BUSINESS SUPPORT
RESOLVING DISTRESSED SITUATIONS IN SINGAPORE AND SOUTH EAST ASIA ― A high level introduction to some of the options available under the Singapore legal framework for regional companies facing distress. By Rob Child, Partner, Ashurst LLP It’s not a scenario that any executive wants to face, but the cold, hard reality is that the headwinds in the global economy mean more and more businesses in the region are struggling.(1) This situation is unlikely to change in the short term: according to the World Bank’s latest Global Economic Prospects report, global growth has slowed sharply and the risk of financial stress in emerging market and developing economies is intensifying amid elevated global interest rates. (2) For many organisations, this may be the first time they are facing such a challenging environment and are having difficult conversations about how to weather the storm and emerge stronger on the other side. Every business is different, and the stresses and strains facing one will not be the same for all. The same is true of the solutions available. The good news for any struggling businesses is that Singapore is one of the best jurisdictions in the region to resolve distressed situations and allow businesses to emerge fighting fit and ready to get back to what they do best. In 2017, Singapore had the foresight to adopt a new legal regime that provides an enhanced framework for companies facing economic distress. Known as the Insolvency, Restructuring and Dissolution Act (or IRDA), this regionally ground-breaking piece of legislation aims to optimise the prospects for ailing businesses to achieve rehabilitation and allow creditors to make better recoveries than in a liquidation, and to develop Singapore into an international centre for debt restructuring.(3)
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But what does this mean in practice for regional businesses facing the early signs of distress? Singapore offers struggling businesses, both based in Singapore and elsewhere in the region, an efficient and effective process to restructure their financial liabilities and ultimately to continue trading, whilst also allowing founders and shareholders to retain the value of their investment. There are a number of tools available under the Singapore regime that directors of a struggling business may want to consider: • Where the directors want to remain in control but need some breathing space to develop and deliver a comprehensive restructuring, companies may apply for a moratorium with a view to proposing a compromise or arrangement with their creditors. Upon filing, companies obtain the benefit of an immediate 30 day moratorium preventing any actions against them for that period. This can be further extended, sometimes multiple times, by a judge at subsequent court hearings. • To facilitate the restructuring process, companies can also obtain super-priority funding (also known as DIP funding) to assist with short to medium term cash flow needs and allow the business to continue to trade whilst a restructuring or reorganisation is implemented. • Although not a formal arrangement, there have been many examples of where companies bring
Issue 95 / November 2023
