A survey of insolvency practitioners in Singapore: How Singapore can become more competitive as an international / Asian restructuring hub
By Dawn Tan, Tristan Teo (Ashurst ADTLaw) and Tony Grundy (Mori Hamada & Matsumoto (Singapore) LLP)
Introduction
The 2017 amendments to the Singapore Companies Act 1967 and the subsequent introduction in 2018 of the Insolvency, Restructuring and Dissolution Act 2018 ("IRDA") had the objective of putting Singapore on the map as a hub for international or Asian debt restructurings.
Since the IRDA took effect on 30 July 2020, the economic and geopolitical landscape has changed. As almost 5 years have passed since the IRDA came into force, it is timely to assess the extent to which these changes have succeeded in putting Singapore on the map as an international or Asian debt restructuring hub. This paper seeks to address this question from an empirical perspective based on interviews conducted with various insolvency lawyers and practitioners ("ILPs") in Singapore.
The survey: Framework and methodology
Twenty ILPs participated in the survey. They provided their views on whether the restructuring and insolvency regime post-2017 is perceived to be: (1) fair; (2) efficient; (3) effective; and (4) world-leading.
Many of the ILPs who participated had at least 10 years of relevant experience in restructuring and insolvency work in common law jurisdictions (e.g., the UK, Hong Kong SAR, the Cayman Islands and the Bahamas) and civil law jurisdictions (e.g., Japan). The ILPs included local (Singapore) and foreign insolvency and capital markets lawyers and insolvency practitioners (e.g., liquidators). The ILPs who are lawyers practised in big and mid-size local law firms, and international firms with a Singapore office.
The semi-structured interviews took place over a 7-month period from June 2023, with each interview lasting approximately 1 hour. The survey was guided by the following overarching questions:
· Have the measures achieved what they set out to achieve by way of policy objectives?
· What features have worked well, and what features have worked less well?
· Were there any unintended consequences?
· Can the measures be improved upon?
Summary of results: High confidence in the regime
ILPs were asked about their general level of confidence in the regime. They were asked to rate, on a scale of 1 to 10 (with 10 being very confident and 1 being not at all confident), how confident they are in the regime, and their reasons for the rating.
The ILPs stated that they have a reasonable to high level of confidence in the regime. A few reported a very high level of confidence (a rating of 9 to 10), while many gave a rating of 7 to 8. The ILPs attributed the ratings to various factors:
· Responsive regulation in the form of extensive improvements and refinements through legislative amendments;
· High quality judicial decisions;
· The regime having "all the available tools";
· Transparency and effectiveness of the regime, which engenders trust; and
· A strong core of qualified and experienced ILPs.
However, the ILPs also noted that "big complex restructurings" are not coming to Singapore, limiting opportunities for skills development. A number of ILPs attributed this to the relative youth of the statutory regime and related issues such as perceived "uncertainty".
Fairness
The ILPs were asked to state whether they consider the regime to be fair, and their reasons. The results suggest that this question is closely tied to perceptions of confidence.
Citing past cases, ILPs who mainly act for creditors thought that the regime is "too debtor-friendly". However, many ILPs observed that there is now enhanced scrutiny of moratoria applications. On the other hand, some ILPs felt that the regime is too "creditor-friendly". They thought that the regime could be less "creditor-friendly", particularly in respect of banks and financial institutions, and more "restructuring friendly". Further, the ILPs also shared their views on standards of conduct and information-sharing, and how the right balance ought to be struck.
Efficiency
ILPs cited examples of companies that have successfully and unsuccessfully utilised the scheme process to restructure their business. They also noted that moratoria applications are often used as a "negotiating tactic" in practice. In many cases, a moratorium further delayed matters, especially where there was no real prospect of rehabilitation. However, Singapore is perceived to be "more efficient" than certain jurisdictions, and it was felt that the system is "moving in the right direction": there is now increased vigilance, greater emphasis on accountability, and courts are more prepared to enforce stricter timelines for operational matters (e.g., filing of documents).
Effectiveness
The ILPs were asked to assess the extent to which the regime has achieved its aim of balancing business rescue with maximising returns. In this regard, ILPs noted the inherent difficulty in measuring and defining "effectiveness", and they shared various perspectives as to how this question could be approached. Some ILPs noted that there are cases of companies utilising the scheme process to restructure and emerge with a healthier balance sheet, so the regime could be said to be effective. Others posited that the question can be approached by asking whether the available tools are being "used in the right way". Interestingly, ILPs also considered the relevance of certain "back end" (e.g., enforcement and restructuring) and "front end" (e.g., investment) considerations, with some observing that the "debtor-friendly" US Chapter 11 regime does not have the effect of making investors reconsider investing in the US.
Whether the regime is world-leading
The ILPs were asked whether they consider the Singapore regime innovative or forward-thinking, and whether Singapore is at the forefront of global standards and practices. Many ILPs noted that Singapore has demonstrated foresight in positioning itself to take advantage of the growth trajectory of Southeast Asian economies.
However, the ILPs also noted that Singapore's aspiration of becoming an international or Asian debt restructuring hub may not presently have been reached yet. In particular, it was noted that "big financing deals" (which by definition are cross-border) are not typically governed by Singapore law. Further, it was also felt that fees in Singapore are not considered "competitive" in relation to other established jurisdictions, with some ILPs querying if the process of determining ILPs' fees may be made "faster and more commercial", e.g., by introducing special assessors, similar to that in the US.
Nevertheless, many ILPs considered Singapore's regime to be sophisticated and comparable to that in the US. The regime was also considered by many to be world-leading and the best in the region. However, many ILPs observed that the Singapore regime is not yet perceived as sufficiently mature when compared to other jurisdictions such as New York or London. Consequently, clients who may be more familiar with these other regimes may need to be persuaded to restructure in Singapore.
Current themes
In the course of the interviews, ILPs also explored current themes and developments, including insolvency mediation and issues relating to recognition of insolvency proceedings.
In general, insolvency mediation remains keenly watched by insolvency professionals globally. Some ILPs noted the absence of a formal insolvency mediation framework in Singapore. In particular, one ILP recounted a case they conducted where the parties had attended mediation after strong encouragement from the Singapore courts. That ILP stated that the mediation assisted their client in achieving an outcome that would not otherwise have been possible.
In respect of recognition, ILPs commended the Singapore courts' "commercially sensible" approach to applications for the recognition of foreign proceedings and foreign representatives. In respect of the recognition of Singapore proceedings and court orders by foreign courts, ILPs cited various instances of foreign courts recognising Singapore proceedings and court orders. However, an ILP with a cross-border practice stated that more can be done as this remains a "hit and miss" process in various foreign courts.
Conclusion
Based on the views expressed by many ILPs, the main issue seems to be one of perception, and it would appear that a perception gap continues to exist to some extent. Another recurring theme was the "chicken and egg" situation of not having a sufficient number of ILPs with sufficient experience of "big restructurings" and not having sufficient "big restructurings" come to Singapore.
Singapore is already a nodal jurisdiction for dispute resolution, and has many attributes that would make her a nodal jurisdiction for restructuring. With the support of all stakeholders, the authors are optimistic that Singapore will achieve her aspiration of becoming the hub for Asian – and international – debt restructurings.
* The full paper has been accepted for publication in The Company Lawyer. The authors expect the paper to be published in September 2024. The full paper may be accessed here.
** The authors are grateful to the various participating ILPs, without which this paper would not have been possible.