The Amendments to the Company’s Act is ground- breaking in 2 ways:
The incorporation of elements from US Chapter 11 into our corporate insolvency regime which has English roots; and
The adoption of the UNCITRAL Model Law on cross-border insolvency.
We can all agree that this Bill would serve to bring about significant changes to our corporate insolvency regime, which will strengthen Singapore’s role in debt restructuring.
It could not come at a more opportune time:
Companies in the maritime and oil and gas industries are having a tough time due to the deep decline in oil prices from 2 years ago. While oil prices are inching up again, albeit very slowly, several SGX-listed oil and gas firms have already gone into insolvency proceedings or are facing impending insolvency petitions from creditors.
SMEs in Singapore are coping with economic challenges to maintain their competitiveness. More private funding sources would be required to make capital expenditure in order for them to improve their business models and expand their businesses beyond Singapore.
The CFE report proposes creating more favourable conditions to attract venture capital and private equity firms to set up shop in Singapore.
With the amendments, it is now easier for companies to apply for a judicial management order.
There will also be Enhanced Moratorium, Rescue Financing, Cram-down and other enhancement provisions to the schemes of arrangements.
The legal community whom I spoke to found the revised Companies Act timely and appropriate. They are also appreciative of MinLaw’s consultative approach in the revision of the Companies Act.
Let me talk about Cram-down provisions before suggesting a related refinement for MinLaw to consider.
Cram-down provisions were introduced to prevent creditors from undermining a scheme of arrangement were introduced.
The introduction of cram-down provisions is important to facilitate the timely rescue of a company in financial distress where time is of the essence and a long-drawn out process to resolve differences will not be in the best interests of keeping the company as a going concern.
Having the Court to decide on whether a cram-down is to be applied against dissenting creditors to a scheme of arrangement who are not being unfairly and inequitably treated in the proposed scheme would be ideal and there is no lack of jurisprudence in the United States on this and certainly case law there would help form our jurisprudence in this area in time to come.
What I think could be a further improvement to the cram-down provisions would be to introduce some form of shareholders’ cram down provisions which would prevent de facto shareholder veto in schemes involving debt-equity swaps where shareholder approval is required. Such provisions would encourage experienced international distressed financiers with the experience and know-how in nursing companies back to health to invest due to the potential upside they can enjoy with the debt-equity swaps.
Minlaw provided responses to the suggestion for cram-down provisions (Section 211H in the Bill) on shareholders as stated in page 20 of the “Responses to feedback received from Public Consultation on Proposed Amendments to the Companies Act to Strengthen Singapore as an International Centre for Debt Restructuring” on page 20
Minlaw notes that a de facto shareholder veto is not uncommon in schemes involving debt-equity swaps, where shareholder approval is required to issue new shares. There is no present intention to provide powers for the Court to compel shareholders in creditor schemes to issue new share capital/transfer existing share capital.
Shareholder cram-down provisions
Let us consider this hypothetical situation:
A company with a good track record of commercial excellence experiences and as a result, a strong brand equity in the market, fell into bad times and experiences cash flows issues and eventually was placed under judicial management.
The company has many good on-going prospects from across the region, from which the company could continue as a going concern.
There are private equity investors who are interested to provide rescue funding to this company but would demand for debt-equity swap provisions in their rescue financing agreements so as to enjoy the upside of the company’s revitalisation. This would require shareholder approval.
Unfortunately due to the unwillingness of some existing shareholders (with sufficient voting rights) who veto the shareholder approval for the debt-equity swaps, the rescue financiers could not get the deal they are looking for and thus dropped out from rescue financing.
Without equity participation, rescue financing would simply be less attractive and the rescue financiers would not be incentivised to provide their expertise in such rescues.
It may thus be worthwhile for us to study how shareholder cram-down provisions could be advantageous to attracting experienced distressed assets investors who bring with them expertise in corporate governance, corporate restructuring and distressed company management who would often want to enjoy the upside from equity participation should such rescues be successfully executed.
Madam Speaker, with that, I stand in support of the motion.