The Singaporean government is moving ahead with changes to its restructuring and insolvency laws and has unveiled draft legislation that includes adopting a number of concepts from the United States’ Chapter 11 process.
Two Herbert Smith Freehills’ restructuring, turnaround and insolvency experts have said that Australia needs to do the same so that greater flexibility can be provided and viable businesses can be rescued.
“Singapore has introduced a forward-thinking collection of reforms to strengthen its restructuring laws. This is part of Singapore’s strategy to become a regional debt restructuring hub and the ‘go-to’ venue for complex cross-border restructurings,” Herbert Smith Freehills partner Paul Apáthy said.
“In contrast, Australia’s restructuring laws have not been substantially updated for more than 20 years. With a focus largely on the administration procedure, Australia’s restructuring laws frequently operate like an ‘ambulance at the bottom of the cliff’ and all too often lack effective measures to save companies.”
Herbert Smith Freehills senior associate Emmanuel Chua said Singapore’s reforms include provisions to make schemes of arrangement a much more powerful debt restructuring and corporate rescue tool.
“The changes are timely because the current economic climate in Asia means that defaults are expected to rise over the coming year, particularly in the oil and gas and related service sectors,” Mr Chua said.
“The implications of these proposed amendments will be significant, and have the potential to fundamentally reshape restructuring and insolvency practice in Singapore. For example, the proposed amendments may encourage a market for American-style ‘debtor-in-possession’ rescue finance in Singapore restructurings.”
Mr Apáthy said that there has been a much more international approach to restructurings over the last decade, with companies choosing jurisdictions with laws and procedures that best promote a successful restructuring outcome.
“England and New York are the two most popular locations for restructurings, but these law reform proposals demonstrate Singapore is keen to compete for restructuring work in the regional Asia-Pacific market by offering an attractive set of procedures unavailable elsewhere,” Mr Apáthy said.
“The reforms will make it significantly easier for non-Singaporean companies, including, in the right circumstances, Australian companies, to utilise these new and improved Singaporean procedures to restructure, and achieve better outcomes than may be possible under existing Australian law,” he said.
Earlier this year Herbert Smith Freehills made a submission to the Australian government’s Improving Bankruptcy and Insolvency Laws proposals paper, welcoming moves to introduce legislation to reform Australia’s strict insolvent trading regime. The federal government is still considering submissions.
“Whilst the federal government’s proposed insolvency reforms were a welcome development, it is important that the scope of the reform agenda is now broadened to cover the creditor scheme of arrangement regime,” Herbert Smith Freehills partner Andrew Rich said.
“The Australian creditor scheme regime was introduced in the late 1800s and has not been materially amended since. This has inevitably resulted in it failing to meet the needs of modern-day corporate restructurings in a number of important respects.”