Insolvency 2024 Comparisons

Singapore’s personal and corporate insolvency and debt restructuring laws are set out in an omnibus legislation, the Insolvency, Restructuring and Dissolution Act 2018 (IRDA).

The IRDA came into force on 30 July 2020, and the Bankruptcy Act and the relevant provisions in the Companies Act 1967 (the “Companies Act”) were accordingly repealed. The scheme of arrangement provision remains in the Companies Act (Section 210), with other related provisions being moved to the IRDA.

The following restructurings and insolvency regimes are available in Singapore:

• schemes of arrangement (proposed by a company and approved by a requisite majority of creditors);
• judicial management (this may be applied for by either a creditor or a debtor);
• court-ordered liquidation (usually petitioned by a creditor); and
• voluntary liquidation.

Receivership proceedings are also available.

Types of Statutory Officers

Statutory officers include:

• a liquidator of a company placed in liquidation;
• a judicial manager of a company placed under judicial management; and
• a receiver and manager of property of a company.

Statutory Roles, Rights and Responsibilities of Officers

The role of a liquidator is to take control of the company’s affairs and to realise its assets and distribute them to the company’s creditors in accordance with the statutory priorities set out in the IRDA. In order to fulfil their role, a liquidator owes duties to the company’s creditors and also to the members where there are sufficient assets to be distributed to the members after all the company’s debts and liabilities have been duly repaid. The liquidator reports to the creditors, Official Assignee and the court by which they were appointed.

The function of a judicial manager is to achieve one or more of the three purposes of a judicial management:

• the survival of the company, or the whole or part of its undertaking, as a going concern;
• the approval under Section 210 of the Companies Act or Section 71 of a compromise or an arrangement between the company and any such persons as are mentioned in the applicable section; and
• a more advantageous realisation of the company’s assets or property than in a winding-up.

A judicial manager owes duties to the creditors of the company, and reports to the creditors and the court that appointed them.

A receiver and manager is appointed by a secured creditor to manage and realise the assets secured to that creditor and apply the proceeds of sale towards the discharge of the debts owed to them. The receiver and manager owes a duty to the secured creditor that appointed them and reports to that creditor. While the receiver and manager does not owe a general duty of care to the company whose assets they have been appointed to manage, they must take reasonable steps to obtain a proper price for the security and act for the purpose of realising the security

Selection of Officers

A liquidator, judicial manager and receiver or manager may be appointed by the party that applies for the company to be placed in liquidation or in restructuring proceedings.

In the context of a creditors’ voluntary liquidation, where a company nominates its proposed liquidator and a creditor nominates a different person as liquidator, the creditor’s nominated liquidator will be appointed (see Section 167(1) of the IRDA).

In the context of involuntary liquidations, judicial management applications and the appointment of receivers or managers, the court will consider the basis for any objection to the applicant’s proposed liquidator, judicial manager or receiver or manager in deciding whether to grant the appointment of that individual as officer in the proceedings.

Liquidators may be removed or replaced by the members in a members’ voluntary liquidation and by creditors in a creditors’ voluntary liquidation, whereas receivers and managers may be removed by the secured creditor that appointed them. In all other scenarios, the officers may be removed or replaced by the court.

The judicial manager’s exercise of discretion can be challenged under Section 115 of the IRDA by an affected contributor on the basis that “it is unfairly prejudicial” to it. This has been affirmed by the Singapore Court of Appeal (see Yihua Lifestyle Technology Co, Ltd. v HTL International Holdings Pte Ltd [2021] 2 SLR 1141), which held that two situations could support creditor action based on the “unfair” conduct of the judicial manager:

• unfair or differential treatment; and
• when a judicial manager’s decisions cause harm to the company’s members or creditors as a whole.

Only persons holding an insolvency practitioner’s licence are qualified to be appointed as liquidators, judicial managers and receivers or managers, although a liquidator appointed in a members’ voluntary liquidation does not require an insolvency practitioner’s licence. This means that a director or officer of the company may serve as the liquidator in a members’ voluntary liquidation.

Creditors will generally be divided into one of three categories, being:

• preferential 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);
• unsecured creditors (all other creditors, eg, trade creditors); and
• shareholders.

Their claims will be ranked in the above order and pari passu vis-à-vis other creditors in the same class, unless a particular order is prescribed (see 2.2 Priority Claims in Restructuring and Insolvency Proceedings).

The IRDA provides for payment to be made in respect of the following preferential claims, in priority of all other secured and unsecured debts, in this order:

• the costs and expenses of winding-up (including remuneration of the liquidator);
• any other costs and expenses of the winding-up and the costs of any audit;
• the costs of the application for the winding-up order;
• wages or salary payable under any contract of employment;
• any amount due to an employee as a retrenchment benefit or ex gratia payment;
• all amounts due in respect of work injury compensation under the Work Injury Compensation Act;
• all amounts due in respect of contributions payable by the company relating to employees' superannuation;
• all remuneration payable to any employee in respect of vacation leave; and
• any tax or goods and services tax due.

A significant addition to Singapore’s restructuring regime was the adaptation of the Chapter 11 super-priority rescue financing in 2017 – the first of its kind in the Asia-Pacific and to date only one of two Asia-Pacific jurisdictions to offer such a regime. Under the IRDA, this allows new money to be given varying degrees of priority, with the highest being security over property that has already been secured to another creditor of the company (ie, “priming”). Funders with the benefit of a super-priority order may receive payments ahead of other priorities provided for in the IRDA.

Priority New Money

Different levels of priority new money can be made available by third parties. The IRDA contains provisions allowing 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, in certain instances (this is covered in further detail in 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure).

Liens/Security

Secured creditors are creditors with the benefit of a security interest, including in the following forms:

• mortgages (real estate);
• pledges (goods);
• fixed and floating charges (equity shares, intellectual property, accounts receivables, bank accounts, inventory); and
• liens (goods).

Rights and Remedies Outside a Restructuring or Insolvency Context

Outside a restructuring or insolvency context, secured creditors may enforce their security in a number of ways. These include:

• crystallising any floating or equitable charges (usually by issuing a letter of demand);
• taking possession of, or otherwise asserting control over the assets (eg, freezing cash assets in an account, forcing the resignation of directors by enforcing on share security); and/or
• disposing or otherwise dealing with the security assets (eg, selling a property asset).

While unsecured creditors do not benefit from the same standard of protection as secured creditors, there are still a number of rights and remedies that remain available to them outside a restructuring or insolvency context.

Beyond enforcing on their contractual rights (eg, suing for specific performance, which is costly and where the likelihood of success may be small in a distressed scenario), unsecured creditors, such as trade creditors, can consider the following:

• applying for a pre-judgment attachment;
• retention of title clauses; and
• exercising their rights of set-off.

Pre-judgment Attachments

The Singapore courts have the power to grant pre-judgment attachments to preserve assets as an ancillary to a main substantive cause of action. Trustees and liquidators have been seen to apply for pre-judgment attachments vis-à-vis third parties, including related parties who may have claw-back-related or other liabilities for losses to the insolvent estate they are administering.

Retention of Title

Including a Retention of Title clause in the sales contract will allow the seller to preserve its property rights to the goods until payment is made in full. This serves as a form of security regardless of whether or not the purchaser becomes insolvent. Retention of Title clauses are particularly relevant to trade creditors and must be hardwired into the sales contract to be effective.

Rights of Set-Off

An unsecured creditor may seek to rely on any contractual set-off provisions negotiated in the relevant sales contract.

Consensual Restructuring and Workout Processes

Consensual restructuring and workout processes are typically used by companies with few creditors or in situations where only discrete parts of the debtors’ capital structure are being restructured. Such a compromise may be entered into without needing to resort to the coercive powers of a formal court process if the relevant creditors are not overly hostile or are otherwise willing to negotiate and agree to a restructuring proposal. It is not mandatory for a debtor to enter into consensual restructuring negotiations before launching a formal statutory process. 

During the negotiation phase, the creditors typically agree to a standstill (ie, they will not take legal action against the company to enforce their rights), although many will still seek to preserve their rights by issuing demand letters and/or statutory demand letters to ensure that they will be able to take action immediately if the negotiations fall through.

Where creditors are noteholders, they are often represented by ad hoc committees in a consensual restructuring. Generally speaking, where a restructuring is proposed by way of a scheme of arrangement, noteholders will vote individually in respect of their proportionate note indebtedness and not collectively via the Note Trustee. It is also not uncommon for financial and trade creditors to organise themselves into committees to facilitate discussions with the insolvent company. The directors and officers of the company are normally welcoming of such committees since they facilitate efficient communication. While there is no legislation governing such consensual processes, and it is not mandatory to enter into consensual restructuring negotiations before commencing a formal statutory process, there have been attempts to develop industry practices, such as the Association of Banks in Singapore’s “Principles and Guidelines for Restructuring of Corporate Debt”.

New Money

In consensual restructurings, new money is typically injected by some combination of existing shareholders, white knights who are interested in rehabilitating the company, existing lenders or new lenders. These funds may be utilised to fund cash flow requirements or the repayment (in full or in part) of the company’s outstanding debts, or to otherwise address the company’s debt burden. In situations where the company’s outstanding debts are repaid, the receiving creditors will usually be required to relinquish all claims (including claims that may not arise out of the creditor-debtor relationship) against the company upon the receipt of payment or other consideration. There is no formal process, and any agreement reached in this regard will consist of inter-related agreements entered

Where a Consensual Restructuring is Appropriate

While companies generally attempt to enter into a consensual restructuring and workout process with specific creditors by agreeing to postpone or reduce payment obligations, this is often not a sustainable method of restructuring over the medium to long term. If the debtor company is on the brink of insolvency, a creditor agreeing to receive payments may be concerned that such payments could be vulnerable to claw-back actions in the event of a liquidation or judicial management. Ultimately, for such consensual restructuring to be workable, the consent of all affected creditors will be needed.

Companies – particularly those facing structural or systemic challenges – and their officers are typically advised to consider formal restructuring mechanisms early in the day so as to avoid exposing directors and officers to potential personal liability for wrongful trading and to reduce the risk of claw-back actions (for which they may be personally liable), and the associated fiduciary claims that may be made against directors. Early action also encourages creditors to reconsider their expectations of the recovery of debts from the distressed company and reduces the creditor “fatigue” that sets in after negotiating with the company for an extended period before the company decides to begin a formal restructuring process.

Out-of-Court Financial Restructuring or Workout

A consensual, agreed out-of-court financial restructuring or workout is not conferred a unique statutory status and is merely a matter of contract. As such, it only serves to bind consenting parties and may be accomplished and effectuated only with the unanimous agreement of the relevant creditors. This requires the creditors to enter into a new contract with the company to vary their entitlements. There is no cram-down mechanism to bind dissenting creditors of the company, who are free to take action against the company.

As such, unless the company is confident that all of its relevant creditors will agree to its restructuring plan, it will likely have to utilise the power of the courts and the scheme of arrangement mechanism.

Statutory Procedure for Opening a Financial Restructuring/Reorganisation

The statutory process for a financial restructuring in Singapore is the scheme of arrangement, which may be applied for by a company, its creditors (including contingent creditors) or members, a liquidator of the company or a judicial manager in the context of a company in liquidation or under judicial management, respectively. A scheme of arrangement commonly involves the reorganisation of the company’s liabilities or obligations to its creditors or members, or any class of them.

In a scenario where the debt of a group of entities is being restructured, each entity may consider submitting a parallel scheme application to be heard together with the “main” application. The sanctioning and implementation of each parallel scheme will then be made inter-conditional upon each other. Unlike a liquidation, there are no particular gating requirements that a company must meet in order to make the application (eg, no requirement for insolvency or particular financial distress).

To facilitate group-wide restructurings, the IRDA also provides for the moratorium granted over a company to be extended to its holding company, ultimate holding company and subsidiaries, whether such actions are taken against these parties in or outside Singapore.

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. The scheme will also bind creditors and members who choose not to exercise their vote at the scheme meeting. 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.

Even if there is a dissenting class of creditors (such that the scheme does not pass at the scheme meeting), the court nonetheless has the power to cram down the proposed scheme of arrangement such that it binds all scheme creditors. The power to cram down will only be exercised if the court is satisfied that the terms of the scheme do not discriminate unfairly between two or more classes of creditors, and that it is fair and equitable to each dissenting class.

A hallmark feature of the scheme of arrangement is the moratorium that companies may, and often do, apply for to give themselves time and breathing space to put forward a scheme of arrangement and/or to allow the creditors to consider the same pending a vote being taken. As a result, the Singapore courts have adopted a very proactive case management system, with the company being required to provide periodic updates to the court and creditors (or members, as the case may be) to ensure that the company is actively working on its restructuring and not delaying the process unnecessarily.

Arrangement or Compromise

Section 210 of the Companies Act sets out the scheme of arrangement procedure and is worded very broadly, giving a company power to propose a “compromise” or an “arrangement” with its creditors. Whether a proposed scheme constitutes a “compromise” or “arrangement” does not appear to have been considered or decided by the Singapore courts. However, the position taken by the English courts is persuasive. While English courts have found that an “arrangement” may be construed more widely than a “compromise”, they have required that the scheme involves some element of give and take, and does not simply amount to a surrender or confiscation.

Three Stages

The scheme of arrangement regime may be broken down into three distinct stages:

• the leave stage, where the company applies to court for leave to convene a scheme meeting;
• the meeting stage, where the creditors vote on the proposed scheme at the scheme meetings convened pursuant to the leave stage, and require approval of a majority in number representing 75% in value of the creditors or class of creditors; and
• the sanction stage, where the company applies to court for sanction of the scheme duly approved at the meeting stage.

Roles of Creditors

Creditors play a vital and central role in a scheme of arrangement. Given that a scheme of arrangement proceeding typically involves a moratorium granted over a significant period of time and essentially impinges upon the rights of creditors to seek recovery from and/or take action against the company, the courts have been careful to ensure that the views of creditors are heard at every stage of the proceedings and accorded due weight.

As mentioned in 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation, a scheme of arrangement requires the approval of a majority representing at least 75% in value of the creditors or class of creditors intended to be bound by the scheme, and who were present and voting at the relevant scheme meeting.

Where the interests of creditors are so dissimilar such that they are unable to sensibly consult together as to their common interest, they will have to be placed in separate classes. A typical example is secured versus unsecured creditors, as the secured creditors are usually expected to receive significantly better recoveries than the unsecured creditors by reason of their security. Given the importance of creditor support throughout the proceedings, creditor committees are often organised and funded by the company.

Where a company obtains a moratorium in aid of its proposed scheme of arrangement, the court will require the company to provide sufficient information to the court and its creditors relating to the company’s financial affairs to enable its creditors to assess the feasibility of the intended or proposed scheme of arrangement. Such information includes a valuation of the company’s significant assets, the company’s disposal or acquisition of property or grant of security over any property, periodic financial reports of the company and its subsidiaries, and forecasts of the profitability and cash flow of the company and its subsidiaries.

At the leave stage, the company bears a duty to make disclosures that would enable the court to determine the issues that it must properly consider at this stage, such as the classification of creditors, the proposal’s realistic prospects of success, and any allegation of abuse of process.

At the sanction stage, the company must demonstrate that it has disclosed sufficient information to ensure that the creditors are able to exercise their voting rights meaningfully, by the time of the creditors’ meeting.

Creditors and Proof of Debt Process

The court will appoint a chairperson of the scheme meeting, who will be required to adjudicate upon the proofs of debt filed by persons claiming to be a creditor of the company, and to report the results of the scheme meeting to the court.

In order for a creditor intended to be bound by the scheme to participate and vote at the scheme meeting, they will be required to file a proof of debt with the chairperson within the time stipulated in the notice of meeting. Where the chairperson rejects a submitted proof of debt and the creditor whose proof was rejected disagrees, said creditor may require an independent assessor to be appointed to adjudicate the matter.

A creditor intended to be bound by the scheme who fails to file a proof of debt will not be entitled to vote or participate at the scheme meeting. The scheme of arrangement may also provide that such a creditor’s debt will be extinguished upon the scheme being approved by creditors and sanctioned by the court. Creditors should thus scrutinise scheme terms and seek independent advice before voting at a scheme meeting.

As mentioned in 3.2 Legal Status, where a restructuring is proposed by way of a scheme of arrangement, noteholders will generally vote individually in respect of their proportionate note indebtedness and not collectively via the Note Trustee.

Determining the Value of Claims and Creditors

The determination of the value of claims and creditors takes place through the creditors being required to file a proof of debt in respect of their claims against the company. The adjudication is carried out by the scheme manager.

Claims of Dissenting Creditors

Once approved by the requisite number of creditors and sanctioned by the court, the scheme of arrangement becomes binding on the company and all scheme creditors intended to be bound, including the dissenting creditors.

Where the requisite majority approval is not obtained in respect of a class of creditors, the company may apply to court for a cram-down order – ie, an order for the scheme to be binding on such class of creditors.

However, the court may not make a cram-down order unless:

• a majority in number of the creditors meant to be bound by the proposed scheme, and who were present and voting (either in person or by proxy) at the relevant meeting, have agreed to the proposed scheme;
• the majority in number of creditors mentioned represents 75% in value of the creditors meant to be bound by the proposed scheme, and who were present and voting (either in person or by proxy) at the relevant meeting; and
• the court is satisfied that the scheme does not discriminate unfairly between two or more classes of creditors, and is fair and equitable to each dissenting class.

Cram-Down

Where the creditors or members have interests that are so dissimilar that they cannot sensibly consult together with a view to their common interest, they will have to be split into different classes, and each class will have to approve the scheme (ie, a majority in number representing 75% in value of each class of creditors or members to be bound by the scheme, and who were present and voting at the relevant scheme meeting).

Singapore has adopted the cram-down feature from the US Chapter 11, 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 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 becomes binding on the dissenting class(es) as well. This may be done 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 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.

Secured Creditor Liens and Security Arrangements

Secured creditor liens and security arrangements may be released as part of the scheme, to the extent that such release is part of a give and take arrangement and does not simply amount to a surrender or confiscation with no benefit conferred upon the secured creditor.

Priority New Money

Different levels of priority new money can be made available by third parties. The IRDA contains provisions allowing 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, in certain instances.

If a company is under judicial management or a scheme of arrangement is being proposed, funders providing fresh capital (as rescue financing) into the company may also require a court order, such that they receive super-priority if the company is wound up.

Depending on the level of priority to be accorded to the rescue financing debt, the company may be required to demonstrate that the company has undertaken reasonable efforts to explore other types of financing that did not entail super-priority, and that it would not have been able to obtain the rescue financing from any person without the grant of super-priority.

There is a growing body of precedents and secondary literature on super-priority applications, such as the recent case of Re Design Studio Group Ltd and other matters [2020] SGHC 148, which was the first reported instance of super-priority being granted to a roll-up financing. Other examples include the super priority financing obtained by No Signboard Holdings Ltd in 2022 and New Silkroutes Group Limited in 2023. These examples have assisted in teasing out the court’s considerations in granting such applications, including the methods used to demonstrate that alternative financing is unavailable (eg, enlisting the services of a financial advisor to approach potential investors).

Restructuring or Reorganisation Agreement

The scheme of arrangement approved by the requisite majority of creditors or class of creditors is subject to an overall “fairness test”. The court’s approval is required at the “sanction stage”, where the court must be satisfied that:

• the statutory provisions have been complied with;
• those who attended the meeting were fairly representative of the class of creditors and the statutory majority did not coerce the minority in order to promote interests adverse to those of the class; and
• the scheme is one which a person of business or an intelligent and honest person, being a member of the class concerned and acting in respect of their interest, would reasonably approve (see The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal [2012] 2 SLR 213 at [70]).

The scheme of arrangement would also provide that the creditors’ claims under their respective contracts are extinguished following the court’s sanction of the same, such that the creditors are no longer entitled to commence proceedings for their underlying claims that have been compromised under the scheme.

Non-debtor Parties

A non-debtor third party may be released from liabilities under the scheme where there is a sufficient nexus or connection between the release of the third-party liability and the relationship between the company and the scheme creditors.

Rights of Set-Off

A creditor may exercise its rights of set-off if there are mutual debits and credits between the creditor and the debtor company. Any balance is a debt provable in restructuring and insolvency proceedings.

Failure to Observe the Terms of Agreements

As a duly approved and sanctioned scheme of arrangement is binding on the company and all of its creditors, a failure by any party to observe its commercial terms could result in an action being brought by the innocent party to require the party in default to comply with the terms of the scheme. However, the court retains a residual discretion to amend or set aside a scheme, particularly regarding matters such as the extension of time for filing proofs of debt, for example (see The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd [2008] SGCA 18).

A company’s failure to perform the terms of the scheme may also risk the entire scheme unravelling and the company being exposed to proceedings by its creditors.

Scheme of Arrangement

A scheme of arrangement is essentially a debtor-in-possession restructuring. This means that the company’s incumbent management remain in control of the company’s business during the restructuring. The company’s management is the party that puts forward the scheme to its creditors. Once the company’s proposed scheme of arrangement has been approved by the requisite majority of creditors and sanctioned by the court, a scheme manager is appointed and has oversight of and ensures that the scheme of arrangement is duly performed by the company. During this time, however, the company’s incumbent management remains in control of the company’s affairs.

During this time, unless otherwise restricted by the terms of the scheme of arrangement, the company is entitled to carry on its business, including borrowing money and incurring debt and liabilities. Typically, these debt and liabilities are incurred for the purpose of improving recovery for the scheme creditors (ie, in the form of litigation funding and/or an injection of equity by existing or new shareholders), and are excluded from the scheme of arrangement.

An automatic moratorium applies for up to 30 days from the date of application for a moratorium under Section 64(1) of the IRDA, except where another Section 64(1) application has been brought in the preceding 12 months by the company. The moratorium may (and typically) extends to prevent secured creditors from enforcing their security.

Restrictions on a Company’s Use of its Assets

Prior to the approval of a scheme of arrangement, there are generally no restrictions or conditions applied to the company’s use of its assets. However, the court may require the company to disclose on a periodic basis any disposals or acquisitions of its assets, as well as the grant of security or charges over its assets, if any.

Should the restructuring fail, any disposal of assets during this time may be subject to claw-back by the liquidator or judicial manager appointed over the company (as the case may be).

Terms may be incorporated into the scheme of arrangement to control the company’s use of its assets during the term of the scheme.

Asset Disposition

Unless specifically provided for in a scheme of arrangement, there are generally no restrictions against the disposal of assets during the restructuring process, including for the purpose of generating income to cover the company’s operating expenses and to realise assets to be distributed to creditors under the scheme. As the company’s directors and officers remain in control of the company during the term of the scheme, they will execute the sale of assets on behalf of the company.

A purchaser will generally acquire good title in a sale executed pursuant to such a restructuring proceeding, unless the scheme fails and the company is subsequently placed into liquidation or judicial management. In such a situation, depending on the terms and circumstances of the transaction, the liquidator or judicial manager (as the case may be) could seek to void the transaction.

Creditors may also bid for company assets and are not prevented from acting as a stalking horse in the sale process. To ensure transparency of the process, all creditors should be informed of the sale and given an equal chance to participate.

A company may also proceed to effectuate a pre-negotiated sale prior to the restructuring process insofar as the company considers that this would be in the interest of the company and its creditors. It should be noted that, in entering into transactions on behalf of the company during the restructuring process, the directors and officers of the company continue to owe fiduciary duties and may be held liable for any breach if the company is later placed in liquidation or under judicial management.

Judicial Management

The judicial management regime allows a company to be placed in the hands of a third-party insolvency practitioner to achieve one or more of the following three purposes:

• the survival of the company, or the whole or part of its undertaking, as a going concern;
• the approval under Section 210 of the Companies Act or Section 71 of the IRDA of a compromise or an arrangement between the company and any such persons as are mentioned in the applicable sections; or
• a more advantageous realisation of the company’s assets or property than in a winding-up.

It is applied for where there is value to be extracted from the company continuing as a going concern instead of being placed in liquidation immediately, but where the directors/officers of the company are no longer comfortable running the business themselves or creditors do not trust management to remain in possession of the company.

Unlike a liquidation, the judicial management regime allows the company to be rehabilitated and to continue as a going concern after the termination of the judicial management order, which could see better returns to creditors than in a liquidation. However, some companies and officers do not take kindly to a third-party judicial manager being appointed by creditors, and may not be willing to work with or co-operate with the judicial manager who takes control of the business once appointed.

Judicial management is an expensive process as the judicial manager’s fees are typically significant, given that the judicial manager will be required to take control of the company and run its business in a short time and to provide periodic updates to the court during the period of the judicial management. The Singapore courts have been playing an active role in ensuring that the judicial manager’s fees are kept under control through the requirement for costs schedules to be filed.

Applying for Judicial Management

An application to court for a company to be placed under judicial management may be made by:

• a company or its directors (pursuant to a resolution of its members or the board of directors); or
• a creditor of the company, including contingent or prospective creditors.

The applicant must show that the company is, or is likely to become, unable to pay its debts, and that there is a reasonable probability of the company achieving one of the three statutory purposes of a judicial management set out above.

An automatic moratorium arises upon the filing of the judicial management application and ends when the judicial management application is disposed of. A statutory moratorium takes effect if the judicial management order is granted and continues for the period of the judicial management. While the moratorium extends to secured creditors, it does not prevent a creditor from exercising its legal right of set-off or netting where applicable.

Within 90 days (or such longer period as may be approved by the court or creditors), a judicial manager must put forward a proposal for achieving one or more of the three statutory purposes of a judicial management to the creditors at a creditors’ meeting.

In order to participate in the judicial management of a company, creditors (including contingent creditors) are required to file proofs of debt with the judicial managers. The proofs will be adjudicated upon by the judicial managers, and a creditor who is dissatisfied with the judicial manager’s decision may apply to court for the decision to be reversed or varied.

The judicial manager has wide-ranging powers, including but not limited to disclaiming onerous property, leaseholds, bringing or defending an action in the company’s name, disposing of company property in a public auction or private treaty.

As briefly mentioned above, the judicial manager is also required to provide periodic updates to the court and creditors as to the progress of the judicial management. Unless the judicial manager proposes for the company to be placed in liquidation, and this proposal is accepted by the creditors, a judicial management terminates when the term of the judicial management specified in the judicial management order ends, with the company being returned to its directors and officers. Where no period is specified in the order, the judicial management expires 180 days after the order is made.

Types of Statutory Officers

As discussed in 1.3 Statutory Officers, statutory officers include:

• a liquidator of a company placed in liquidation;
• a judicial manager of a company placed under judicial management; and
• a receiver and manager of property of a company.

Only the judicial manager and receiver and manager are relevant for the purposes of a restructuring procedure (ie, not a liquidation).

The function of a judicial manager is to achieve one or more of the three purposes of a judicial management:

• the survival of the company, or the whole or part of its undertaking, as a going concern;
• the approval under Section 210 of the Companies Act or Section 71 of a compromise or an arrangement between the company and any such persons as are mentioned in the applicable section; and
• a more advantageous realisation of the company’s assets or property than in a winding-up.

A judicial manager owes duties to the creditors of the company, and reports to the creditors and the court that appointed them.

A receiver and manager is appointed by a secured creditor to manage and realise the assets secured to that creditor and apply the proceeds of sale towards the discharge of the debts owed to them. The receiver and manager owes a duty to the secured creditor that appointed them and reports to that creditor. While the receiver and manager does not owe a general duty of care to the company whose assets they have been appointed to manage, they must take reasonable steps to obtain a proper price for the security and act for the purpose of realising the security and discharging the secured debt and not for any other purpose.

Pre-restructuring

Prior to the commencement of a restructuring procedure creditors can consider their rights and remedies explored in 2.3 Secured Creditors and 2.4 Unsecured Creditors. Such rights and remedies, being contractual in nature, will be subject to the terms of the relevant underlying contract (eg, a security agreement or an intercreditor agreement).

Where a Restructuring, Rehabilitation or Reorganisation Procedure has Commenced

Once a restructuring procedure has commenced, shareholders and creditors should strategise whether, and how, to participate in such procedure, or otherwise take action to preserve their interests to the extent possible. There is a range of rights and remedies that may be exercised during the restructuring procedure itself, as opposed to waiting for the outcome of the procedure.

Moratorium Protection

As described in the preceding section and in 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure, in the event the company obtains a moratorium order (whether an automatic moratorium as part of a judicial management procedure or a separate standalone moratorium order), the remedies and liens that may have been available to a shareholder, secured creditor or unsecured creditor pre-restructuring, and which such stakeholder might wish to pursue, would be stayed under such moratorium.

Rights and Remedies of a Secured Creditor

Secured creditors play a significant role in restructuring scenarios, as they typically form a class of their own, and may vote against any proposed scheme of arrangement if the terms do not put them in a sufficiently better position than if they were to enforce their security.

A secured creditor’s application for a judicial management order is ultimately up to the court's discretion. In granting the order, the court must be satisfied that the debtor company is or is likely to become unable to pay its debts, and that the making of the order would likely achieve one or more of the purposes of judicial management (ie, the survival of the company, fulfilling a condition for the approval of a scheme of arrangement, or that it would provide a more advantageous realisation of the debtor company’s assets).

The Court will dismiss an application for a judicial management order if (i) it is opposed by a creditor who is entitled to appoint a receiver over the whole (or substantially the whole) of the company’s property over a registered charge; and (ii) the prejudice that would be caused to this creditor, if the order is made, is disproportionately greater than the prejudice that would be caused to unsecured creditors if the application is dismissed.

If, despite the objections of this creditor, an order for judicial management is to be made, the court must appoint the nominee for judicial manager put forward by said creditor unless such an appointment would not be appropriate.

Whilst the statutory moratorium in a liquidation does not affect a secured creditor’s right to enforce its security, the moratorium under a scheme of arrangement and judicial management proceedings may extend to secured creditors as well.

Rights and Remedies for Unsecured Creditors

As the unsecured creditors will more often than not vote in a separate class from the secured creditors, given the dissimilarities in their rights from those of the secured creditors, the unsecured creditors may disrupt a restructuring by voting against the proposed scheme if they are not satisfied with the recovery thereunder.

As unsecured creditors have the most to lose in an insolvency situation, the court will give considerable weight to the views of this class of creditors, as the returns by way of dividends would be for their benefit and not for the benefit of the secured creditors.

Trading of Claims Against a Company

There is generally no restriction against creditors trading their claims against the company in a restructuring, except that the company will stipulate a time at which such trades will have to be informed to the company, and the person to whom a debt is owed at that time will be treated as the creditor entitled to participate in any vote (the “recognised creditor”) and to whom payment will be made, unless otherwise informed by the recognised creditor.

Existing Equity Owners

The very intention behind a company proposing a scheme of arrangement is to allow the company to be rehabilitated. The terms of a scheme of arrangement thus ordinarily allow the existing owners to receive or retain ownership on account of their ownership interests. However, their rights as shareholders (including the right to receive dividends) is likely to be circumscribed by the terms of the scheme.

The different types of statutory voluntary and involuntary insolvency and liquidation proceedings for corporate entities include:

• voluntary liquidation; and
• court-ordered liquidation.

These proceedings do not apply to individuals. Bankruptcy applications can be made on an individual debtor’s own behalf or by a creditor of such individual under separate sections of the IRDA.

Voluntary Liquidation

There are two types of voluntary liquidation, as set out below.

• Members’ voluntary liquidation relates to the liquidation of a solvent company, where a majority of the company’s directors are required to sign a declaration of solvency stating their opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the liquidation.
• Creditors’ voluntary liquidation relates to a voluntary liquidation where the company is likely to be insolvent and its directors make a full statement of the company’s affairs (including a list of creditors and a valuation of assets). In such cases, the company must convene a meeting of the creditors of the company to be summoned for the day of the meeting of the company at which the resolution for voluntary winding-up is to be proposed, or the following day.

Creditors’ Voluntary Liquidation

A creditors’ voluntary liquidation is an out-of-court insolvency arrangement where the company’s creditors essentially decide on most if not all matters involving the winding down of the company’s affairs. The process is cheaper and quicker than a court-ordered liquidation. The liquidator may nonetheless apply to court for directions if necessary, and may exercise the same powers as a liquidator appointed in a court-ordered liquidation.

The regime commences with the company resolving to be placed in liquidation and nominating a liquidator. On the same day and no later than the next, a creditors’ meeting is to be convened, primarily to consider the appointment of the liquidator and to appoint a Committee of Inspection if the creditors so wish. The liquidator takes over the affairs and assets of the company upon their appointment.

Court-Ordered Liquidation

A court-ordered liquidation is commenced by filing an application in court for the company to be placed in liquidation. A company may be placed in involuntary liquidation upon an application to court being made by:

• a director of the company (with the court’s leave);
• a creditor of the company, which includes a contingent or prospective creditor(s);
• a contributory (including personal representatives of deceased contributories or the Official Assignee of the estate of a bankrupt contributory);
• the liquidator of the company;
• the judicial manager (to place the company in liquidation);
• government ministers (in limited, specific circumstances); and
• in the case of a banking business, the Monetary Authority of Singapore (the MAS).

An application to court for a winding-up order must be made based on one or more of the grounds set out in Section 125(1) of the IRDA. The most common ground is where the company is unable to pay its debts (Section 125(1)(e) of the IRDA).

If, however, one or more of the following purposes may be achieved, a judicial management application may be made or considered:

• the survival of the company, or the whole or part of its undertaking, as a going concern;
• the approval of a scheme of arrangement or compromise between the debtor company and its creditor(s); and/or
• a more advantageous realisation of the company’s assets or property than in a winding-up.

Requirement for Insolvency

A court may order a company to be wound up if it is deemed to be unable to pay its debts. Section 125(2) of the IRDA provides that a company is deemed to be unable to pay its debts in three scenarios:

• where the company fails to satisfy a statutory demand from a creditor for a sum exceeding SGD15,000 for three weeks after service of the demand on it;
• where the company fails to satisfy (in whole or in part) any execution or other processes issued by a creditor on an order of court; and
• where it is proved to the satisfaction of the court that the company is unable to pay its debts.

Whilst the test for insolvency in winding-up proceedings in relation to the third scenario was previously widely understood to entail satisfaction of either the cash flow test (ie, whether the company is able to pay its debts as they fall due) or the balance sheet test (ie, whether the company’s liabilities exceed its assets), the Court of Appeal clarified in June 2021 (see the judgment in Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd [2021] SGCA 60) that there is only one test under the IRDA for this purpose: the cash flow test.

This can be contrasted with the case of judicial management, where it is sufficient for an applicant to show that the debtor company is, or is likely to become, unable to pay its debts. Once this requirement is established, the applicant has to satisfy the court that one of the purposes of judicial management may be achieved.

Creditors’ Voluntary Liquidation

Upon the commencement of the liquidation (ie, when the company resolves to do so), no action or proceeding may be proceeded with or commenced against the company, except with the leave of the court and subject to such terms as the court may impose. Unlike the moratorium that applies in a judicial management, secured creditors are not restrained from enforcing their security. As with judicial management, where there are mutual credits, debts or other mutual dealings between the company and its creditors, the debts and liabilities to which each party is or may become subject as a result of such mutual credits, debts or dealings must be set off against each other, and only the balance is a debt provable in the liquidation.

Just as in a judicial management, creditors (including contingent creditors) are required to file proofs of debt with the liquidator in order to participate in the liquidation and receive dividends, if any. The liquidator will be required to examine and adjudicate the proofs. If the liquidator rejects a proof of debt, the liquidator must inform the creditor affected and state in writing the grounds of rejection. The creditor may apply to court to reverse or vary the rejection.

The liquidator distributes assets, if available, to creditors through the declaration of dividends. The liquidator is obliged to pay the debts of the company in accordance with the priority set out in Section 203 of the IRDA. Unless there are sufficient funds to conduct the liquidation, a liquidator may not be required to take any step that may incur costs that the company does not have assets to bear, including the adjudication of proofs of debt. In such a scenario, the liquidator may invite funding from creditors; upon application by such creditors, the court may give an advantage to these creditors over others in consideration of the risks run by them in funding the liquidation.

Court-Ordered Liquidation

Once the liquidator has been appointed, the procedure is largely similar to that in a creditors’ voluntary liquidation, in that the court-appointed liquidator owes the same duties and has the same powers as a liquidator in a creditors’ voluntary liquidation.

Power to Make Distressed Disposals

In a liquidation, the liquidator’s role is to take over control of the company and to sell its assets so that the proceeds may be distributed to its creditors. While the liquidator may carry on the company’s business for a period of time so far as is necessary for the beneficial winding-up of the company, the liquidator typically winds down the company’s business and sells off its assets by public auction, public tender or private contract.

In the case of a judicial management, in certain scenarios the judicial manager may sell assets to raise funds to keep the company’s operations going, and may similarly do so by public auction or private contract.

Depending on the assets to be sold, the liquidator or judicial manager (as the case may be) may appoint advisers and/or third-party valuers to assist in the sale process. The liquidator or judicial manager will negotiate, execute and authorise the sale of assets and business during such proceedings. While they may seek the views of the directors depending on their special knowledge of industry norms and players, the directors and management of the companies do not have the ability to execute or authorise the sale of the company’s assets.

Creditors may bid for company assets and act as a stalking horse in the sale process. However, as part of their duties in realising assets, the liquidator or judicial manager will realise assets in the most efficient way and to obtain the highest possible price. While a purchaser may require assurances of title to property sold, liquidators will often not be willing to warrant good title as they may consider that they do not have the requisite knowledge to be able to give such warranties.

Furthermore, a liquidator or judicial manager may still proceed to effectuate pre-negotiated sale transactions following the commencement of statutory insolvency proceedings where such transactions would benefit the company and its creditors, although they may equally disclaim any onerous property regardless of whether they had taken possession, endeavoured to sell or otherwise exercised rights of ownership in relation to said property.

Creditors’ Voluntary Liquidation

Where the company’s affairs have been fully wound up, a creditors’ voluntary liquidation may be brought to an end by the dissolution of the company and the discharge of the liquidators through the calling of a creditors’ meeting to consider the liquidator’s account showing how the winding-up has been conducted and how the property of the company has been disposed of. Alternatively, the IRDA now gives the court the power to terminate a liquidation and revert control of the company to its directors and officers.

Court-Ordered Liquidation

Where the liquidator is of the view that they have realised all the property of the company, or so much of the property of the company as can in their opinion be realised, without needlessly protracting the liquidation, and where they have distributed pari passu a final dividend, if any, to the creditors and adjusted the rights of the contributories among themselves and made a final return, if any, to the contributories, the liquidator may then seek an order from the court for the dissolution of the company and for their release so as to bring the liquidation to a close.

Discretion of the Officer

Upon the granting of an order to liquidate a company, the actual winding-up and realisation of assets will chiefly be left to the discretion and expertise of the liquidator. This liquidator may seek input from the creditors by way of a creditor meeting or direction from the court, but is generally not obligated to do so.

Creditor Committees

In the case of liquidations, there are also provisions that provide for the formation of a Committee of Inspection consisting of creditors and/or members of the company. Such committees hold the power to (among other things) fix a liquidator’s remuneration and grant powers to the liquidators to compromise any debts of the company with creditors and to bring or defend an action brought by or against the company.

Challenging the Liquidator’s Views

As discussed in 5.2 Course of the Liquidation Procedure, a dissatisfied creditor may appeal to the court to set aside the liquidator’s decision to reject the creditor’s proof. 

Secured Creditors

Secured creditors sometimes have the contractual right to appoint receivers and managers over the assets secured to them to enforce their security/liens and recover their outstanding debts.

In an insolvency scenario, secured creditors stand outside the liquidation and are entitled to realise their security and to proof in the liquidation for any shortfall as unsecured creditors. However, a secured creditor may choose to participate in the liquidation as an unsecured creditor for the entire debt if it chooses to give up its security, or for the under-collateralised portion of its debt if it returns its security.

Special Procedural Protections and Rights for Secured Creditors

As indicated above, secured creditors are protected in liquidation proceedings as they are not prevented from enforcing their security or from participating as unsecured creditors for any shortfall.

In the context of a scheme of arrangement, secured creditors may be restrained from enforcing their security under the statutory moratorium but can typically vote in a separate class from unsecured creditors, and may block the approval of a scheme of arrangement as such.

Unsecured Creditors

Unsecured creditors do not enjoy the same degree of protection as their secured counterparts and any pre-insolvency rights which have not crystallised cannot generally be enforced upon liquidation. Where such rights have already been enforced, but remain due and payable, unsecured creditors can file proofs for such claims.

Singapore has adopted the UNCITRAL Model Law on Cross-Border Insolvency Law in 2017 (the “Model Law”) and is guided by the accepted interpretation of these regulations. While the jurisprudence of cross-border insolvency continues to develop, Singapore has been at the forefront of opening its restructuring and insolvency regime to the international stage with its legislative consolidation exercise in 2017 and the recent introduction of the Singapore International Commercial Court (SICC) in 2015.

Where the Singapore Court Has Jurisdiction

The court will generally accept that it has jurisdiction to open a restructure or insolvency procedure where there is a commercial Singapore nexus. This is often established where the company in question is registered in Singapore.

The IRDA sets out a further list of non-exhaustive factors that the court may rely on to determine whether a foreign company can establish a “substantial connection” with Singapore. This includes:

• establishing the company’s Centre of Main Interests (COMI) in Singapore;
• carrying out and operating its business in Singapore;
• registering the company as under the Companies Act as a foreign company;
• holding substantial assets in Singapore;
• choosing Singapore as the governing law of a debt; and
• being found to have submitted to the jurisdiction of the court.

Where a Foreign Court Has Jurisdiction

As an adopter of the Model Law, Singapore will accept a foreign court’s jurisdiction where a foreign insolvency proceeding has been commenced.

The IRDA is an omnibus legislation which applies to all restructuring and insolvency related matters (with the exception of the scheme of arrangement provision, set out in Section 210 of the Companies Act).

Recognition or Relief in Connection With Overseas Proceedings

Singapore’s implementation of the Model Law allows a foreign representative to apply to the Singapore courts for recognition of a foreign proceeding in which the foreign representative has been appointed.

Even prior to the adoption of the Model Law, the Singapore courts recognised foreign proceedings at common law on the basis of the desirability and practicality of a universal collection and distribution of assets, and because a creditor should not be able to gain an unfair priority by an attachment or execution on assets located in Singapore subsequent to a foreign insolvency proceeding commenced elsewhere.

However, such protection is not automatic, as demonstrated in the case of United Security Sdn Bhd (in receivership and liquidation) & Anor v United Overseas Bank Ltd. [2021] SGCA 78. The Court of Appeal declined to stay a foreign secured creditor’s claim in a parallel Singapore proceeding despite recognising the Malaysian law winding-up process as a “foreign main proceeding”. In that case, the Court of Appeal allowed the secured creditor to continue with these security enforcement proceedings, to the extent the secured creditor required court proceedings to establish and enforce their security interests in Singapore. The Court of Appeal declined to exercise its power to grant a discretionary stay of the proceedings under Article 21(1)(a) of the Singapore Model Law as a stay was not necessary to protect the property of the international debtor or the interests of its creditors when the purpose of security enforcement is to reorganise or liquidate a company.

The case is also useful as it identified four attributes required for a proceeding to constitute a “foreign proceeding” under the Model Law, namely:

• the foreign proceedings must collectively involve creditors collectively;
• the proceedings must have their basis in a law relating to insolvency;
• the court must exercise control or supervision over the debtor’s property and affairs in the proceedings; and
• the purpose of the proceedings must be the debtor’s reorganisation or liquidation.

Rules, Standards and Guidelines

Where the COMI has been identified, the court will simply recognise the foreign insolvency proceedings, and the foreign insolvency administrator will be recognised and able to exercise their duties in Singapore as such. The Gibbs principle does not apply in Singapore, and as such contracts that apply foreign law may fall within, and be discharged by, a Singapore scheme. However, in deciding the scope of an obligation under a contract, the court will apply the law that applies to that contract.

Following the ruling in Ascentra Holdings, Inc v SPGK Pte Ltd [2023] SGCA 32, there is no requirement that a foreign debtor be insolvent or in severe financial distress for the recognition of its foreign proceeding within the meaning of Article 2(h) of the Model Law.

Recognition and Enforcement of Foreign Judgments

A foreign judgment may be recognised in Singapore under the Reciprocal Enforcement of Foreign Judgments Act (REFJA) and the Choice of Courts Agreements Act 2016 (CCAA).

Where the REFJA and CCAA do not apply, a foreign judgment may also be recognised at common law through the commencement of an action for the judgment debt and summary judgment on the basis that there is no reasonable defence.

The Singapore court may set aside the order registering the foreign judgment in certain instances, including but not limited to where the original court acted without jurisdiction, the foreign judgment was obtained by fraud, an appeal against the foreign judgment is pending and the foreign judgment was in respect of a cause of action that for reasons of public policy could not have been entertained by the Singapore court.

A foreign judgment recognised by the Singapore court may be enforced by and enforcement order for:

• seizure and sale of property;
• delivery or possession of property;
• attachment of a debt; and/or
• an application for examination of judgment debtor.

Singapore is committed to the promotion of judicial co-operation and coordination with foreign courts and protocols, and has taken steps to give the jurisdiction an international outlook.

Singapore hosted the inaugural Judicial Insolvency Network (JIN) conference in 2016, which concluded with the issuance of a set of guidelines for court-to-court communication and co-operation: “Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency Matters” (also known as the “JIN Guidelines”). These Guidelines were supplemented by the JIN in 2020 with the “Modalities of Court-to-Court Communication”, which prescribe the mechanics for initiating, receiving and engaging in such communication. The JIN Guidelines were adopted in 2017, and the Modalities in 2020.

They address key aspects of and the modalities for communication and co-operation amongst courts, insolvency representatives and other parties involved in cross-border insolvency proceedings, including the conduct of joint hearings.

The SICC was established in 2015 to address the growing need for a platform that could adeptly handle international commercial disputes. Its creation aimed to leverage Singapore’s reputation as a neutral and reliable legal hub, offering a venue for parties from different jurisdictions to resolve their disputes. As of 1 October 2022, the SICC’s jurisdiction was expanded to include “any proceedings associated with corporate insolvency, restructuring, or dissolution” under the IRDA, provided that these proceedings possess an international and commercial character.

In 2024, the SICC handed down its first decision relating to the recognition of a foreign procedure and reorganisation plan in the matter of Re PT Garuda Indonesia (Persero) Tbk [2024] SGHC(I) 1. The SICC recognised the national carrier’s “Penundaan Kewajiban Pembayaran Utang” (PKPU) (ie, proceedings suspending payments) proceedings under Indonesian law and the restructuring plan that had been approved as part of PKPU proceedings and homologated by the Jakarta Commercial Court. The decision also explored the public policy exemption (ie, where the court can decline to recognise a foreign procedure or reorganisation plan on the grounds that doing so would be contrary to public policy) and held that the term “public policy” refers to the concept of “fundamental public policy” and any use of the exception is reserved for exceptional and fundamental cases. This debunked the prominent view following Re Zetta Jet [2018] 4 SLR 801 that Singapore’s omission of the word “manifestly” (in “manifestly contrary to public policy”) in Article 6 of the Model Law meant that Singapore’s threshold for invoking the public policy exemption is lower.

Given its panel of international judges, the SICC is well positioned to address cross-border insolvency cases where laws from multiple jurisdictions are involved. In addition, the amendment to the Legal Profession Rules facilitates foreign lawyers’ involvement with Singapore counsel in corporate insolvency proceedings within the SICC. Companies looking to restructure in the SICC can thus benefit from the combined expertise of foreign lawyers familiar with their home jurisdiction’s laws and Singaporean counsel’s knowledge of Singapore’s laws and Singapore’s legal landscape.

Foreign creditors of companies undergoing formal restructuring or insolvency proceedings are treated in the same way as local creditors. They may submit proofs of debt and vote in the proceedings just as a local creditor would be entitled to do.

A director or such other officer of a company is required to consider and act in the interest of the company’s creditors in continuing the affairs of the company as a matter of law. In deciding if a company is facing financial troubles, the director or officer ought to consider if the company is able to meet its debts and liabilities in full as and when they fall due.

If a director or officer fails to act in the interest of the creditors when the company is insolvent or close to insolvency, they may become personally liable for the debts of the company. The Court has provided guidance in the recent case of Foo Kian Beng v OP3 International Pte Ltd (in liquidation) [2024] SGCA 10 as to when a director’s or officer’s duty to the company’s creditors comes into play during the different stages of the company’s life cycle. In the scenario where the company is facing imminent insolvency, or is indeed already insolvent and insolvency proceedings are inevitable, there is a shift in the economic interests of the company and the creditors become the more significant stakeholders.

While there is no statutory obligation for companies to commence formal insolvency proceedings in Singapore, directors and officers of companies that continue to trade while insolvent may be exposed to personal liability for the debts of the company if the company is subsequently placed under judicial management or goes into liquidation. Examples include liability for fraudulent trading (ie, where the company’s business has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose) and wrongful trading (ie, where the company incurs debts or other liabilities without reasonable prospect of meeting them in full when it is insolvent or that results in it becoming insolvent).

Incurring Personal Liability

Action may be commenced by the liquidator or judicial manager to claw back transactions entered into by the company at an undervalue and transactions giving an unfair preference to a party, and a concurrent action is typically brought against the directors or officers responsible for causing the company to enter into these transactions for breach of their fiduciary duties. In such a situation, the directors or officers may be found to be liable for damages arising from these transactions.

Separately, in an action brought by a liquidator, judicial manager, creditor or contributory against a director or officer for fraudulent trading or wrongful trading, the court may order the director or officer involved to be personally responsible for all or any of the debts or liabilities of the company. While fraudulent trading applies only to directors and officers of a company, wrongful trading applies to any person who was a party to the wrongful trading if that person knew that the company was trading wrongfully.

Fiduciary Duties Owed to the Company

Whilst the Singapore courts have recognised that a director owes a fiduciary duty towards creditors when the company is insolvent, this fiduciary duty is owed to the company and not directly to the creditors. As such, individual creditors cannot assert claims against directors for fiduciary breaches of duty and any such claims are typically brought by the liquidators of the company instead.

However, creditors may consider seeking recourse against the directors of the company if they are able to show that the directors were knowingly party to the company’s fraudulent trading and/or wrongful trading, or ought to have known of the company’s wrongful trading. Should the claims succeed, the court may declare the relevant directors personally responsible for all or any of the debts or other liabilities of the company.

There is no applicable information in this jurisdiction.

In addition to civil liability, fraudulent trading is an offence rendering the persons responsible liable on conviction to a fine not exceeding SGD15,000 or to imprisonment for a term not exceeding seven years, or to both. Wrongful trading also attracts both civil and criminal liability. A person responsible for wrongful trading may, on conviction, be liable to pay a fine not exceeding SGD10,000 or to imprisonment for a term not exceeding three years, or to both.

Historical Transactions

In the context of judicial management and liquidation, the judicial manager or liquidator (as the case may be) has the ability to claw back payments given as an undue preference or to void transactions entered into by the company at an undervalue when the company was unable to pay its debts or became unable to pay its debts as a result of the transaction.

The case of Rothstar Group Ltd. v Leow Quek Shiong [2022] SGCA 25 considered the components of an “undervalued transaction”. The court held that the granting of fresh security over existing secured assets by an insolvent party for its own existing indebtedness did not amount to an undervalued transaction by invoking the English law principle established in Re MC Bacon Ltd (No 1). The reason for such a decision is because granting security for the insolvent party’s own indebtedness does “not deplete or diminish the insolvent party’s assets”. Where the grant of security is for the existing indebtedness of a third party, this may amount to an undervalued transaction as the court followed legislation set out in Section 98(3)(c) of the Bankruptcy Act. If third-party security is granted, the value of that transaction is determined from the perspective of the insolvent grantor, and consideration need not be directly received by the grantor.

Extortionate credit transactions may also be set aside if it can be shown that, having regard to the risk accepted by the person providing the credit, the terms required grossly exorbitant payments to be made or were harsh and unconscionable or substantially unfair.

Floating charges created may also be deemed invalid, except to the extent of the aggregate of value of cash consideration or goods or services supplied by the charge to the company or the discharge or reduction of the company’s debt at the same time as or after the creation of the charge.

The judicial manager or liquidator also has the power to disclaim onerous property, including unprofitable contracts and such other property that is unsaleable or not readily saleable or that may give rise to a liability of the company to pay money or perform any other onerous act.

Look-Back Period

The look-back period for transactions entered into at an undervalue and extortionate credit transactions starts three years before the commencement of the judicial management or liquidation, and ends on the date of the commencement of the judicial management or liquidation.

The look-back period for transactions involving the giving of unfair preferences (that are not transactions at an undervalue) and the grant of floating charges depends on the identity of the party to whom unfair preference was given.

If the unfair preference or floating charge was given to a person who is connected with the company, the look-back period starts two years before the commencement of the judicial management or liquidation, and ends on the date of the commencement of the judicial management or liquidation. Where the unfair preference or floating charge was given to a person who is not connected with the company, the look-back period starts one year before the commencement of the judicial management or liquidation, and ends on the date of the commencement of the judicial management or liquidation.

Where the company obtained a moratorium under the Companies Act or the IRDA during the look-back period before the commencement of the judicial management or liquidation mentioned above, the look-back period is extended by adding a period equivalent to such period of the moratorium immediately before the look-back period mentioned above.

Claims to set aside or annul transactions may be brought by the liquidator or judicial manager in a liquidation or judicial management scenario (as the case may be). However, creditors may personally fund a liquidator or judicial manager to investigate the matter and commence proceedings as the liquidator or judicial manager may deem appropriate.

Where a claim is successful, the court will make an order as it thinks fit for restoring the position to what it would have been if the transaction had not been made. The content of such an order will depend on the basis for the annulment or setting-aside, and may include requiring a person to surrender collateral or make payment to the liquidator or company for the cash value of the property.