By David Chew (DHC Capital)
I. Introduction
Singapore introduced major reforms to its debt restructuring regime through the Companies (Amendment) Act 2017 which came into effect on 23 May 2017. These reforms, which were based on the US Chapter 11 regime, were introduced to support debtor-led restructurings through a “turbo charged” scheme of arrangement regime which included rescue financing provisions that allow for the grant of super priority status.
The Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”), which was passed by the Singapore Parliament on 1 October 2018 and came into effect on 30 July 2020, is the latest major phase of reforms to carry to fruition Singapore’s ambition to become an international debt restructuring hub.
The IRDA consolidates Singapore’s insolvency laws for both personal bankruptcy and corporate insolvency under a single piece of “omnibus” legislation and incorporates the reforms that came into effect in May 2017, including the provisions relating to super priority rescue financing.
II. The Rescue Financing Provision – Section 67
The rescue financing provision under Section 67 of the IRDA allows the Court to grant an order that the rescue financing be afforded super priority status where a company has made an application to convene a meeting for the purposes of a scheme of arrangement under Section 210(1) of the Companies Act (“Act”) or a moratorium under Section 64(1) of the IRDA.
In summary, the Court can make one or more of the following orders in respect of any debt arising from any rescue financing obtained (4 levels of priority):
• Section 67(1)(a): Treated as part of the costs and expenses of the winding up mentioned in Section 203(1)(b) of the IRDA;
• Section 67(1)(b): Priority over all the preferential debts specified in Section 203(1)(a) to (i) of the IRDA and all other unsecured debts;
• Section 67(1)(c): Secured by a security interest on property not otherwise subject to any security interest or that is subordinate to an existing security interest; and
• Section 67(1)(d): Secured by a security interest on property subject to an existing security interest, of the same priority as or higher priority than that existing security interest.
The Court’s approval for a rescue financing order is subject to the following core pre-conditions being met:
• Reasonable efforts made to secure rescue financing without super priority
The company would not have been able to obtain the rescue financing unless super priority was given – this requirement applies statutorily to Section 67(1)(b) to (d) of the IRDA. For Section 67(1)(a), while not expressly mandated by statute, market practice has been for the court to expect that reasonable efforts were undertaken before granting super priority.
• Adequate protection
There is adequate protection test for the interests of the holder of the existing security interest (in the event the security is “primed”) – applies only to Section 67(1)(d) of the IRDA; and
• Meets definition of rescue financing
The proposed financing must constitute “rescue financing” as defined in Section 67(9) of the IRDA – (i) financing necessary for the survival of a company that obtains the financing and/or (ii) financing necessary to achieve a more advantageous realisation of the assets than on a winding up.
III. Evolution of Super Priority Rescue Financing: Overview of Cases and Key Features
• Attilan Group Ltd (SGX: 5ET) (“Attilan”)
In December 2017, the Court declined to grant Attilan super priority status under Section 211E of the Act (now Section 67 of the IRDA). Instead, the Court set out guidelines for future applications of super priority financing.
This case is significant as it provided the initial judicial framework for assessing applications, even though Attilan’s request itself was not granted. It laid the foundation for how subsequent companies would structure their applications under Section 211E (now Section 67 of the IRDA).
• Asiatravel.com Holdings Ltd (SGX: 5AM) (“ATH”)
In April 2019, the Court granted ATH priority over all the preferential debts specified in Section 328(1)(a) to (g) of the Act (now Section 203(1)(a) to (i) of the IRDA) and all unsecured debts pursuant to Section 211E(1)(b) of the Act (now Section 67(1)(b) of the IRDA).
This is the first successful application for super priority rescue financing under Section 211E of the Act (now Section 67 of the IRDA).
DHC Capital acted as Financial Advisor to ATH on the super priority rescue financing.
• Swee Hong Ltd (SGX: QF6) (“Swee Hong”)
In February 2020, the Court granted the following orders:
• Debt of up to S$3.1 million shall be secured by way of a first fixed charge over the unencumbered plant and machinery and motor vehicle assets owned by Swee Hong pursuant to Section 211E(1)(c) of the Act (now Section 67(1)(c) of the IRDA); and
• In the event of a winding up, an amount of S$2.9 million shall have priority over all the preferential debts specified in Section 328(1)(a) to (g) of the Act (now Section 203(1)(a) to (i) of the IRDA) and all other unsecured debts pursuant to Section 211E(1)(b) of the Act (now Section 67(1)(b) of the IRDA).
This is the second successful application for super priority rescue financing in Singapore under Section 211E of the Act (now Section 67 of the IRDA) and first case involving super priority over assets not otherwise subject to any security interest under Section 211E(1)(c) of the Act (now Section 67(1)(c) of the IRDA).
DHC Capital acted as Financial Advisor to Swee Hong.
• Design Studio Group Ltd (SGX:D11) (“Design Studio”)
In May 2020, the Court ordered that the proposed rescue financing be granted super priority over the preferential debts specified in Section 328(1)(a) to (g) of the Act (now section 203(1)(a) to (i) of the IRDA) under Section 211E(1)(b) of the Act (now Section 67(1)(b) of the IRDA).
The S$62 million rescue financing comprised two separate financing facilities as follows:
• A single-drawdown term loan facility of up to S$12.08 million from an associate of Design Studio’s controlling shareholder; and
• A multi-drawdown banking facility of up to S$50 million from an existing lender of Design Studio and its subsidiaries.
This is the third successful application for super priority rescue financing in Singapore and first case involving a “roll-up” of an existing lender’s pre-filing debt.
A representative of DHC Capital was appointed to the Board of Design Studio.
• Asiatravel.com Holdings Ltd (SGX: 5AM) (“ATH”)
In October 2022, ATH made a second attempt to obtain super priority rescue financing. The Court decisions were as follows:
• November 2020: The Court declined to grant super priority pursuant to Section 211E(1)(c) of the Act (now Section 67(1)(c) of the IRDA); and
• February 2021: The Court subsequently granted priority over unencumbered assets pursuant to Section 211E(1)(c) of the Act (now Section 67(1)(c) of the IRDA).
This marked the first successful application for a second round of rescue financing in Singapore. The case demonstrates that the Court may allow multiple rescue financing rounds.
• Antanium Resources Pte Ltd (“Antanium”)
In September 2021, the Court granted Antanium priority financing pursuant to Section 67(1)(b) of the IRDA and Section 67(1)(c) of the IRDA. The financing was structured through a third-party litigation funder.
The Court also ordered the appointment of a Chief Restructuring Officer (CRO) to oversee the restructuring process.
This case demonstrated the Court’s willingness to extend super priority status to external litigation funding under the IRDA.
• No Signboard Holdings Ltd (SGX: 917) (“NSB”)
In May 2022, the Court granted NSB priority over preferential debts pursuant to Section 67(1)(b) of the IRDA.
DHC Capital acted as Independent Financial Advisor to NSB on the scheme of arrangement.
• Zipmex Group (“Zipmex”)
In December 2022, the Court granted Zipmex super priority rescue financing of US$5 million under Section 67 of the IRDA.
Despite the Court’s approval of the super priority rescue financing, the scheme ultimately failed. Despite the scheme failing, the Court did approve the creation of an administrative convenience class, signalling flexibility in scheme structuring for complex cross-border insolvency cases involving large numbers of creditors.
• New SilkRoutes Group Ltd (SGX: BMT) (“NSR”)
In July 2023, the Court granted NSR super priority rescue financing over preferential debts pursuant to Section 67(1)(b) of the IRDA.
The total rescue financing amounted to S$5.9 million. The orders included a “roll-up” of S$1.9 million that had been lent pre-filing of the moratorium.
• NutryFarm International Ltd (SGX: AZT) (“NFI”)
In January 2024, the Court granted super priority financing pursuant to Section 101(1)(a) of the IRDA. The rescue financing totalled S$1,000,000. This was the first case involving a Judicial Management super priority rescue financing.
IV. Lessons Learned: Key Conclusions
Limited local scale
To date, nine successful super priority rescue financing deals have been completed in Singapore. Most cases involved the second and third levels of rescue financing under Section 67 of the IRDA, with no applications yet for the fourth level (priming secured creditors). Most cases have involved simpler capital structures involving bilateral banking facilities and unsecured creditors.
For the cases we have been involved in, super priority financing has been used by strategic investors as a tool to inject fresh capital to support the day-to-day operations, backed by a Court order, in exchange for exclusivity, access to information and management and ultimately to control the process with the end goal of becoming the new majority equity owner.
Small deal sizes
To date, the transactions have been small in scale, with the exception of the Design Studio case. The cases to date have involved simple capital structures that have little relevance to large global investors.
No regional traction
To date, the successful cases have been Singapore-focused, with no regional cases involving larger companies to create global investor interest.
Roll ups
Singapore Court have accepted roll-up financing structures, where existing debt is consolidated into new super-priority debt.
V. Lessons Learned: Key Reasons for Limited Attractiveness
Business suitability
Filing companies often lack the assets or cash flow necessary to support rescue financing (e.g. unsustainable business models, no underlying value, minimal hard assets).
No priming deals
The Singapore framework requires moratorium support from key creditors, and banks, often the lead creditors, who will generally oppose priming security. In many cases, their existing security is already out-of-the-money, leaving no surplus value to prime.
Alternative out-of-court options
Distressed companies frequently explore alternative rescue strategies that may offer greater certainty and flexibility than court-supervised restructuring. Options such as exchange offers and out of court consensual restructuring can be structured to include a new money element can result in faster execution with less legal complexity. This makes them attractive alternatives to court-backed DIP financing.
Process not size-tested
The regime has so far been used in smaller domestic cases. The absence of large, multi-lender restructurings successfully testing the process reduces the appeal for bigger foreign companies, especially those with cross-border operations.
Complex cross-border capital structures, often involving active debt trading tend to gravitate toward more familiar jurisdictions and out-of-court solutions.
VI. Lessons Learned: Potential Drivers
Legal regime
Singapore’s legal regime is familiar and trusted, backed by the credibility of the Court. Judges have shown a willingness to take a commercial and practical approach, drawing guidance where appropriate from US Chapter 11 precedent cases. Jurisprudence in this area is continuing to evolve.
Local market catalysts
Benefit of time. Continued use by local companies, particularly those with viable businesses and credible restructuring proposals will help build confidence and establish successful precedents.
Better timing and planning is also critical: in Singapore, companies usually seek super priority rescue financing only after commencing restructuring, typically following a moratorium filing to gain breathing space from creditors. This contrasts with the US Chapter 11 process, where debtor-in-possession (DIP) financing is sought as part of the first-day orders.
In addition, growth in secondary debt trading in bank loans, bonds and private loans can attract new capital providers, who see opportunities in capital-led rescue and turnaround situations.
Regional and global market catalysts
For Singapore to capture larger and cross-border deals, building trust in the regime must extend beyond domestic companies. Leveraging the Singapore International Commercial Court (SICC) and its specialist judges with Chapter 11 experience can provide comfort to large overseas corporates and international financiers.
Another important driver is harmonisation of restructuring laws across the region. Reciprocal arrangements with regional jurisdictions to enhance the effect and enforceability of a Singapore court order in regional jurisdictions could encourage more regional use of the Singapore regime. For example, enforceability between Singapore and Malaysia as Malaysia has recently adopted laws similar to Singapore’s super priority provisions.
(*) This article is an updated version of our earlier piece on super priority rescue financing published on the SGRI blog on 20 November 2020 and available here.
