proceedings must be the reorganization or liquidation of the debtor.
The Singapore Court at Yihua Lifestyle Technology Co., Ltd and Anor v HTL Holdings Pte Ltd  SGHC 86 (confirmed on appeal in  SGCA 87) also considered the applicable principles regarding when it is appropriate to intervene in the exercise of discretion by a judicial officer. The test is as follows. First, it must be demonstrated that the actions of the judicial manager have caused or would cause the plaintiff prejudice as a member or creditor. Secondly, the damage suffered must be unfair, stem from manifestly unfair or differential treatment to the detriment of the applicant and which cannot be justified by reference to the objective of the judicial management or the interests of the partners or creditors, or from a lack of or a commercial justification which causes prejudice to the partners or to the creditors as a whole. In the latter case, the Court will not intervene in the decision unless it was abusive.
Important transactions, key developments and most active industries
Singapore’s efforts to position itself as an international hub for cross-border restructuring continue to see cross-border insolvency cases involving distressed businesses in the region. Following the approval by Indonesian conglomerate MNC Investama Holdings of a scheme of arrangement in January 2021,87 and Malaysian video-on-demand company Iflix’s pre-packaged program approved in January 2021,88 2022 saw Indonesian clothing manufacturer Pan Brothers89 and the Indonesian real estate company Modernland Realty90 seek to use Singapore’s insolvency and restructuring framework. Both companies sought protections under the moratoriums using a plan of arrangement, and both subsequently sought and received approvals for pre-packaged plans. The Indonesian court also recognized and supported the Singapore restructurings. For example, a request by a creditor of Pan Brothers under the Indonesian regime to suspend debt payment obligations was rejected, in particular because of the existence of the global moratorium granted by the Singapore court.91
The use of Singapore’s insolvency regime in support of foreign restructuring proceedings also continues, for example in the case of the industrial fishing conglomerate China Fishery, which successfully won recognition by the Singapore court of its Chapter 11 restructuring plan and Chapter 11 proceeding as a foreign principal. procedure.92