International Insolvency: Singapore – – Becoming “Delaware” of Asia Pacific Region?
Delaware has long established itself as a welcoming jurisdiction for various legal purposes. It began as a center for company incorporation by providing a corporate law framework that was flexible and continuously updated for new developments. More recently, Delaware has applied those same principles (plus an expansive view of venue) to become a center for major chapter 11 reorganization filings.
Recently, Singapore has taken steps to give notice of its intention to establish itself as an attractive location for international insolvency matters. In April, the Committee to Strengthen Singapore as an International Center for Debt Restructuring (the “Committee”) issued its report (the “Report”) with recommendations for making Singapore a leading jurisdiction for multi-national insolvency proceedings. The Committee is a blue ribbon panel comprised of both government representatives and local leaders in the legal and financial community.
The Report begins by noting the increasing levels of insolvency and restructuring activity in the Asia Pacific region and the globalization of many of the entities involved. It notes that for reasons of practicality and efficiency, the bulk of the work relating to a multinational insolvency case tends be performed in one “lead centre.” The Report notes that Singapore is already a major financial, legal and business hub, which provides the region with a convenient base from which to coordinate multi-jurisdictional restructurings. It then sets out to suggest methods by which Singapore can compete more effectively to become a restructuring and insolvency hub as well.
As part of its effort to enhance Singapore’s position as a restructuring center, the Report contains a series of 17 specific recommendations. These recommendations are grouped into three general categories: (1) enhancing the legal framework for restructurings, (2) creating a restructuring friendly “ecosystem,” and (3) addressing the “perception gap.”
Enhancing the Legal Framework. The suggestions for an improved legal framework are intended to provide a clear set of rules and procedures that ensure that the system is quick, cost-efficient and delivers high certainty of outcome. Among such suggestions is a recommendation to provide a clear list of factors that the courts may take into account to determine jurisdiction over foreign debtors in Singapore Courts. Also, the Report recommends an expanded restructuring moratorium like the American automatic stay, which would include worldwide in personam effect and potential application to related entities. The Report also recommends improved disclosure requirements for debtors in order to facilitate creditor decisions in restructuring proceedings. The Report also discusses the desirability of consolidating related proceedings before a single judge and facilitation of so-called “pre-packaged” or “pre-negotiated” restructuring plans.
In addition, the Report suggests improvements for the judicial portion of the system. These include the recommendation that cases be heard by specialist insolvency judges or “international judges.” The latter would be non-Singapore judges specially appointed to the Singapore International Commercial Court.
Lastly, this portion of the Report also recommends increased use of Alternative Dispute Resolution (ADR) methods in resolving disputes in restructuring and insolvency matters. This would include expanded use of existing Singapore mediation and arbitration groups, as well as efforts to strengthen expertise in those groups on cross border matters.
Creating a Restructuring Friendly Ecosystem. One area covered in this category is the improved availability of so-called “rescue financing,” which is tailored to the needs of distressed debtors. To support financing of restructuring proceedings, the Report includes recommendations regarding the encouragement of local development for groups with specialized lending expertise and the chapter 11 notion of “super priority liens” as part of available debt financing.
Addressing the Perception Gap. The final broad area of the Report concerns the need to better educate others regarding the benefits of Singapore as a restructuring hub. The Report recommends a concerted effort to communicate to the wider international restructuring community the benefits of Singapore jurisdiction. It also suggests that judges, professionals and academics from Singapore increase their involvement in international insolvency organizations and organize or participate in conferences, all in an effort to raise international awareness of Singapore’s capabilities.
In the United States, Delaware has become one of the primary jurisdictions for bankruptcy cases by debtors from across the country. Other courts have sought to emulate Delaware’s innovations to attract an increasing share of such business. On the international front, the US and the UK have historically been viewed as multinational restructuring centers. With the issuance of the Report, Singapore has given notice that it also wants to expand its participation, particularly for enterprises focused in the Asia Pacific region. We will watch with interest to gauge their success.