By Wai Yee Wan (City University of Hong Kong), Casey Watters (Bond University), and Gerard McCormack (University of Leeds)
The scheme of arrangement, brought to Singapore through a transplantation of English law, provides one of the most flexible debt restructuring tools for companies. In 2017, Singapore enacted substantial reforms to its insolvency laws, transplanting elements of US Chapter 11, including a moratorium, rescue financing, and cross-class cramdown, into the flexible Singapore restructuring regime. Our paper (published recently in the American Bankruptcy Law Journal) addresses the effectiveness of English-modelled schemes as debt-restructuring tools in Singapore, both pre-2017 reforms and as a hybrid with elements of Chapter 11.
The English scheme of arrangement has been spoken of as a model for ‘early stage’ restructuring procedures. Although the scheme functions as Singapore’s de facto debtor-in-possession restructuring regime, it does not have any bankruptcy or insolvency stigma since it is a procedure based on company law rather than insolvency law. It is activated by the filing of documents with the court and an application to the court to convene meetings of relevant creditors to approve the scheme. The meeting of creditors under schemes is substantially similar to those conducted in Chapter 11 cases under § 341 of the US Bankruptcy code. Creditors whose rights are altered by the scheme are grouped into classes with creditors holding similar legal rights.
This is the first empirical study to date that comprehensively examines schemes of arrangement, including non-reported schemes, over a period. To this end, it employs a mixture of quantitative and qualitative data. To assess the schemes framework in Singapore, we conducted a study of schemes in three parts based on data availability. First, we examine the filings in court-sanctioned schemes of arrangement for the period 1996–2004 (with reported judgments). This period covers the Asian financial crisis of 1997 and includes private and publicly traded companies. Second, similarly, we examine the filings for schemes of arrangement with reported judgments for the period 2006–2015. This period covers the global financial crisis of 2008. We extended the database by including filings in court-sanctioned schemes of arrangement for SGX-listed companies, including non-reported judgments. Third, we examined the filings in court-sanctioned schemes between January 1, 2016 and May 22, 2019. May 22, 2019 was selected as it is the second anniversary from the date that the 2017 reforms came into force. We are able to have a wider sample size because cases during the latter period were tracked by the Supreme Court Registry. On examining the filings, we coded a number of variables related to the schemes of arrangement, including financial information related to the companies, class composition and outcomes of the schemes. Such data were manually collected and coded from all the filings, which were provided by the Singapore Supreme Court.
From our analysis of the data, we identified multiple characteristics of successful schemes, the most significant of which are controlling shareholder support and availability of new financing, often provided by the controlling shareholder. When present, disputes have centred on insufficient disclosure, with informational asymmetry a substantial concern identified in the study. Liquidation values were often missing and, when present, lacked a detailed bases for the stated values.
The results of the empirical study demonstrate the effectiveness of schemes as a debt restructuring tool for large insolvent companies. The scheme reforms, along with other insolvency reforms in Singapore, including adoption of the UNCITRAL Model Law on Cross-Border Insolvency, recent common law developments, and removing a ring-fencing provision that protected domestic creditors at the expense of foreign creditors, provide additional tools and lower barriers to restructuring in Singapore. The flexibility of schemes coupled with Chapter 11 tools make schemes an attractive debt restructuring option for many insolvent companies.
The full article is available here.
For related Roundtable posts, see Gerard McCormack and Wai Yee Wan, Transplanting Chapter 11 of the US Bankruptcy Code into Singapore’s Restructuring and Insolvency Laws.