Singapore’s Insolvency, Restructuring and Dissolution Act (IRDA) – A New Paradigm for Distressed Companies

October 29, 2020

By Debby Lim, Director, BlackOak

INTRODUCTION

Singapore’s long-anticipated Insolvency, Restructuring and Dissolution Act (IRDA), which was passed by the Singapore Parliament on October 1, 2018 and came into effect on July 30, 2020, is poised to be instrumental in helping global companies and alternative investment funds restructure if they have a nexus to the city-state.

The purpose of the IRDA is threefold. First, it combines the laws on personal and corporate insolvency and debt restructuring into one piece of legislation.  Second, it enhances existing insolvency and restructuring laws to further strengthen Singapore’s debt restructuring regime. The IRDA incorporates the 2017 amendments to the Companies Act, which introduced new rescue tools and increased access that foreign companies have to Singapore’s insolvency procedures and the UNCITRAL Model Law on Cross Border Insolvency, which improved the Singapore Court’s ability to participate in and facilitate cross-border insolvency processes. Third, it establishes a more heightened regulatory regime for insolvency practitioners. Collectively, they set a common and consistent standard of professional regulation and introduce a system of accountability.

The IRDA, together with 48 supporting pieces of subsidiary legislation previously enacted in Singapore, adopts the best practices of restructuring from around the world including parts of Chapter 11 of the U.S. Bankruptcy Code. 

Singapore has one of the most modern insolvency legislations in Asia because it has adopted the Model Law to provide cross-border assistance involving foreign office holders, which requires Singapore Courts to recognize a foreign proceeding if certain stipulated conditions are met unless recognition would be contrary to the public policy of Singapore. In addition, in 2017, the Singapore Supreme Court instated the Judicial Insolvency Network (JIN) guidelines. The JIN is a network of insolvency judges worldwide to facilitate judicial thought leadership and best practices in, inter alia, communication amongst national courts in cross-border insolvency and restructuring matters. Therefore, global companies with a nexus to Singapore should leverage its extensive resources.

Some of IRDA’s noteworthy features include:

  • Restrictions on ipso facto clauses, in order to restrict the termination or modification of the contract upon the occurrence of a specified trigger event such as the insolvency or restructuring of the company;
  • Out-of-court judicial management, which allows a company to place itself into judicial management without a court order as long as the creditors agree to it;
  • A new wrongful trading provision, which provides that criminal liability is no longer a prerequisite before civil liability can be imposed. 

Chapter 11’s noteworthy features incorporated into the IRDA include priority rescue financing, cram-down powers (impositions of a bankruptcy reorganization plan by a court despite any objections by certain classes of creditors) and pre-packaged restructuring plans.

“The IRDA is relevant and useful as it puts together all the restructuring and insolvency legislation into one omnibus Act and, coupled with Singapore’s adoption of the UNCITRAL Model Law on Cross Border Insolvency, facilitates the rescue of financially troubled multinational businesses,” said Saw Meng Tee, Managing Partner, EisnerAmper Singapore. “In the midst of the pandemic and current economic climate, troubled global businesses can also consider using Singapore as an alternative jurisdiction to rehabilitate their business and emerge stronger.” Singapore-based EZRA Holdings, an offshore contractor to the global and oil gas industry, is an example of one corporation that leveraged IRDA for its cross-border restructuring plan. In 2017, EZRA filed for Chapter 11 and the remainder of the case was turned over to the Singapore liquidators to complete the engagement. 

“The example of EZRA reveals that firms filing for bankruptcy can leverage multiple jurisdictions to receive the best options for their restructuring plan,” said Allen Wilen, National Practice Leader for EisnerAmper’s Financial Advisory Services team.

THIRD-PARTY FUNDING

Distressed companies often do not have sufficient funds to pursue claims. Third-party funding will enable them to pursue such claims and provide a potential avenue of recovery for their creditors. Prior to the IRDA, courts had permitted litigation funding in Singapore in the context of insolvency under the appropriate circumstances. However, a liquidator was only able to assign the proceeds of the company's claims to third parties and not the right to pursue actions that are personal to the judicial manager or liquidator.

Under the IRDA, both judicial managers and liquidators are statutorily empowered to seek third-party funding for certain of causes of action, including those which are personal to them. However, authorization by the Court or the committee of inspection is required. These are in respect to claims in relation to transactions that are deemed undervalued or have unfair preference transactions, extortionate credit transactions, fraudulent trading, wrongful trading, and assessment of damages against delinquent officers of the company.

CONCLUSION

The commencement of the IRDA is opportune during this current global economic crisis, as it will help troubled businesses pick up the financial pieces. As Singapore continues its trajectory of becoming an international debt restructuring centre, the IRDA also will potentially create new opportunities for insolvency professionals, distressed debt funds and financial institutions.

Debby Lim is a Director at BlackOak, a law firm in Singapore that specializes in bankruptcy and insolvency matters. Questions? She can be reached at (65) 6521 6750 or debby.lim@blackoak-llc.com.

About Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.