Singapore’s policymakers are wrapping up the public feedback process on proposed changes to its insolvency law, part of a broader effort to enhance the city state’s appeal as a hub for restructuring in Asia.
A key change would broaden a provision in restructuring plans, known as cross-class cramdowns, to prevent shareholders from dissenting, according to a Ministry of Law report. The proposals would also streamline the process of disposing a debtor’s property or issuing new shares, and recommend building incentives into restructuring managers’ compensation.
The public consultation period will close on April 8, after which the Ministry of Law will draft a bill to be read in parliament before the proposals are enacted.
The recommendations are the latest in the ministry’s ongoing efforts to refresh insolvency rules under the Companies Act, which the state began years ago to make Singapore’s bankruptcy courts more appealing to investors.
“In the Asian context, where many companies are closely held by families, this could be a significant move if it results in these families losing control in these companies” said Mohan Gopalan, director for corporate restructuring & workouts at law firm Drew & Napier, commenting on the proposed changes on the cross-class cramdown.
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In 2016, Singapore went through a similar exercise to update its insolvency law, adopting a set of committee recommendations. They included practices similar to tools laid out in the U.S. bankruptcy code’s Chapter 11, such as offering automatic stay of legal and enforcement actions for debtors.
A key recommendation in the policymakers’ latest report is to broaden a so-called “cross-class cramdown” provision to allow creditors to force a restructuring plan on dissenting shareholders.
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Joel Chng, restructuring and insolvency partner at law firm WongPartnership LLP, said the fix is “aimed at resolving the issue of shareholders holding out on a viable restructuring plan in order to obtain a better outcome for themselves.”
But the report also suggests there could be an exception for shareholders to retain their interest if they contribute “new value.”
The structure for fees paid to judicial managers — ones who take over management of debtor companies during restructuring — also may change, as the report recommends adding “success fees.” This could incentivize the mangers to prevent long-drawn restructurings and the costs associated with them, Gopalan said.
