Speech by Senior Minister of State for Law, Indranee Rajah, at the Regional Insolvency Conference 2014

25 AUG 2014

25 Aug 2014 Posted in Speeches

Justice Vinodh Coomaraswamy
Judge Ye Bingkun
Judge Suwidya
Mr Lok Vi Ming, SC, President, The Law Society of Singapore
Distinguished Guests, Ladies and Gentlemen,

  1. I am delighted to be here this morning at this Insolvency Conference 2014 organised by the Insolvency Practice Committee of the Law Society of Singapore.

    Regional Economic Outlook

  2. The International Monetary Fund (‘IMF’) reported in April this year that economic recovery in the Asia Pacific is expected to continue, with growth figures projected to remain steady over the course of 2014 and 2015.

  3. However the report also highlighted that economic risks and uncertainties remain. For example, if a slowdown in China is sharper than envisaged, there would be a significant adverse spillover to other economies in the region. Additionally, the IMF reported that corporate leverage in emerging Asian economies had generally increased from 2007 and 2012 and that significant increases were found in key economies, such as India and Indonesia. This represents a key risk to the economy and the financial system should there be a sudden tightening of global credit conditions. One only has to look at the financial markets’ reactions a year ago in response to the US Federal Reserve’s tapering comments.

  4. An increase in global interest rates and a tightening of liquidity in markets is likely to heighten the risk of corporate defaults, leading to an increase in the number of restructurings and insolvencies. As an open economy deeply connected to the global and Asian markets, Singapore would not only have to deal with insolvencies in Singapore, but would also feel the impact of sizeable insolvency events in the region.

    Cross-border Insolvencies Issues

  5. In today’s globalised world, many insolvencies will invariably reach across borders as the business operations and assets of companies are increasingly spread regionally or globally. As time goes by, the chance that a given insolvency will involve cross-border issues will only increase.

  6. Singapore has not been spared from the effects and aftershocks of major cross-border insolvencies in the last few years. For example, there was the Minibonds saga, where Singaporean investors suffered significant losses from structured financial products underwritten by Lehman Brothers when the company went bankrupt in the US. Another example is the insolvency of MF Global. Creditors in Singapore are still waiting further payouts from the assets of MF Global Singapore. Earlier this year, our Court of Appeal delivered a judgement which concerned the question of whether assets of a German company that was liquidated in Germany should be remitted to Germany or used to pay debts incurred in Singapore.

  7. Cross-border insolvencies often contain a myriad of complex issues and matters that take significant time to resolve. Chief among these issues is the fact that insolvency laws across jurisdictions differ significantly. The legal rights and protection that are accorded in the insolvency process in one jurisdiction may be very different in another. This incentivises parties to “shop” around for the jurisdictions that are most favourable to them, which is not desirable.

  8. In recent years, a ‘hot topic’ has been the debate on whether cross-border insolvencies should move towards ‘territorialism’ or ‘universalism’. On one hand, territorialism advocates a multiplicity of insolvency proceedings across the jurisdictions and that the assets of an insolvent entity should be dealt with in accordance with the laws of local insolvency proceedings.

  9. In contrast, universalism advocates that it is in the interest of all stakeholders for the assets of an insolvent entity to be dealt with in a single administration and for all creditors to submit their claims in that administration. In the UK, the tension between both approaches has resulted in numerous cases reaching the UK Supreme Court, most notably the decision given in Rubin v Eurofinance in 2012.

    ILRC Report

  10. Presently, Singapore law has limited statutory provisions that deal with cross-border insolvencies. Instead, our Courts apply common law doctrines to resolve cross-border insolvency issues. This conference comes at a timely juncture, as Singapore is in the process of enacting major reforms of its insolvency laws.

  11. In October 2013, the Insolvency Law Review Committee (‘ILRC’) submitted its final report to my Ministry. I would like to take this opportunity to highlight some recommendations that were made in the ILRC report that will have a significant impact on Singapore’s approach to cross-border insolvencies and the role that we can play as a hub for regional insolvency work.

    Adoption of UNCITRAL Model Law

  12. Firstly, in respect of Singapore’s approach to cross-border insolvencies, the ILRC has advocated the adoption of the United Nations Commission on International Trade Law, or UNICTRAL Model Law on Cross-Border Insolvency. The Model Law was introduced by UNICTRAL in 1997 and remains the leading international initiative to deal with cross-border insolvencies. The Model Law reflects a universalist approach to insolvency and provides an established framework which will allow Singapore Courts to recognise and assist foreign insolvency proceedings.

  13. Presently, the Model Law has seen limited adoption globally with only 20 countries having enacted provisions based on the Model Law. However, these 20 countries include major common law jurisdictions like the US, UK, Australia, Canada and New Zealand.

  14. Singapore stands to benefit from the adoption of Model Law. The Model Law provides a well-established framework that will lead to increased certainty and cooperation in dealing with cross-border insolvencies. In turn, this will lead to more consistent processes and more predictable outcomes which may help reduce the cost in insolvency administration and attract more foreign investment into Singapore.

  15. The adoption of the Model Law also represents a firm step towards establishing Singapore as a regional hub for the restructuring and insolvency needs of foreign companies.

    Singapore’s Role as a Hub for Insolvency Work

  16. This will not be the first time for Singapore to position itself as a regional hub for professional business services. For example, Singapore has made great strides in becoming a choice location for dispute resolution. The Singapore International Arbitration Centre (‘SIAC’) provides a world-class platform for parties to resolve international disputes through arbitration. And as some of you may be aware, plans have been announced to establish the Singapore International Commercial Court (‘SICC’) and the Singapore International Mediation Centre (‘SIMC’), and these will offer a full suite of options for the resolution of international disputes.

  17. In the same vein, we will position ourselves similarly for insolvency work and in particular corporate restructuring work. Firstly, Singapore remains a convenient and neutral location which provides proximity and connectivity to major Asian economies. Secondly, the legal processes such as schemes of arrangement or judicial management that are used to effect a restructuring in Singapore are well established and offer a flexible approach towards restructuring.

  18. In this regard, the ILRC recommended to extend judicial management to foreign companies. This reform will give a foreign company the option to come to Singapore and use a Singaporean process to restructure its debts.

  19. Additionally, the ILRC has recommended reforms to strengthen the effectiveness of judicial management and schemes of arrangement as tools for debt restructurings. In particular, the ILRC’s suggestion to adopt certain features from US Bankruptcy Law, such as super-priority for rescue financing and cram-down provisions, will arm Singapore Law with new and innovative techniques to effect a restructuring. These provisions will give practitioners an edge in effecting the restructuring of a company’s debts under Singapore Law.

  20. Finally and perhaps most importantly, in order to succeed as a regional hub for insolvency work, we need a strong profession. In this regard, the ILRC has also suggested reforms to regulate the insolvency profession. Such measures will ensure that practitioners are suitably qualified to undertake insolvency work and that there will be a strong base of insolvency professionals in Singapore.

    Conclusion

  21. My Ministry will continue to consider ways to improve Singapore’s approach to cross-border insolvencies and to promote Singapore regionally and internationally. We welcome your input, your feedback and your thoughts on how we can make further improvements. On this note, I will conclude by wishing all of you a productive conference and I’m sure that much will come from the discussions that you have and we look forward to finding out the thoughts that this conference produces.

Thank you.

Last updated on 25 Aug 2014