Singapore has made great strides in its push to become an international debt restructuring hub since it introduced its first reforms to Singapore's restructuring and insolvency regimes in its amendment to the Companies Act in 2017. Since then, there have been several subsequent enhancements, such as the consolidation of the bankruptcy and corporate insolvency law into the Insolvency, Restructuring and Dissolution Act 2018 (IRDA 2018) and the restrictions on ipso facto clauses.
In the latest reforms, the Singapore International Commercial Court Rules have been amended so that with effect from 1 October 2022, the Singapore International Commercial Court (SICC) has jurisdiction to hear cross-border restructuring and insolvency matters. This note summarises the key features of the SICC Rules and its potential impact on the restructuring sector in Singapore.
The SICC
The SICC is a division of the General Division of the Singapore High Court. It was launched in January 2015 with the aim of becoming the leading regional litigation forum for dispute resolution. It serves as a companion to Singapore's leading regional centre for arbitration and Singapore's leading regional centre for mediation.
Compared to the traditional domestic Singapore courts, the SICC provides the parties with (1) access to a panel of experienced specialist international judges from both civil and common law traditions, (2) the possibility of having foreign legal representation, (3) the determination of foreign law on the basis of submissions rather than expert evidence, (4) the possibility of having the proceedings kept confidential, (5) the possibility of having the proceeding conducted by way of pleadings, statements or memorials, (6) the exclusion of Singapore's laws of evidence, and (7) the ability to limit or exclude the right of appeal.
Compared to arbitration, the SICC provides the parties with (1) the possibility of obtaining an order for third parties to be joined to the proceedings, (2) the advantage of published judgments, (3) the right of appeal unless otherwise agreed by the parties, and (4) a court judgment from an established jurisdiction delivered by reputable judges.
Key features of the corporate insolvency, restructuring and dissolution proceedings heard by the SICC
1. Jurisdiction of the SICC
From 1 October 2022, SICC has jurisdiction to hear any proceedings relating to corporate insolvency, restructuring or dissolution under the IRDA 2018, or under the Companies Act (as in force prior to the commencement of the IRDA 2018) that (a) are international and commercial in nature; and (b) satisfy such conditions as the Rules of Court may prescribe.
Proceedings would be considered as "international" in nature if:
- It is a proceeding commenced pursuant to the UNCITRAL Model Law on Cross-Border Insolvency.
- The debtor company is a Singapore incorporated company or foreign company with substantial connection to Singapore that satisfies at least of one of the following factors:
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- The debtor company has a place of business in a foreign country.
- The debtor company has at least an asset or property in a foreign country.
- The debtor company has at least a liability that arose in a foreign country.
- The debtor company has at least a contractual obligation that has been or is to be performed in a foreign country, or that was or is owed to a person in a foreign country.
- The debtor company has obligations and liabilities that are governed by the laws of one or more foreign countries.
- The debtor company has at least one creditor having a place of business in a foreign country.
- The control and direction of the debtor company is administered from a foreign country.
Given the cross-border nature of many businesses, foreign companies seeking to commence restructuring or insolvency proceedings in the SICC will find it easy to meet at least one of these jurisdictional requirements.
In addition to the jurisdictional requirements prescribed under the SICC Rules, foreign companies have to establish some nexus with Singapore in order to commence restructuring or insolvency proceedings under the IRDA 2018. We note that the Singapore courts have previously assumed jurisdiction over a foreign company where it had issued notes that were listed on the Singapore Exchange. It is likely that the SICC would adopt a low threshold for the jurisdictional requirements under the IRDA 2018.
2. Commencement of proceedings in, and transfer of proceedings to, the SICC
Restructuring and insolvency proceedings commenced in the General Division of the High Court (including the proceedings that are currently before the court) may be transferred to the SICC on the application of a party or on the General Division's own motion.
The General Division would have to be satisfied that the jurisdictional requirements are met, and may order that the fees schedule applicable to proceedings in the General Division continue to apply after the transfer.
3. Applicable laws
The IRDA 2018 (or Companies Act) would apply similarly as if the restructuring or insolvency proceeding was commenced in the General Division of the High Court. This is designed to provide certainty to the parties as the SICC can draw on this existing body of case law.
4. Foreign legal representation
A party to a restructuring or insolvency proceeding before the SICC may apply for a foreign lawyer registered with the SICC, or a Singapore-qualified lawyer practicing in a foreign firm, to make submissions before the SICC in the restructuring or insolvency proceeding.
Companies may thus engage international law firms that are more familiar with their business, to represent them in the restructuring or insolvency proceeding before the SICC. In addition, the SICC can tap on the experience and knowledge of foreign lawyers to develop the existing body of case law.
5. Conditional fee arrangement
From 4 May 2022, law firms in Singapore may enter into conditional fee agreements with their clients for selected proceedings provided certain safeguards are met. Such proceedings extend to certain restructuring or insolvency proceedings in the SICC once the latest amendments to the SICC Rules take effect. Examples of conditional fee agreements that parties may enter into include "win, more fee", "no win, no fee” and "no win, less fee" arrangements.
The conditional fee agreements can provide parties and their lawyers with more flexibility on structuring fees and enabling the risks of pursuing certain proceedings to be re-allocated in return for sharing some of the potential rewards from the proceedings. Such flexibility may be especially helpful in restructuring and insolvency proceedings. Creditors may already be faced with a significant loss and may be reluctant to instruct legal and financial advisors to avoid "throwing good money after bad". The debtor company may also find it hard to obtain sufficient working capital for its operations and to fund its legal and financial advisors for the restructuring.
6. Mediation
Under the SICC Rules, parties are expressly required to consider the possibility of alternative dispute resolution (ADR) and to be prepared to inform the Court of the suitability of the case for ADR. If parties are agreeable to ADR, the SICC may make directions at Case Management Conferences to facilitate the parties' attempt at ADR. If the parties are not agreeable to ADR, the SICC may direct that ADR be reconsidered at a subsequent time or make any order necessary to facilitate the amicable resolution of the dispute.
ADR, and in particular mediation, is an important tool available to the SICC. As the Committee to Strengthen Singapore as an International Centre for Debt Restructuring (and Justice Kannan Ramesh in Re IM Skaugen SE) noted, mediation can be a highly effective tool to (a) resolve individual creditor disputes with the debtor (in the context of a multi-creditor restructuring); (b) manage multiple creditor disputes of the same nature; and (c) achieve consensus in the restructuring plan between the debtor and its creditors. For example, mediation has played a key role in the successful restructuring of China Fishery Group (a company listed on the Singapore Exchange) and Dean & Deluca (which is owned by Thailand’s Pace Development Corp).
However, there are practical difficulties in obtaining the consent of all parties to enter into mediation. It will be worth keeping an eye on whether the SICC will compel parties to enter into a mediation in restructuring or insolvency proceedings.
Next steps
The latest statutory amendments to the Singapore International Commercial Court Rules provide debtor companies and creditors with an interesting new option. The appointment of Judge Christopher S. Sontchi, who recently retired from the United States Bankruptcy Court for the District of Delaware, as an International Judge of the SICC from 4 July 2022 adds further depth to the SICC bench.
It is clear that Singapore is not slowing down on its push to attract foreign companies to adopt Singapore as an international debt restructuring hub. Further reforms to Singapore's restructuring and insolvency regimes, such as the reform to the judicial management regime, are to be expected as the Parliament and judiciary continue to innovate and introduce elements from other jurisdictions which facilitate successful restructurings.
Many of the features of proceedings before the SICC that are discussed above (e.g. conditional fee arrangements and access to experienced specialist international judges from both civil and common law traditions) could prove useful to debtor companies and/or their creditors.
Authored by Nick Williams, Jonathan Leitch, Carol Hartopp Hall, and Koh Wei Lun.
