Introduction

On 10 March 2017, the Singapore’s Companies (Amendment) Bill (the "Bill") was passed by the Singapore Parliament to amend the Singapore Companies Act (the “Companies Act”), introducing a number of novel and significant reforms to the insolvency and bankruptcy regime in Singapore. The Bill is the first of its kind in the region.

Whilst the Bill has introduced a number of changes to Singapore’s domestic judicial management and scheme of arrangement framework (which are the key debt restructuring mechanisms in Singapore), one of its main focuses is on making the insolvency and restructuring procedures in Singapore more easily accessible to foreign companies. In particular, a number of amendments target on improving the administration of cross-border insolvency cases with a clear view to enhancing Singapore’s position as an “international insolvency hub” with various cross-border restructuring capabilities.

Key Changes on Cross-border Insolvency

Winding-up of Foreign Companies

Currently, a foreign company not incorporated in Singapore cannot apply for judicial management and/or scheme of arrangement in Singapore. However, under the Bill, a foreign company may seek recourse from the Singapore Courts under these debt restructuring mechanisms in Singapore as long as it has “substantial connection with Singapore” and is therefore “liable to be wound up” within the definition of the Companies Act.

The Bill has provided a list of non-exhaustive factors for the Singapore Courts to consider when determine whether such “substantial connection” exists, including (1) whether Singapore is the centre of main interests of the company, (2) whether the company is carrying on business in Singapore or has a place of business there, and (3) whether the company has substantial assets in Singapore etc.

It is expected that such expansion and clarification of the circumstances in which foreign companies can seek judicial management or a scheme of arrangement in Singapore would likely make it easier for foreign companies to access Singapore’s winding-up and debt restructuring regime.

Adoption of UNCITRAL Model Law on Cross Border Insolvency

Another significant change is the adoption of the UNITRAL Model Law on Cross-Border Insolvency (the “Model Law”) (i.e. a set of rules governing cross-border bankruptcy and insolvency cases) into the domestic laws of Singapore. As of today, the Model Law has already been adopted in many important jurisdictions around the world such as the United Kingdom, the United States, Canada, South Korea and Japan etc. (but not Hong Kong). It is anticipated that the implementation of the Model Law in Singapore will improve the recognition of insolvency cases in Singapore abroad, and will also make it easier for foreign companies undergoing restructuring procedures outside Singapore to obtain assistance from the Singapore courts.

In this connection, it is worthy of note that from the recent decisions by the Singapore Courts, there have already been hints from the Singapore judges foreshadowing such liberal development. An example lies in the case of Re Opti-Medix Ltd (in liquidation) and another matter [2016] SGHC 108 (which was discussed in our previous newsletter: “Recognition of Foreign Liquidators or Bankruptcy Trustees from Jurisdictions Other Than the Place of Incorporation of the Company”) where the Singapore High Court, despite applying Singapore law, recognized a Japanese bankruptcy trustee on the basis that the company’s centre of main interest was Japan.

Abolition of the Ring-fencing Rule

The amendments under the Bill also abolished the so-called “ring-fencing rule” which requires liquidators of a Singapore company to first pay off debts due to creditors in Singapore before any of its remaining assets or funds can be transferred or remitted to other foreign jurisdictions for the company’s foreign bankruptcy proceedings. After the reform, save for specific financial institutions (such as banks and insurance companies), local creditors in Singapore will no longer be protected by such rules and will no longer have priority over other creditors in recovering assets from an insolvent company under the Singapore laws.

Other Key Changes

Other than the abovementioned reforms on cross-border insolvency, the Bill has also introduced significant amendments to Singapore’s domestic insolvency laws, such as providing an automatic creditor moratorium upon a debtor applying for a scheme of arrangement, clarifying the procedures of judicial management, and enhancing protection to creditors by establishing rules governing adjudication of creditors’ claims etc.

Insights for Hong Kong

Over the past few years, Singapore has introduced a number of initiatives to strengthen its position as a leading hub for cross-border insolvency and debt restructuring. It is therefore not so surprised that the country is taking the lead in the region to reform its insolvency framework with a view of creating a more conducive environment for cross-border insolvency.

In Hong Kong, whilst the approach taken by the Courts to cross-border insolvency issues has generally been open and pragmatic, the administration in Hong Kong appears to have been exercising a relatively more cautious approach towards cross-border insolvency issues. There is also no formal statutory regime recognizing cross-border insolvency.

In fact, as early as in April 1998, the Sub-committee on insolvency of the Law Reform Commission in Hong Kong has already discussed the possibility of adopting the Model law in Hong Kong (in its Consultation Paper on the Winding-Up Provisions of the Companies Ordinance). However, the Commission considered that it was “premature” to do so at that time. Later on in its 1999 Report on the Winding-Up Provisions of the Companies Ordinance, the Commission also expressed that it is “hesitant” about recommending that Hong Kong, which is a relatively small jurisdiction, to “pioneer” the Model Law. No significant legislative development on cross-border insolvency can be seen since then. In particular, whilst the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance has come into operation recently on 13 February 2017, no specific reference is made to cross-border insolvency issues or to the possible adoption of the Model Law.

It is therefore interesting to see whether the reforms introduced by the Bill, which aim at developing Singapore into a restructuring and insolvency hub in the Asia-Pacific Region, will have an impact on the legislative reform in Hong Kong.

 

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: insolvency@onc.hk                                   T: (852) 2810 1212 W: www.onc.hk                                             F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2017