28 March 2019

Re IM Skaugen SE [2018] SGHC 259

In the recent Companies (Amendment) Act 2016, Singapore significantly enhanced its scheme of arrangement framework, including extensive new provisions providing for an automatic 30-day moratorium, an extra-territorial moratorium and provisions assisting group restructurings. As an important safeguard against abuse of these potentially onerous provisions, the scheme company needs to provide (among other things) evidence of creditor support and proper financial disclosure.

The recent decision of Singapore High Court in Re IM Skaugen SE provides what is now the leading analysis of the enhanced moratorium provisions and its safeguards.

Facts

IM Skaugen SE (“IM Skaugen”) was a holding company incorporated in Norway with several wholly-owned subsidiaries including SMIPL Pte Ltd (“SMIPL”), IMSPL Pte Ltd (“IMSPL”) and Somargas II Pte Ltd, collectively known as the IMS Group. IM Skaugen, SMIPL and IMSPL (collectively, the “applicants”) applied for moratorium relief in Singapore pursuant to section 211B(1) of the Singapore Companies Act.

The purpose of the moratorium was to allow IMSPL and SIMPL to propose a scheme to their respective creditors, and to allow the creditors of IM Skaugen time to consider the scheme which had already been proposed. MAN Diesel & Turbo SE (“MAN”), a creditor of IMSPL, opposed IMSPL’s application.

Decision

The court granted the applicants a three-month moratorium, subject to various financial information requirements. In reaching its decision, the court specifically noted that there was evidence of creditor support for the moratorium, in that IMS Group’s largest creditor, Nordea Bank Finland plc, Singapore branch, supported or at least did not object to the moratorium.

In reaching its decision, the court clarified a number of important principles relating to Singapore’s enhanced moratorium provisions and its safeguards.

Evidence of support from creditors

First, the court clarified an ambiguity in the wording of section 211B(4) in relation to the important safeguard of whether an applicant scheme company needed to provide evidence of support of its creditors, and an explanation of the importance of the same.

It was argued by the applicants that it need only provide evidence of support from the company’s creditors in a situation where it had already proposed a compromise or arrangement (“First Scenario”). In a situation where the company intended to propose one (“Second Scenario”), it should not need to provide such evidence of support.

The court disagreed with this argument. The court instead held that evidence of support from creditors was required in both the First Scenario and Second Scenario.

Second, in relation to the Second Scenario, the court held that creditor support could not be for the compromise or arrangement itself, as one had not been proposed. Instead, the support that the applicant must show was for the moratorium, as opposed to the compromise or arrangement itself.

Third, when weighing creditor support for the purposes of a scheme moratorium application, the court indicated that regard could be had to the support for the overall group restructuring efforts by the group’s principal creditors.

Fourth, the court found that it was premature to consider whether the objections of MAN (a major creditor of IMSPL) were fatal to the moratorium application. The court repeated an earlier decision by the same Judge that while creditor opposition is relevant, that must be weighed in the face of the significance of the creditor support. Further, at this early stage of a moratorium application, there was no certainty that MAN would continue to object to the company’s scheme efforts (or even continue to be a creditor of the company) as the restructuring plan could evolve over time.

The effect of moratoriums on arbitrations and appeals

In addition, the court held that the scheme moratorium would also affect (i) arbitration proceedings, as opposed to court proceedings, and (ii) appeals by the applicant scheme company itself, in a case where the initial proceedings were commenced against the applicant company.

“Extra-territorial” scheme moratoriums

A major extension to the scope of the scheme moratorium under Singapore’s enhanced scheme framework is that the court may order that the scheme moratorium applies to any act of any person who is in Singapore or within the jurisdiction of the court, whether the act took place in Singapore or elsewhere. This is commonly referred to as an “extra-territorial” moratorium.

However, in this case, the court expressly noted that this terminology is a misnomer. The court issued an important clarification that the court would not make an omnibus order for a general extra-territorial moratorium, but would instead only grant a moratorium targeted at a specific act or acts of a specific party who is in Singapore or within the jurisdiction of the court.

Conditions attached to a moratorium

Finally, the court emphasised that it could impose terms and conditions upon the grant of a moratorium. Some examples of such terms and conditions include:

  • Requiring the appointment, at the debtor’s or creditor’s costs, of a monitoring accountant or a Chief Restructuring Officer (“CRO”) who would be answerable to the court and directed to report to the creditors.
  • Enlist the help of an experienced and skilled insolvency mediator to develop the restructuring plan, whether it be an individual or group restructuring plan.

Comment

Singapore’s enhanced scheme of arrangement framework has a significant impact on creditor rights in a company restructuring. The holding in Re IM Skaugen SE gives important clarity on the requirements that a company must satisfy, and the scope of the moratorium (including its extra-territorial effect) that the company enjoys under this framework.

An interesting post-script to the judgment expressly noted a “letter of undertaking” that the IMS Group’s largest creditor, Nordea Bank Finland plc, Singapore branch (“Nordea”) had obtained from the applicants. This letter required the applicants to undertake not to cause, support or pass any application or resolution that would include or affect any security or undertaking of Nordea, without Nordea’s express prior written approval.

The court noted in passing that it was plausible that Nordea’s neutral stance to the moratorium applications may have been a result of this “letter of undertaking”. While not expressly endorsing such letters of undertaking, the court’s passing comment suggests that in future cases, major creditors may consider obtaining similar letters of undertaking in exchange for supporting or at least not objecting to moratorium applications.

Allen & Gledhill Partner Alexander Yeo represented the largest secured creditor of the IMS Group, Nordea Bank Finland plc.

Allen & Gledhill Partner Andrew Chan and Senior Associate Cassandra Goh represented other creditors in the proceedings.

 

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