Singapore Seeks U.S. Chapter 11 Prowess in Bankruptcy Reform

  • Law ministry says ‘broadly accepted’ 17 recommendations
  • Includes automatic stay, pre-pack and super-priority lien

Singapore is seeking to enhance its position as a center for debt restructuring by giving its insolvency law some of the powers of the U.S. bankruptcy code’s Chapter 11, just as companies worldwide default on bonds at the fastest pace since the global financial crisis.

The government has “broadly accepted” 17 recommendations submitted by a committee after a yearlong review, the Ministry of Law said in a statement. Those include offering automatic stay of legal and enforcement actions for debtors, creating a bench of specialist judges for its bankruptcy court and increasing rescue-financing capital by enticing distressed-debt funds and private equity firms to set up shop in the city-state.

“We have all the basic building blocks for dealing with restructuring and we see that Singapore will be able to fill this space,” Indranee Rajah, senior minister of state for law, told reporters on Wednesday. “Singapore should not just be a debt restructuring place for Singapore companies and businesses but a global debt restructuring center much in the way as New York and London. We should be playing that role to the region and beyond.”

There have been 100 bond defaults globally this year through July 15 compared with 62 failures at this time last year, according to S&P Global Ratings, the worst since the fallout from the demise of Lehman Brothers Holdings Inc. In Singapore, non-payments by PT Trikomsel Oke and Pacific Andes Resources Development Ltd. from November marked the first defaults since 2009.

Stay of Enforcement

“The recommendations are progressive,” said Ashok Kumar, a director at BlackOak LLC, a restructuring and insolvency law firm in Singapore. “The market needs it as over the next couple of years, things are going to be rough in some sectors as the risk of debt default rises.”

A Chapter 11 bankruptcy petition protects the debtor from legal and enforcement action worldwide. Singapore’s Companies Act offers two ways of restructuring via judicial management and schemes of arrangement, legal procedures that follow the English law. The former provides automatic protection. In the latter way, a moratorium on legal actions by creditors may be given subject to adequate disclosure of information under the proposed reform.

Singapore Protection

A slump in global commodity prices in the past three years has pushed Asian coal miners including PT Bumi Resources and PT Berau Coal Energy to seek protection in Singapore and U.S. courts, while fishery group Pacific Andes Resources made a move locally.

Singapore’s legal review may also introduce so-called pre-packaged restructuring -- a negotiated deal between the debtor and its major creditors that may be presented for court approval before any formal legal proceedings. The intent is to save time and cost in debt restructuring efforts.

To attract more distressed financing capital, the legal reform will allow the local court to grant investors so-called “super-priority lien” status -- or seniority in claims over existing creditors -- when funding companies in bankruptcy, the ministry said today.

The government plans to propose the amendments to the Companies Act by year end, and a plan to house all its relevant restructuring and bankruptcy procedures under a new law is a long term target, Rajah said.

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