Guide to Conducting Applications for Moratoria Pursuant to Schemes of Arrangement
By Sheila Ng and Raelene Pereira (Rajah & Tann Asia)
Introduction
The Insolvency, Restructuring and Dissolution Act 2018 ("IRDA") allows a company proposing or intending to propose a scheme of arrangement to its creditors to apply to the Singapore High Court ("Court") for a moratorium restraining proceedings against the company. The Court may also extend the moratorium on application to cover a subsidiary or holding company. This is to allow the company some breathing room to conduct its restructuring efforts.
The Supreme Court of Singapore has issued a Guide for the Conduct of Applications for Moratoria under Sections 64 and 65 of the IRDA ("Guide"), setting out the case management features and specialist practices for such applications. The Guide came into effect on 15 February 2021.
The Guide provides a helpful roadmap to the various steps in making an application for a moratorium pursuant to scheme of arrangement. This includes:
- The filing of an application;
- Pre-trial conferences;
- Hearing of the application;
- Making an appeal; and
- Applying for an extension of the moratorium.
This article summarises and highlights the key features of the Guide.
Moratoria for Schemes of Arrangement
Under section 64 of the IRDA, a company proposing or intending to propose an arrangement or compromise between the company and its creditors ("Subject Company") may apply to Court for, among others, an order restraining:
- The passing of a resolution for the winding up of the Subject Company;
- The commencement or continuation of any proceedings against the Subject Company; and
- The enforcement of any security over any property of the Subject Company.
Under section 65 of the IRDA, where an order has been made under section 64, a subsidiary or holding company ("Related Company") of the Subject Company may apply for such a moratorium as well.
Key Features of the Guide
Application for moratorium
An application for a moratorium by a Subject Company or Related Company is to be filed by way of an ex parte originating summons together with a supporting affidavit. The Related Company's application should be filed concurrently with the Subject Company's application. Each company must ensure that all applicable conditions and requirements in the respective IRDA provisions are satisfied.
Upon the filing of an application, the company:
- must send a notification of the application to each creditor meant to be bound by the intended arrangement (for the Subject Company) or each creditor who will be affected by the moratorium (for a Related Company); and
- should send a notification of the application to all other creditors of the company.
Pre-trial conference
The first pre-trial conference ("PTC") will usually be conducted within one week of the filing of the application for moratorium. Subsequent PTCs may be fixed as may be necessary. Notice of each PTC should be given by the company to all its creditors. The following matters will usually be dealt with at the first PTC:
- Statutory requirements – The company must prepare and tender to Court either a Subject Company's Memorandum or Related Company's Memorandum (as the case may be) showing that the relevant statutory requirements are fulfilled.
- Notice requirements – The company must confirm that all notice requirements have been complied with.
- Related matters – Parties should inform the PTC Registrar of any related matters / applications.
- Interlocutory applications – Parties should update the Court as to any potential interlocutory applications that they intend to file.
- Hearing dates – In general, a Subject Company's application will be fixed for hearing within 30 days after the filing of that application. A Related Company's application will be fixed for hearing together with the Subject Company's application.
Hearing of application
As applications under sections 64 and 65 are ex parte, full and frank disclosure of all material facts must be made at the hearing of the application, whether or not the application is attended or opposed by creditors.
At the hearing of a Subject Company's application under section 64 of the IRDA, parties should be prepared to address the Judge on the following matters:
- Undertaking – One of the conditions to be satisfied in respect of an application under section 64 of the IRDA is that the Subject Company must undertake to make, as soon as practicable, an application under section 210(1) of the Companies Act to summon a meeting of creditors in relation to the proposed scheme of arrangement, or an application under section 71(1) of the IRDA for the Court's approval of a proposed scheme of arrangement. This undertaking is to be set out in the Subject Company's supporting affidavit and the Subject Company should be prepared to give an indication of when such an application will be filed.
- Moratorium – The Subject Company's supporting affidavit should address specifically the period of the moratorium and justify that with evidence, and should be prepared to justify every element of the order sought. The company should also address the orders that the Court should make under section 64(6) of the IRDA for the production of sufficient information relating to the company's financial affairs to enable the creditors to assess the feasibility of the intended compromise or arrangement.
Extension of moratorium
All applications for an extension of a moratorium should be filed no later than two weeks before the expiry of the moratorium.
Concluding Words
Parties intending to make an application for a moratorium under section 64 or 65 of the IRDA should take note of the directions provided by the Guide. This will help to ensure that applicants are prepared with the necessary information and are able to comply with the applicable requirements. The Guide also assists parties in understanding the approximate timeline(s) of the application process.
(*) This post was originally published on the Rajah & Tann website.