By Pierre Dzakpasu and Anne Jesudason (Mayer Brown)
Introduction
Singapore's debtor-in-possession (DIP) financing regime, introduced in 2017, allows distressed companies to obtain new financing with super-priority status over existing creditors, subject to court approval. The regime was designed as part of a larger vision to enhance Singapore's position as a global restructuring hub and to fill a gap in the Asia-Pacific market. However, the regime has seen limited usage and development, despite the increase in restructuring and insolvency activity in the region. This article examines the reasons for the low uptake, the trends and challenges in the application of the regime, and the comparison with the US model. It also provides some practical guidance for debtors and creditors seeking to use the regime.
DIP financing in Singapore
The regime is housed in section 67 of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA), which consolidated Singapore's insolvency-related legislation. The regime offers four levels of super-priority for rescue financing, ranging from parity with costs and expenses of winding up to priming existing security interests. The court has discretion to decide the appropriate level of priority, based on the conditions and factors set out in the legislation. The court must be satisfied that the proposed financing is necessary for the survival of the company as a going concern or to achieve a more advantageous realisation of its assets, and that the company could not obtain the financing from any other person unless such priority is granted.[1]
Application of Singapore's DIP financing framework
Since 2017, there have been a handful of applications for super-priority under the regime, mostly under the lower- to mid-levels of priority. The cases reveal some interesting trends and insights into the courts' interpretation of the legislation, such as:
Applicants must demonstrate that reasonable efforts were taken to secure alternative financing without the type of super-priority sought, and provide credible evidence of such efforts.[2]
The rescue financing need not be entirely new, but may be additional financing from an existing creditor or premised on a prior obligation, provided that the obligation to inject new funds is not pre-existing or is at the option of the creditor.[3]
The application should specify from the outset which level of priority is being invoked, and the court will consider whether the proposed financing follows sound and reasonable business judgment, alternative financing is available on any other basis, the financing is in the best interest of the creditors, and better offers, bids or timely proposals are before the court.[4]
The court will refer to US case law where appropriate, as the Singapore regime draws much inspiration from the US equivalent, but will also rely on parliamentary debates and committee reports to ascertain the legislative intent.[5]
Some notable cases include:
Attilan, the first application of its kind, which was rejected by the court for failing to show reasonable efforts to obtain alternative financing and for seeking to treat sums disbursed under a subscription agreement as rescue financing.[6]
Asiatravel, the first successful application, which was supported by evidence of negotiations and correspondence with existing creditors and potential lenders, and by the engagement of a third-party financial adviser to identify and approach other sources of financing.[7]
Swee Hong, which obtained super-priority for new security interests over unencumbered assets and priority over unsecured debt in the event of winding up, and which highlighted the importance of establishing the viability of the restructuring and the necessity of the financing for continued operations and value preservation.[8] [9]
Design Studio, which was the first successful application to obtain super-priority for a roll-up financing from an existing creditor and a major shareholder, and which confirmed that roll-up financing is a permitted form of rescue financing under the regime, and set out the main factors to be considered by the court in granting super-priority, including the fairness, reasonableness and adequacy of the terms, the absence of unfair prejudice to other creditors, and the provision of adequate protection to existing security holders.[10]
Singapore vs US: regime comparison
The US model is the nearest comparator to Singapore's DIP financing regime, as the wording and structure of section 67 of the IRDA closely mirrors section 364 of the US Bankruptcy Code. However, the regimes are not identical, and the Singapore regime should not be interpreted exactly as the US model. The Singapore regime has a higher threshold for granting super-priority, as it requires court approval for any type of super-priority, and it requires that the proposed financing be necessary for the survival of the company as a going concern or to achieve a more advantageous realisation of its assets. The US model does not have these requirements, and allows the debtor to incur new debt in the ordinary course of business as an administrative expense without court approval. Moreover, the US model has evolved over decades in a different market and economic context, and has seen various trends and preferences in the types and structures of DIP financings. The Singapore regime should develop objectively to reflect its original purpose and the specific needs of the Asian market.
Opportunities and pitfalls for debtors and creditors
While one can speculate on reasons for the relatively low uptake of Singapore's DIP financing regime, the emerging jurisprudence on its application is refreshingly clear. The courts have shown a willingness to give effect to the parliamentary intention behind the regime, and to consider various types and structures of DIP financings, as long as they are supported by sound evidence and arguments. Debtors seeking to apply for super-priority under the regime should come prepared with a thorough and well-considered case that demonstrates the necessity and benefits of the financing, the reasonable efforts to explore alternative financing, and the absence of unfair prejudice to other creditors. They should also consider coordinating with their creditors to reach agreements and provide adequate protection to minimise the risk of challenges. Creditors, on the other hand, should be aware of the possibility of being primed or subordinated by a super-priority financing, and should monitor the debtor's financial situation and restructuring plans closely. Creditors should also be proactive in engaging with the debtor and other creditors to protect their interests and negotiate the terms and conditions of the financing. A successful commercial strategy requires a DIP financier with skin in the game and the ability to minimise execution risk.
There is reason to be optimistic about the performance of Singapore's DIP financing regime in the coming years as the restructuring and insolvency space in Singapore and Asia-Pacific becomes increasingly more sophisticated and diverse. The regime offers a unique and flexible tool for distressed companies and their creditors to achieve their restructuring goals and to preserve value for the benefit of society as a whole.
(*) This post is a summary of an article which was first published on Global Restructuring Review in August 2024. For further in-depth analysis, please visit GRR - Asia-Pacific Restructuring Review 2025.
[1] IRDA, section 67, paragraphs (1) and (9).
[2] Re Attilan Group Ltd [2017] SGHC 283.
[3] ibid at [77].
[4] ibid at [65] – [67].
[5] Re Design Studio Group Ltd and other matters [2020] SGHC 148, [46].
[6] Re Attilan Group Ltd [2017] SGHC 283.
[7] In re Asiatravel.com Holdings Ltd and AT Reservation Network Pte Ltd (2019) [unreported]; Ben Clarke, ‘Online travel platform obtains Singapore’s first super priority order, GRR (16 Apr 2019).
[8] ‘Swee Hong granted moratorium of 6 months’, The Business Times (13 June 2019).
[9] Press release, ‘Application for Super Priority under Section 211e of the Companies Act (Cap. 50)’, Swee Hong Limited (17 Feb 2020); Jordan Fermanis, ‘Engineering company granted second super priority financing in Singapore’, GRR (24 Feb 2020).
[10] Re Design Studio Group Ltd and other matters [2020] SGHC 148.