With the likes of Singapore-listed firms Swiber and Swissco now under judicial management, several other offshore companies are struggling to meet deadlines for payment of debts and maturity of bonds. The proposed changes recently announced by Singapore would seem to allow more breathing space for distressed companies to be shielded from forced liquidation and given a chance to carry on operations while finding a solution to their cashflow problems.
Singapore’s Ministry of Law has unveiled proposals to the country’s laws relating to schemes of arrangement, judicial management and cross border insolvency. Broadly speaking, the aim is to improve the legal framework for undertaking major debt restructurings in the city-state, and the ease with which non-Singapore companies can access these improved procedures.
The changes to the schemes of arrangement, in particular, are seen as important and crucial to the survival of the offshore firms. Law firm Herbert Smith Freehills (HSF) explained that the proposed amendments adopt a number of concepts from the US Chapter 11 process, including concepts of super-priority debtor-in-possession financing, a strengthened and broad reaching (worldwide) moratorium and a cram-down mechanism for approval over the dissent of certain creditors. The proposed changes also include a provision for a “pre-pack” type mechanism allowing the court to approve a scheme without a formal creditor meeting where certain requirements are satisfied.
What this means is that the Singapore government is making the country’s schemes of arrangement a much more powerful debt restructuring and corporate rescue tool, as well as encouraging a market for American style “debtor-in-possession” rescue finance in Singapore restructurings, according to HSF.
“This reform is the first of its kind amongst the various Anglo legal-jurisdictions that have versions of schemes of arrangement on their statute books, and its implementation will therefore be watched with great interest in the UK, Hong Kong, Australia and elsewhere.”
On looking deeper into the draft legislation on schemes of arrangement, a series of “enhanced moratorium” provisions are introduced. The noteworthy scope of the new moratorium provisions allow courts to grant orders preventing winding up of the company, appointment of a receiver or manager, commencement or continuation of proceedings against the company, execution or distress against the company’s property, re-entry or forfeiture under any lease of the company, among others.
“This is similar to the moratorium available in judicial management, and is not limited to creditors subject to the proposed scheme of arrangement,” HSF pointed out.
“There is also an automatic 30-day interim moratorium that applies from the making of the application for a moratorium order (which covers all of the matters referred to above). This is presumably intended to provide interim protection for the company in the period before the application for a moratorium order is heard,” it said, adding that subsidiaries of the company may also apply to be granted a moratorium order.
At present, the severely weakened offshore industry has virtually choked off all earnings for offshore services firms, leading to a rapid collapse of these companies due to high monthly cash burn and maturing debts. With little options left as companies find no way out of such challenging conditions, Swiber surprised the market when it filed to be wound-up, only to reverse this decision in less than 48 hours to be placed under judicial management.
Less than four months later on 21 November, another offshore services firm Swissco filed to be placed under judicial management, after it failed to receive support from its major creditors.
Other companies like Marco Polo Marine has embarked on debt restructuring, ASL Marine is raising new funds, and Ezra has flagged a going concern issue.
Pacific Radiance, on the other hand, has managed to refinance its term loans and renew its revolving credit facilities, as it reported a third quarter loss of $17.97m. Ezion, which posted a third quarter profit of $9.38m, said it has in place “contingency plans to deal with the possibly worsening situation and do not expect to be materially affected”, as the company seeks to dispose of a service rig and to delay or cancel a few committed projects.
In light of the grim scenario, the Singapore government is considering the need to extend more aid to the ailing offshore and marine segment, in addition to the extension of port dues concession for OSVs in Singapore port already in placed.
The latest proposed changes to the restructuring and insolvency laws further attest a possibly urgent need to give Singapore offshore firms a chance for self-rescue and prevent a domino bankruptcy wave across the sector.
The scheme of arrangements amendments also introduce rescue finance provisions that are similar to the debtor-in-possession financing scheme under section 364 of the US Bankruptcy Code. “The rescue finance provisions allow a company to seek a court order as to the priority of credit incurred for the purpose of enabling the company to continue as a going concern,” HSF said.
Other proposed amendments that would allow the court to approve a scheme of arrangement include cram-downs relating to multiple classes of creditors, pre-packaged scheme voting without a need to hold creditors’ meeting, and creditor protection and procedural changes.
Under the judicial management procedure, the proposed amendments will make it easier for companies or creditors to obtain a judicial management order. Under the current Act, a company may apply for a judicial management order if the company “is or will be” unable to pay its debts. The proposed amendments say the condition is lowered to apply to any companies that “is or is likely to become” unable to pay its debts, HSF explained.
“In addition to being able to access the benefit of the proposed amendments to the scheme of arrangement procedure, a judicial manager is also given specific power to seek an order for priority for rescue financing, regardless of whether a scheme is proposed,” HSF said.
In essence, the proposed changes would better enable the purposes of judicial management, which is survival of the company, the approval of a scheme of arrangement or a more advantageous realisation of the company’s assets, rather than a winding up.
The proposed changes had gone through the public consultation phase from 21 October to 2 December, and the legislation is expected to be enacted in early-2017.
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