Supplementary Response to Feedback Received on Companies (Amendment) Act 2017 to Strengthen Singapore as an International Centre for Debt Restructuring
Supplementary Response to Feedback Received on Companies (Amendment) Act 2017 to Strengthen Singapore as an International Centre for Debt Restructuring
Consultation Period:
21 Oct 2016 to 2 Dec 2016
Ministry of Law's Supplementary Response to Feedback Received on Companies (Amendment) Act 2017 to Strengthen Singapore as an International Centre for Debt Restructuring (the "Act")
1 Introduction
1.1 In March 2017, the Companies (Amendment) Bill 2017 was passed in Parliament and the President’s assent to the Bill was obtained on 29 March 2017. After the Act was passed, the Ministry of Law (“MinLaw”) received additional feedback on the provisions of the Act relating to debt restructuring (“Debt Restructuring Amendments”).
1.2 The feedback mainly comprised requests for carve outs for certain financial transactions and maritime claims from the Debt Restructuring Amendments to be prescribed in subsidiary legislation. We have carefully considered these suggestions and have issued this additional response to supplement the Government Response for the public consultation of the Bill that was issued on 27 February 2017 (“Government Response”).
2 Additional Requests for Exclusions from the Proposed Provisions
2.1 In the Government Response, MinLaw noted that in order to cater for appropriate exclusions, the Act would empower the Minister to prescribe certain carve outs from the Debt Restructuring Amendments in subsidiary legislation. In particular, the Act empowers the Minister to:
- exclude prescribed companies or classes of companies, such as financial institutions, from the new scheme provisions and judicial management[1]; and
- carve out prescribed arrangements from the moratoriums under the new scheme provisions and judicial management[2].
2.2 Exclusion for Special Purpose Vehicles and certain transactions from the Debt Restructuring Amendment s
2.2.1 In the Government Response, MinLaw signalled its intention to exclude regulated financial institutions and certain securitisation entities, such as the Approved Special Purpose Vehicle (“ASPVs”)[3].
Feedback
2.2.2 After the Act was passed, MinLaw received further feedback recommending that in addition to ASPVs, other entities engaged in securitisation or similar arrangements, such as issuers and SPV guarantors of “covered bonds” under MAS Notice 648 (“Singapore Covered Bonds”) and generic securitisation vehicles, be carved out from the regime.
MinLaw Response
2.2.3 MinLaw has assessed this proposal in consultation with the Monetary Authority of Singapore. MinLaw notes that in practice, securitisation SPVs are typically insolvency remote orphan vehicles with no operations and no assets other than the assets which have been securitised. Hence there is little realistic prospect of a securitisation vehicle becoming subject to the Debt Restructuring Amendments. Moreover banks (the issuers of covered bonds) will be carved out from the new scheme provisions and are already effectively carved out from judicial management[4]. Notwithstanding the foregoing, to allay any uncertainty with respect to the impact of the Debt Restructuring Amendments to significant programmes such as the ASPV and Covered Bond schemes, MinLaw will prescribe Covered Bond SPVs as an additional class of companies that will be excluded from the Debt Restructuring Amendments.
2.2.4 Additionally, stakeholders also requested that transactions related to Singapore Covered Bonds should be carved out from the moratoriums in relation to a scheme of arrangement and judicial management. However, this will not be necessary since issuing banks and Covered Bond SPVs will effectively be excluded from the regimes.
2.2.5 Generic securitisation SPVs which are not ASPVs and their related transactions will not be carved out given the remoteness of such vehicles coming under the regime, definitional difficulties which could inadvertently lead to uncertainty being introduced, as well as the weight of international practice which does not exclude such vehicles from similar restructuring regimes.
2.3 Treatment of Maritime Claims
Feedback
2.3.1 A number of maritime stakeholders queried whether the moratoriums under the new scheme provisions (sections 211B and 211C), judicial management (section 227D) and under the UNCITRAL Model Law on Cross-Border Insolvency (Schedule 10, Arts. 20 and 21) would adversely impact the rights of secured creditors in the maritime industry to file in rem proceedings under the High Court (Admiralty Jurisdiction Act) (Cap. 123) (“Admiralty Act”). The stakeholders suggested that MinLaw consider carve outs for in rem proceedings under the Admiralty Act from moratoriums in the Debt Restructuring Amendments.
MinLaw Response
2.3.2 The maritime industry is an important sector, and maritime claims have certain unique features.
2.3.3 Under the current law there already exists moratoriums for liquidation and judicial management proceedings. The amendments introduce two new types of moratorium – the moratorium under the new scheme provisions (“Scheme Moratorium”) and the Model Law Moratorium.
2.3.4 MinLaw wishes to highlight at the outset that the principle underlying the Scheme Moratorium and the existing judicial management provisions is not to prevent the bringing of claims per se (including admiralty and maritime claims) but rather that such claims should only be brought or, if already brought allowed to proceed, with leave of Court. This provides the companies in distress a measure of respite while giving them, their creditors and the Court time to consider whether and if so how they can be restructured and resuscitated.
2.3.5 The Scheme Moratorium does no more than to add the additional requirement for leave. The decision as to whether or not leave should be granted is placed in the hands of the Court. There is established case law as to when leave will be granted in winding up and judicial management situations. The granting of leave in a Scheme Moratorium mirrors the position for granting of leave in a judicial management situation. The Model Law moratorium cross-refers to the winding up and judicial management moratoriums and similar principles of granting of leave would apply.
2.3.6 Additionally, MinLaw understands that even after the Debt Restructuring Amendments are brought into force, filings will be accepted by the Registry for hearing, at which point, arguments can be presented to the Court for leave to be granted.
2.3.7 Nevertheless, MinLaw notes the importance of the feedback which has been provided by maritime stakeholders and will therefore monitor how these provisions work in practice and will make refinements or adjustments in future if it should be necessary or desirable to do so.
2.4 Further Carve Outs
2.4.1 The Debt Restructuring Amendments combine the best features of the UK and US regimes and bring Singapore’s restructuring frameworks in line with international best practices and norms.
2.4.2 MinLaw anticipates that the list of entities and transactions that are carved out of the Debt Restructuring Amendments will need to be augmented over time, as markets and products evolve. MinLaw will monitor the implementation and impact of the Debt Restructuring Amendments and welcomes feedback and proposals from all interested parties.
3 Conclusion
3.1 MinLaw thanks stakeholders for providing additional feedback on the Act and has incorporated relevant feedback where accepted into the drafting of the subsidiary legislation.
[1] See paragraph 2.1.3 of the Government Response and sections 211A(3) and 227B(7) of the Act.
[2] See paragraph 2.2.4 of the Government Response and sections 211B(12), 211C(7) and 227D(5) of the Act.
[3] See paragraph 2.1.2 of the Government Response.
[4] Under section 227B(10) of the Companies Act, the Court may make a judicial management order over a company that has been carved out from judicial management “if it considers the public interest so requires”.
Last updated on 22 May 2017