Private Credit 2025 Comparisons

As is the case for many businesses, Singapore is a destination for private credit providers primarily as a hub for South-East Asia. That is not to say that there are no opportunities within Singapore itself. Indeed, direct-lending strategies have emerged on some event-driven financings but, given the recent downturn in M&A activity in the region, private credit investment into Singapore has cooled over the past 12 months. One of the main areas of opportunity within Singapore itself has been the fintech sector.

Asia’s public debt markets are very focused on large corporates and global or established regional financial sponsors and, unlike in other parts of the world, loans (and not bonds) represent most of the debt market. When these markets are open for business, they will be more competitive than private credit. While public debt markets in Asia showed signs of recovery towards the end of 2024, they have not come back in a way that would result in such refinancings becoming commonplace.

Bank lending remains the dominant and – for many sponsors – the preferred form of acquisition financing in Hong Kong, Singapore and the broader Asia market. The space for private credit is mainly in subordinated tranches within capital structures.

Singapore’s status as a gateway to South-East Asia continues unchallenged, but the major regional economies such as Indonesia, Malaysia, Thailand and Vietnam have been suffering under the weight of high USD interest rates and weakened local currency, making offshore foreign-currency borrowings unattractive.

Bank loans remain the dominant/preferred option for many issuers.

Pricing/perceived relative value is an additional impediment.

It is not particularly easy to dissect the private credit market in Asia by reference to categories that are more established in other parts of the world (eg, direct or distressed lending). Perhaps the best way to describe the majority of private credit demand in the region is “opportunistic”. This reflects the bespoke nature of each investment case, which is rarely “cookie cutter” in the same way as, for example, direct lending strategies elsewhere in the world.

Junior and hybrid products certainly form part of the regional private credit universe, which can also include preferred equity.

There are a number of private credit fund managers who will gravitate towards this segment but, given the competition which they can face (from the bank loan markets, in particular), it is not the primary focus for many funds. 

Private credit providers are not active in recurring revenue financings in Singapore.

It is difficult to speak of typical size limits for private credit transactions in Hong Kong, Singapore and other parts of Asia. Most of the volume lies in the mid market, where a bi-lateral loan by a single private credit fund (or a small club) is most common. That said, given the right opportunity, large cheques can be written and, although there are a handful of funds that may have the firepower to take on these larger situations by themselves, they will typically be syndicated across a number of investors.

A correlation can be drawn between deal sizes and the size of the relevant economy where the investment opportunity resides. The People’s Republic of China represents the biggest regional economy, so it is no surprise that (until its recent economic malaise), the biggest deals were being transacted there. The other regional economies are smaller by comparison, so it less common to come across similarly sized investments in issuers based in those other economies.

The regional fundraising environment has remained challenging, with macro-economic headwinds and the prevailing geopolitical environment. Generally speaking, there has been a flight towards the larger fund managers operating global strategies.

See 2.2 Regulators of Private Credit Funds.

Lending in Singapore

The main pieces of legislation in Singapore which regulate the activities of banks, money brokers and money lenders are as follows:

• the Banking Act 1970;
• the Securities and Futures 2001 (SFA);
• the Moneylenders Act 2008 (MLA); and
• the Payment Services Act 2019.

The extent to which a private credit lender must be licensed will depend on the types of activities in which it wishes to engage and the extent to which it can rely on exemptions specified within the relevant ordinances.

While not specific to private credit funds, registration requirements under the following ordinances may also be relevant:

• the Business Registration Act 1974; and
• the Companies Act 1967 (CA).

There is no general requirement for a lender to obtain a licence or regulatory approval solely by reason of taking the benefit of security over assets located in Singapore.

The Monetary Authority of Singapore (MAS) is the main regulatory body overseeing banking activities and the securities and futures markets in Singapore and regulating institutions involved in credit markets, particularly from the perspective of managing financial stability and ensuring prudent lending practices.

While there is currently no specific regulatory body or legislation targeted at private credit funds in Singapore, whether the activities of a private credit fund falls within the purview of the MAS will depend on the types of investment activities in which it engages.

The MAS partners with private credit managers with a strong track record and that are keen to anchor their regional headquarters in Singapore through a private market programme for management of USD5 billion of funds. 

There are no specific restrictions on such investment.

If a private credit lender is regulated by the MAS, certain ongoing reporting requirements will apply. For example, fund managers licensed under the SFA and moneylenders licensed under the MLA are subject to certain reporting requirements.

Except for the above, there are no compliance and reporting requirements which apply specifically to private credit providers in Singapore (for the purposes of this exercise, requirements that may apply to private funds generally, regardless of whether private credit, private equity, etc, and whether any financial reporting and tax filings apply to businesses generally, will not be taken into account).

We are not aware of any recent antitrust cases in Singapore where the principal antitrust regulator, the Competition and Consumer Commission, has expressed any particular concerns with respect to the private credit market.

Given that so many private credit investments in Asia are bespoke arrangements to suit a particular need and will have to be sensitised to local laws and regulations (such as cross-border foreign-exchange controls and limitations on cross-border guarantees and security), it is difficult to generalise and comment on “common” structures. Indeed, with so many deals being cross-border in nature, one of the principal external factors which drives changes to the structuring of private credit deals is the evolving legal and regulatory landscape – eg, whether local laws permit cross-border property mortgages to be granted in favour of a foreign lender; revisions to foreign-exchange rules which may be tightened or loosened according to the views of the current administration, etc.

Looking at a purely domestic Singapore senior secured situation, the structure will appear very similar to that adopted by commercial bank lenders, although, for example, a private credit fund may offer higher LTVs than a commercial bank lender may be prepared for (in the real estate context) or permitted to accept.

Investments in the form of junior debt may be in the form of holdco loans without any direct credit support from the underlying assets or business such that intercreditor arrangements (ICAs) with underlying senior debt tranches are not always required.

Most private credit transactions are term loan facilities and may be delayed-draw, depending on the circumstances. Revolving credit facilities are unlikely to be provided by private credit funds, although some structures have enabled capital to be recycled under certain circumstances (although they are not typical working capital-style revolving credit facilities).

The key documentation involved in a private credit transaction is similar to that of a bank loan. For example, for a senior secured transaction, there will be a facility agreement incorporating any guarantees to be provided (sometimes there will be a separate local law-governed guarantee); the security documents will vary depending on the nature, type and location of the underlying collateral; and any contractual subordination arrangements will take the form of an intercreditor or subordination agreement.

In the Asia context, where recourse to individual founders or “promoters” may be considered important to the credit, personal guarantees are often sought.

Where an important component of the structure is the establishment and operation of controlled bank accounts, there will often be account bank agreements with third-party service providers (typically the agency business of a commercial bank or an independent service provider).

“First-Out, Last-Out” or other transactions which require an agreement among lenders are not very common in Asia, but have featured in investments in Australia where unitranche structures are more common.

As noted above, the structuring of private credit investments in Asia will be heavily influenced by local laws and regulations, and this will inevitably affect the documentary terms. Within the direct lending context where private credit is being provided to financial sponsors to finance an acquisition, the latest market terms on leveraged and acquisition financings can be expected to influence terms. The Asia market tends to be more conservative in this space than the US or UK/Europe, but global sponsors, in particular, continue to seek equivalent terms wherever they invest in the world.

Foreign lenders are not restricted in any way from providing private credit or taking security.

There are no such restrictions.

We are not aware of any take-private financings in Singapore being provided by a private credit fund, so it remains to be seen whether financial advisers will seek to diligence such funds in the certain funds context in the same way as they would for the equity component being provided by a private equity sponsor bidder. There are no particular challenges applicable to a private credit fund specifically (versus, for example, a bank lender) in providing acquisition financing on a private M&A.

This is a matter for negotiation on a case-by-case basis.

Some private credit funds prefer to provide their investment in the form of notes rather than loans, but this tends to be more a matter of form over substance.

Junior tranches introduced to pre-existing structure are typically holdco loans without any direct recourse to the underlying assets or business, usually because such assets and business have already been secured in favour of the first-ranking senior tranche. As a commercial matter, such senior lenders will rarely consent to second-ranking claims, even if an intercreditor agreement is proposed.

If a financing is originated with a multi-tiered financing solution in mind, then whether the junior tranche will benefit from second-ranking guarantees and security will vary on a case-by-case basis. Some or all of the junior tranche may be in the form of a convertible and/or carry an equity warrant.

Private credit transactions in Asia are usually structured as bullet term loans. Whether there is any current pay will depend on the asset or business being financed, but payment-in-kind structures are regularly seen.

Other than to say that call protection in some shape or form is a common feature, there is no universal market standard on call protection for private credit investments. The precise terms will be negotiated on a deal-by-deal basis.

There is no withholding tax payable on principal repayments or interest payments under loans or notes in Singapore unless the lender is established outside the country, in which case the interest due and payable to the overseas lender is generally subject to 15% withholding tax. Exceptions apply if the borrowing qualifies as a Qualifying Debt Security or if the Singapore borrower enjoys a domestic withholding-tax exemption (eg, approved exempt funds, Finance and Treasury Centre or a shipping tax incentive). If the lender is tax resident in a jurisdiction which has a favourable double tax treaty with Singapore, the withholding rate may be reduced or eliminated provided that the lender is the beneficial owner of the interest.

There are nominal charges for registering certain types of security at the Accounting and Corporate Regulatory Authority (ACRA) and the Land Titles Registry. There is also a nominal amount to be paid as stamp duty where security is taken over assets which relate to shares or land.

Interest paid to foreign private credit lenders is generally subject to 15% withholding tax in Singapore, unless this is reduced as described in 4.1 Withholding Tax.

There are currently no specific tax incentives available for private credit lenders lending into Singapore unless their loans qualify as Qualifying Debt Securities (QDS) approved by MAS, which provides for a withholding tax exemption in Singapore on the interest due and payable under the loan(s).

Under Singapore’s tax treaties, interest paid to overseas non-bank lenders is generally subject to a higher withholding-tax rate compared with the withholding-tax rate on interest paid to bank lenders.

The assets over which security can typically be taken and the relevant formalities and perfection requirements are discussed below.

As a general note, in addition to any other security registration requirements set out below, if the security provider is a company incorporated in Singapore or registered in Singapore as a foreign company under the CA, a statement of the particulars of that security must be registered at the ACRA as a charge within: a) 30 calendar days (if executed in Singapore); or b) 37 calendar days (if executed outside Singapore) of its creation. If a company fails to make the registration within the statutory timeframe, officers of the company will be liable to default fines, and the charge will be void against any liquidator and creditors of the company.

Real Property

Security over real property may be taken either by way of a legal mortgage or equitable mortgage. A legal mortgage over real property is created by way of a deed. A charge which does not satisfy all of the requirements for a legal mortgage will take effect as an equitable mortgage.

Security over real estate may need to be registered at the Land Titles Registry and a caveat may need to be lodged with the Singapore Land Authority.

Plant, Machinery and Tangible Assets

The usual form of security over plant and machinery is by way of a charge. Such charge can be fixed (provided that the chargee exerts sufficient control over the secured asset such that any dealings by the chargor with respect to that asset requires the consent of the chargee) or floating (a charge over a fluctuating pool of assets which remains under the day-to-day control of the chargor such that assets may be added or taken out of the pool regardless of the existence of the charge).

Where it is intended to take a fixed charge over the asset, as part of seeking to exercise control as a practical matter, the chargee may require signs or plaques to be affixed which clearly state that the asset is subject to a fixed charge, and that any dealings with the asset will require the consent of the chargee.

Receivables, Book Debts and Other Choses in Action

Security over receivables, book debts and other choses in action is commonly taken through an assignment by way of security. In so doing, it is important to ensure that there are no prohibitions or restrictions on assignment in the underlying agreement giving rise to the chose in action as, otherwise, such assignment will be invalid.

An assignment may be legal or equitable. In order to take effect as a legal assignment: a) the assignment must be in writing; b) the assignment must be absolute; c) the assignment must be notified in writing to the counterparty in the underlying agreement; and d) it must not purport to be by way of charge only. If any of these requirements are not met, the assignment will be an equitable assignment.

Intellectual Property Rights

Security over intellectual property is usually taken by way of a fixed or floating charge, and, depending on the type of intellectual property, may be registrable with the Intellectual Property Office of Singapore.

Shares

Security over shares can be taken by way of a legal mortgage or equitable charge. Legal mortgages entail legal title to the shares being transferred to the mortgagee and, as such, equitable charges are the more common form of security over shares.

A number of ancillary documents are typically required to be delivered in connection with the charge, including: a) the original share certificate(s); b) pre-signed but undated instrument(s) of transfer; c) pre-signed but undated letters of resignation from each of the directors of the subsidiary whose shares are being charged; d) letters of authorisation from each of the directors of the subsidiary to date the letters of resignation upon an enforcement sale. The constitution or articles of association of the subsidiary whose shares are being charged is also usually amended to remove any transfer restrictions that may hamper a lender’s enforcement of the security.

To the extent that the shares are listed in Singapore (ie, book-entry or scripless securities), security can be taken by way of a statutory assignment or statutory charge in the prescribed form and registered with the Central Depository (Pte) Limited in Singapore, or by way of common law security. When taking security over listed shares, it is important to ensure that the relevant disclosure and reporting requirements are complied with.

Where security is being taken over shares of a Singapore company, or where a Singapore company is providing security over shares it owns in a foreign company, stamp duty of up to SGD500 is payable to the Inland Revenue Authority of Singapore.

Floating charges are recognised under Singapore law.

Whether private credit lenders will insist on fixed versus floating charges will depend on the situation. As for commercial bank loans, it is generally recognised that a business will need sufficient flexibility to operate. Therefore, a nuanced approach is usually adopted depending on the type of asset.

For example, floating charges will be taken over operating accounts but fixed charges will be taken over specific “control” accounts that have been established to underpin the lending structure. Floating charges can be expected for trading stock. Fixed charges will be taken over real estate and shares, etc.

Subject to the following, it is generally permissible for Singapore companies to give downstream, upstream and cross-stream guarantees in accordance with:

1. any restrictions under that company’s constitution or articles of association;
2. the general requirement for corporate benefit; and
3. financial assistance rules (see 5.4 Restrictions on the Target).

Under the CA, private companies are not prohibited from providing financial assistance for the acquisition of shares in that private company or the holding company or ultimate holding company of that private company. “Financial assistance” is not defined in the CA, but the CA provides that the term includes the making of a loan, the giving of a guarantee or the provision of security.

On the other hand, public companies, which are defined under the CA as companies that are not private companies (“private companies” being defined as those whose constitution restricts the right to transfer their shares and limits to not more than 50 the number of their members) are prohibited from providing financial assistance, unless they undertake one of the whitewash procedures in the CA, which may include one or more of the following actions:

1. a board resolution is passed that such financial assistance is in the best interests of the company;
2. all the directors of the company make a solvency statement in relation to the giving of the financial assistance;
3. a special resolution is passed by the shareholders of the company; and/or
4. the giving of such assistance does not materially prejudice the interests of the company or its shareholders, or the company’s ability to pay its creditors.

Unless the parties are operating in a regulated sector (eg, insurance), there are no particular consents required for the grant of security or guarantees.

Hardening Periods

Hardening periods in Singapore are as follows.

• Transactions at an undervalue – within three years before the commencement of judicial management or winding-up of the company.
• Unfair preference – within one year before commencement of winding-up proceedings of the company. This period is extended to two years if the unfair preference is given to a person connected with the company.
• Avoidance of floating charges – within one year before commencement of judicial management or winding up proceedings of the company. This period is extended to two years if the floating charge is created in favour of a person connected with the company.
• Extortionate credit transactions – within three years before the commencement of judicial management or winding-up of the company.
• Transactions defrauding creditors – no hardening period.

Retention of Title

Singapore recognises “retention of title” (RoT) clauses with the primary legislation having application to such concepts being the Sale of Goods Act 1979. RoT clauses may not work where the original buyer has on-sold the relevant goods to a third-party bona fide purchaser for value without notice. The effectiveness of such provisions may also be limited in an insolvency of the buyer where the relevant goods have been transformed or incorporated into other products.

Anti-Assignment

Singapore law recognises anti-assignment provisions. As such, if security is intended to be taken over contractual rights, the underlying contract should be examined to ensure that there are no such provisions, or that, if they exist, the relevant consents are obtained. In addition, rights under contracts that are “personal” to the contracting parties (eg, an employment contract) are not assignable.

For completeness, note that, as a matter of public policy, it is not generally possible to assign (by way of security) a bare right to sue or litigate.

Security is typically released by way of a deed of release between the parties in respect of which the security was entered into.

For any registrations applicable to the grant of security which are noted in 5.1 Assets and Forms of Security,there will be a corresponding de-registration process.

Under Singapore law, it is possible for chargors to grant multiple charges over the same asset. The rules governing priority of competing security interests are complex, but some general rules are set out below. 

• As between two fixed charges, the fixed charge which has been granted earlier in time takes priority over the other, provided that if they are registrable, both fixed charges have been registered within any applicable time limits.
• A floating charge becomes a fixed charge only upon crystallisation and ranks behind other fixed charges even if such fixed charges were created after the floating charge (but before it crystallises).
• In respect of assignments and charges over the same chose in action, the starting point is that priority is determined by the creditor that serves notice first on the contract counterparty, provided that at the time of the assignment or the creation of the charge, that creditor did not have any notice of any earlier assignment or charge over that chose in action to any other assignee or chargee and was acting in good faith and gave good value for that assignment/charge.

Where multiple charges are granted over the same asset, the parties should enter into an intercreditor or subordination agreement. As of the time of writing, there is no direct case law on whether such arrangements would survive insolvency, but the market practice is to operate on the basis that they do (there are some helpful English law decisions in this area which may be persuasive).

While, by definition, such form of subordination means there will not be any competing claims, structural subordination is also often employed.

The concept of a priming lien is very new in Singapore. It is rarely granted, and, as of the time writing, has not been granted to any creditor. This is discussed in more detail in relation to Debtor-in-Possession (DIP) Financing, below. Priming liens do not have the same prevalence in Singapore as they do in the US. In practice, Asian creditors rely on ranking of security interests at law and ICAs.

ICA terms for regulating second ranking security will include the following with exceptions and standstill periods negotiated on a case-by-case basis:

• restrictions on payments;
• restrictions on enforcement action;
• provision regulating voting on an insolvency; and
• provisions regulating amendments to the first-ranking and second-ranking documentation.

A key area of focus for the second lien will be when it can instigate enforcement, independently of the first lien, and the extent to which it can influence the manner and terms of enforcement.

Cash-pooling arrangements exist. Private credit lenders (and indeed bank lenders) will usually accept that the account bank with whom operating accounts are maintained will, by virtue of their status as account bank, have priority for any unpaid bank account fees, etc. Cash pooling in itself will not necessarily be problematic if, for example, security has been taken over all relevant accounts, including the main pooling account. Given the nature of these arrangements, security will be of a floating – rather than fixed – nature. Lenders will generally recognise the working-capital efficiency and benefits of cash-pooling and cash-management arrangements.

Treatment of hedging will vary from deal to deal, taking into account its commercial significance (for both the issuer and the lender) and the extent to which a hedging provider would be willing to provide hedging without the benefit of the transaction security.

As mentioned in 2.1 Licensing and Regulatory Approval,there is no general requirement for a lender to obtain a licence or regulatory approval solely by reason of taking the benefit of security over assets located in Singapore.

Lenders in a syndicate can (and, in fact, customarily do) appoint a trustee to: i) hold security on the syndicate’s behalf; ii) enforce the syndicate’s rights under the loan documentation; and iii) apply any enforcement proceeds to the claims of all lenders in the syndicate. There is no requirement in Singapore for security to be granted directly to each individual lender in a syndicate.

The finance documents will set out the circumstances in which a secured lender (whether bank or non-bank) can enforce its collateral. There will, in the usual way, be a suite of representations and warranties, undertakings, financial covenants and events of default with an ability by the lender to accelerate the loan upon a breach.

There are no particular formalities which are required to make a demand under a loan or a guarantee, provided that the conditions for a demand (eg, non-payment) have been met.

There are two main ways in which security can be enforced, by exercising a power of sale or by foreclosure.

Power of Sale

While a power of sale can arise by statute (the power of sale is almost always explicitly granted by contract pursuant to the provisions of the relevant security agreement), in exercising such power, the chargee is generally bound to act in good faith and to obtain a proper price.

Rather than exercise the power of sale directly, the chargee may (and usually will, if permitted by the agreement) appoint a receiver to conduct the sale.

Foreclosure

Foreclosure is a process by which the chargee becomes the absolute owner of the charged/mortgaged property. Foreclosure must be sanctioned by a court order, and is not an enforcement method commonly pursued by creditors.

Receivers

A creditor may appoint a receiver if the relevant security document grants it the right to do so. Most security agreements will provide for the appointment of a receiver including the terms of any such appointment.

The appointment must be in writing. Although the receiver is usually appointed by the lender, it is typically provided in the underlying security documents that the receiver is the debtor’s agent. The receiver’s powers are generally regulated by the underlying security documents and usually include powers to take possession of and to sell the property.

It is not really possible to speak of a “typical” restructuring. The core tenet in a restructuring remains to maximise value and realise this value in an expeditious manner. For example, lenders under an ABL structure will be focused on enforcing security over bank accounts and the receivables. Where the main security asset is real estate, enforcement of the property mortgage may be foremost in the lender’s mind. Share pledges can certainly be expected to play an important role; particularly in dealing with structurally subordinated creditors and where the view is that the maximum realisation value lies in a sale of the business as a going concern.

Foreign Governing Law and Submission to Jurisdiction

Singapore courts usually recognise and apply the parties’ choice of law to govern the substantive merits of a claim subject to certain limited exceptions which are rooted in public policy considerations and some specifically excluded areas, such as procedural rules and revenue matters.

Waiver of Immunity

Under the State Immunity Act 1979 (SIA), foreign states are generally immune from the jurisdiction of Singapore courts save for certain exceptions provided in the SIA, such as where a state has submitted to the jurisdiction of the courts of Singapore, or where the proceedings relate to commercial transactions entered into by a state or a contractual obligation of a state (whether commercial transaction or not) that has to be performed wholly or partly in Singapore.

There are two general and well-established routes to enforcement of foreign judgments in Singapore.

Singapore provides a statutory regime for the recognition and enforcement of foreign judgements under the Reciprocal Enforcement of Foreign Judgments Act 1959 (the REFJA).

Under the RFJA, a judgment creditor can apply to the General Division of High Court in Singapore for registration of a final judgment to which the REFJA applies. The application must be made within six years after the date of the judgment. Once registered, a foreign judgement can be enforced in Singapore. As of writing, this registration scheme under the REFJA applies to qualifying judgments (typically final monetary judgments) from the courts of various countries including Australia, India, Hong Kong and the United Kingdom.

The second route for the enforcement of a non-Singapore judgment for a fixed or ascertainable sum of money is via a common law court process. A judgment creditor can apply to have such judgment enforced by a separate action. Such a judgment will be enforced in Singapore by common law subject to a number of public policy and due process conditions.

Singapore is a contracting state to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This provides for the enforcement of arbitral awards from other signatory states.

There are no restrictions of a generic nature on a foreign private credit lender’s ability to enforce its rights under a loan or security agreement.

Security enforcement processes by a secured creditor typically entail the appointment of a receiver. The appointment process need not be very lengthy, and certain lenders may well have a history of appointing certain receivers, which often expedites the process.

Assuming the enforcement is not contested, the most time-consuming aspect of enforcement, once commenced, is to ensure that the duty to obtain a proper price has been discharged. Typically, this will be achieved by running a public auction process, which can take several months because the prevailing economic conditions, the business or asset concerned, and other factors all combined to determine market interest.

The costs and expenses of a restructuring will usually include lender fees, receiver fees, legal fees and advisory fees. Depending on the situation, there may be others (eg, broker fees for marketing a property). Such fees can be expected to be negotiated on a case-by-case basis and may involve abort discounts and success uplifts.

Jurisdiction or country risk is a prime consideration for private credit lenders. Across South-East Asia, there are varying levels of certainty around due process and predictability of outcomes. This weighs heavily on the decision to enforce.

In practice, this weights the scale in favour of consensual or negotiated exits (whether by sales of assets, refinancings by new lenders, etc). Parties may eventually resort to court-based enforcement processes as a means of generating leverage on obligors and sometimes as the primary route to an exit.

There is no “one-size-fits-all” approach when it comes to enforcement. The particular enforcement steps should be established after a careful consideration of the situation, including the available legal options, which will vary across South-East Asian jurisdictions, and the relative commercial positions of the private credit lenders and the obligors.

Ultimately, the goal of the private credit lender should be to develop a strategy that is more likely to lead to the debt being repaid by the obligors or restructured on more favourable terms, rather than the dogmatic pursuit of black-letter legal rights.

Generally speaking, under Singapore’s environmental laws and regulations, the owner or occupier of a property will have primary responsibility for complying with such laws and regulations. This means that, where a secured lender simply holds the benefit of the security, it is not likely to be in the firing line when it comes to environmental liability in Singapore. However, for the same reason, caution will need to be exercised where the secured lender is planning on taking possession or ownership of the property which will result in the lender effectively becoming the owner or occupier and exercising operational control of the property in question.

In-Court Insolvency and Restructuring Processes

There are a range of in-court insolvency or restructuring processes available in Singapore, including liquidation (voluntary or court-ordered), judicial management and schemes of arrangement.

Voluntary Liquidation

There are two types of voluntary liquidation – members’ voluntary liquidation and creditors’ voluntary liquidation. The former relates to the liquidation of a solvent company initiated by its own directors, whereas the latter relates to liquidation of a company that is likely to become insolvent as decided by a meeting of its creditors.

Involuntary Liquidation

An involuntary liquidation, or court-ordered liquidation, is commenced by filing an application in court for the company to be placed in liquidation. An application may be made by a director of the company, a creditor of the company, a contributory, a liquidator, a judicial manager, government ministers, or the Monetary Authority of Singapore, as appropriate. The court must be satisfied that one or more of the grounds set out in Section 125(1) of the Insolvency, Restructuring and Dissolution Act (IRDA) have been met. Predictably, the most common ground put forward for involuntary liquidation is that the company is unable to pay its debts.

Judicial Management

Judicial management allows a company to be placed in the control of a third-party insolvency practitioner with the goal of ensuring the survival of the company as a going concern, procuring the success of a court-sanctioned compromise or arrangement, or otherwise ensuring a more advantageous realisation of the company’s assets than in a winding-up scenario. A company, its directors or a creditor of the company may apply for judicial management.

Scheme of Arrangement

A scheme of arrangement, which may be applied for under Section 71 of the IRDA is a DIP process that grants the company the power to propose a compromise or arrangement with its creditors. The proposed scheme must obtain creditor approval at the levels mandated by statute and be sanctioned by the court in order to pass. A scheme of arrangement cannot be effected without the requisite creditor approvals and the sanction of the court.

Once a company enters any of the above processes, a lender’s enforcement rights may be (and typically are) stayed (with the exception of certain proceedings, for example, arbitration proceedings already commenced). Additionally, companies may make a separate moratorium application under Section 64(1) of the IRDA even before a formal process, such as the scheme of arrangement, has been launched. An automatic moratorium will be granted for up to 30 days from the date of such application. The key take-away for private credit lenders is that once a formal rehabilitation process or insolvency process is commenced in Singapore, a degree of care needs to be exercised to ensure that applicable moratoriums are complied with and full advantage is taken of any windows for the enforcement of security eg, enforcement of security with the permission of the court.

Creditors will have their claims ranked in the following order and pari passu vis-à-vis the other creditors in the same class:

• statutorily preferred creditors (specified creditors entitled to receive payments in priority, eg, employees);
• secured creditors (creditors benefiting from a form of security, eg, a mortgage or a charge) in respect of recoveries from the secured asset;
• unsecured creditors (all other creditors, eg, trade creditors); and
• shareholders.

Preferential claims, which are to be paid in priority to all other secured and unsecured debts, include the following:

• the costs and expenses of winding-up (including remuneration of the liquidator and other winding up costs);
• wages or salary payable to any employees of the debtor, employee retrenchment benefits, etc; and
• any tax or goods and services tax due.

The length of an insolvency process and time taken to generate recoveries can vary significantly and will depend on a host of factors, including the complexity of the insolvency, the number of creditors, the presence of dissenting or otherwise uncooperative creditors, the location of the assets, the type of assets and related factors.

A typical, straightforward insolvency process of a company with minimal to no meaningful assets (for example, a shell company or holding company with no funds or property of its own), could take as little as six to eight weeks, whereas a complex insolvency process involving a large creditor base and a varied asset pool could take over 12 months.

Singapore is uniquely placed as one of only two jurisdictions in the APAC region offering a DIP financing regime. The DIP financing regime bears similarities to that of its US counterpart, and allows certain new money investments to be secured over assets (both encumbered and unencumbered) and/or prioritised over other debts and obligations of the company in the event of a liquidation.

This can be a useful tool for companies to incentivise creditors (existing or new) to inject fresh funds into the company, and there is now precedent of the court granting an application for a roll-up financing (see Re Design Studio Group Ltd and other matters [2020] SGHC 148).

There is also flexibility for creditors and debtors to agree turnaround arrangements on a consensual and out-of-court basis. It is not unusual for such consensual arrangements to be employed instead of formal restructuring and insolvency proceedings. The choice will often depend on the commercial considerations of the parties, and whether a successful re-organisation can be achieved without resorting to the coercive powers of the court, the need to remove the management of the company or the reliance on statutory moratoriums to create the breathing space needed to implement a scheme of arrangement.

Where an obligor becomes insolvent, lenders are typically prevented from enforcing on their rights under the relevant finance documents and security by virtue of the statutory moratoriums.

Lenders should always seek advice in the first instance on steps they can take to safeguard their existing security and rights under any related finance document. Taking early advice will also confirm the scope of any moratoriums and any opportunities that may arise for enforcement action with the passage of time.

It is important for the lender to take prompt action to definitively ascertain the legal of status of the debtors, ensure that their claims are recorded in the appropriate insolvency proceedings and take steps to ensure that they are represented in any ensuing proceedings.

The following transactions may be voidable upon insolvency and are subject to clawback risk.

• Transactions at an undervalue (Section 224 of the IRDA) – a liquidator may petition the court for the avoidance of transactions entered into in the period of three years prior to the commencement of the liquidation proceedings, and the company is insolvent at the time the transaction was entered into or subsequently became insolvent as a result of entry into that transaction. A transaction at an undervalue is a gift for which no consideration was received or a transaction for which the consideration received is significantly less than the consideration given by the company.
• Unfairly preferential transactions (Section 255 of the IRDA) – an unfairly preferential transaction may be set aside by the court at the request of a liquidator if that transaction occurred, in the case of a connected person, within two years of the commencement of the liquidation; and, in the case of an unconnected person, within one year of the commencement of the insolvency. A transaction is unfairly preferential if the company does anything or allows to be done anything to or for the benefit of a creditor, guarantor or surety that has the effect of putting that person in a better position than it would be in the winding up of that company if that action or thing had not been done. It is also necessary for the company to have sought to bring about the preferential effect and was insolvent or became insolvent as a result of this preference.
• Extortionate credit transactions (Section 228 of the IRDA) – an extortionate credit transaction is a transaction for the provision of credit to the company which is provided on exorbitant terms or is substantially unfair having regard to the risk to the credit provider. A liquidator can petition the court for the avoidance of such transactions if they occurred within the period ending three years before the commencement of liquidation proceedings. 

• Avoidance of certain floating charges (Section 228 of the IRDA) – a floating charge created within the period of two years prior to the commencement of insolvency proceedings in the case of a connected person and one year in the case of an unconnected person may be set aside by the court at the request of a liquidator. A floating charge created within this look-back period is vulnerable if the company was unable to pay its debts at the time when it was insolvent or subsequently became insolvent as a result of the creation of that floating charge.

Yes, a creditor may exercise its rights of set-off if there are mutual debits and credits between the creditor and the debtor company. Insolvency set of is mandatory where there are mutual credits, debts or other dealings between the creditor and the company. Any balance remaining after set-off is a debt provable in restructuring and insolvency proceedings.

There is no typical format for a private credit out of court restructuring. An out-of-court restructuring is an often favoured option for the reasons mentioned in 6.6 Practical Considerations/Limitations on Enforcement and also where there is alignment amongst creditors holding a controlling, or otherwise significant, debt participation. A coordinated group of creditors will have more leverage to negotiate a better position for itself in an out-of-court restructuring than an uncoordinated or fractured group of creditors.

The significance of equity holders and other constituencies varies. However, the equity holders and guarantors are often looked to for the provision of new capital and improvements in credit support.

The consensual nature of an out-of-court restructuring means that there is a need for a certain level of co-operation to be achieved among all stakeholders in order for the consensual restructuring to occur.

The primary advantage of an in-court process (in Singapore) is the ability to use the coercive powers of the court to establish a moratorium to create breathing space and to compromise existing debt and create new security in a manner which facilitates a more broad-based debt (and corporate) restructuring of the debtor.

As mentioned above, the attractiveness of a court process is not uniform across South-East Asia, which could erode its perceived advantages.

Where a company faces dissenting lenders, it may need to rely on an in-court proceeding to effect a restructuring.

A scheme of arrangement is the most usual choice. In order for a scheme of arrangement to be passed at a scheme meeting, a majority in number of creditors representing 75% in value of each class of scheme creditors, and who were present and voting at the relevant scheme meeting, must approve the terms of the scheme. Unanimous agreement, which is often not possible to achieve, is not required, and the dissenting minority becomes bound by the scheme. Assuming that the scheme is passed, an application must be made for the court to approve the terms of the scheme. Once a court order is made, the order must be lodged with the Registrar of Companies. Any scheme passed by creditors and approved by the court will become binding on all creditors, including the dissenting minority.

Cram-Down

Singapore has adopted the cram-down feature which gives the Singapore courts power to order that a dissenting class of creditors be bound by the scheme. This means that, if there are two or more different classes of creditors or members to be bound by the scheme, and approval is not obtained from one or more of the classes (referred to as the dissenting class), the court may nonetheless sanction the scheme such that it also becomes binding on the dissenting class(es).

Protections for Dissenting Lenders

Dissenting lenders can take comfort in the fact that they will not be indiscriminately crammed down. The threshold for invoking this power is in fact quite high. A cram-down may only take place if a majority in number representing 75% in value of all the creditors intended to be bound by the scheme have approved the scheme, and if the court is satisfied that the arrangement does not discriminate unfairly between two or more classes of creditors, and is fair and equitable to each dissenting class.

Singapore offers the pre-pack scheme of arrangement, which enables a distressed company to apply to the court with a pre-negotiated scheme. This can reduce the time required for the scheme to be sanctioned by eliminating the need to call a meeting of the creditors to vote on the scheme (the votes usually being pre-tabulated prior to the application being made) and a pre-pack scheme may be sanctioned within two months from the date of application.

The court will sanction a pre-pack scheme if it is satisfied that the creditors that are meant to be bound by the scheme have been provided with the information necessary to make an informed decision to vote on the scheme, that sufficient notice of the company’s application has been provided, and that if a meeting of creditors had been convened the company would have obtained the requisite level of approval from its creditors.

Private credit deals are, by their nature, non-public and confidential. In terms of the public domain, we are not aware of any notable litigation having been reported.

See 8.1 Notable Case Studies.

See 8.1 Notable Case Studies and 8.2 Lessons Learned.