Opening Address by Mr Ng How Yue, Permanent Secretary for Law, At the 2nd National Insolvency Conference 2015

14 SEP 2015

14 Sep 2015 Posted in Speeches

Honourable Justice Fabian Gleeson, Court of Appeal, Supreme Court of New South Wales,

Mr Sushil Nair, Chairman of the Insolvency Practice Committee, The Law Society of Singapore,

Mr Andrew Chan, Chairman of the Organising Committee, The Law Society of Singapore,

Distinguished Guests,

Ladies and Gentlemen,

Good morning, I am delighted to be here at the 2nd National Insolvency Conference organised by the Insolvency Practice Committee of the Law Society of Singapore. My Minister, the Minister for Law and Foreign Affairs, Mr K Shanmugam, was initially slated to give this Opening Address. Unfortunately, he is otherwise occupied given that this is Polling Day. He sends his deepest apologies and has asked me to give this opening address on his behalf.

The role of Insolvency Law
Insolvency is not usually viewed as a good thing as it is associated with business failure. However, insolvency plays a vital role in the business cycle and in the economy. Business failures are a commercial reality and a good insolvency regime facilitates an orderly and efficient distribution of assets of the business to its stakeholders. This allows us to avoid a mad scramble as creditors fight for a share of the debtor’s assets. A good insolvency regime may also permit a business undergoing financial distress to restructure its debts and continue to operate if it can do so profitably.
Therefore, a good and effective insolvency regime brings many benefits to the economy. First, an orderly and efficient insolvency administration reduces the cost of business failures in an economy. This means maximising returns to stakeholders. More fundamentally, it also reduces the risk associated with financing businesses and, consequently, the cost of such financing arrangements. Even fundamentally sound and commercially viable businesses may sometimes encounter financial difficulties. A modern insolvency regime can facilitate the special financing arrangements necessary for such businesses to be ‘saved’. When such businesses can be saved, jobs are saved, stakeholders ultimately get a better return and the economy as a whole benefits.
We have established the importance of a good insolvency regime to the broader economy. But economies evolve over time. New businesses emerge to tap on new markets and new technologies. A modern insolvency regime therefore needs to evolve as well. One example would be pre-packaged restructurings, or ‘prepacks’, which were introduced in the US during the 1990s. Prepacks offered a means for quick and cost efficient restructurings to be effected between debtors and key institutional creditors. Even though prepacks have been subject to criticism, the reality today is that they have significantly changed the nature of much restructuring work.

The pre-eminence of cross-border insolvency
One of the most important emerging issues that insolvency law has had to cope with is cross-border insolvency. One need only look at today’s conference programme to get a sense of the level of interest. Virtually all the conference topics focus on some aspect of international insolvency. This is not surprising as several decades of globalisation have resulted in many businesses with assets and operations all over the world. Insolvency law, which is traditionally territorial in nature, has been ill suited to deal with trans-national issues. Laws differ significantly across different jurisdictions and are sometimes completely unenforceable across national boundaries. This gives rise to inconsistent and conflicting decisions and treatment of stakeholders. Unsurprisingly, this has led to some stakeholders shopping for the jurisdiction that might give them the most beneficial treatment.
Singapore is no stranger to playing a part in cross-border insolvencies. Proceedings have been brought in Singapore in respect of the global insolvencies of Lehman Brothers, MF Global and OW Bunker. The size and scope of these insolvencies have highlighted the need for stronger cooperation and better coordination between countries.
Better cooperation and coordination is also needed in the context of restructuring. In fact, it is not unusual for the bulk of the work for a global restructuring to be undertaken in one country. We have observed a more recent trend. In order to tap on an efficient insolvency framework and experienced professionals, businesses may undertake debt restructuring in jurisdictions where they have little or no connection.
New York and London have emerged as ‘insolvency hubs’. Both jurisdictions have been able to attract restructuring work from foreign debtors and creditors that have little or no connection to them. These debtors and creditors choose to restructure their debts using US and English insolvency processes. It is perhaps no surprise that these jurisdictions have achieved this status. They are, after all, global financial hubs, meaning that many institutional lenders will have a presence in these jurisdictions and will be bound by any restructuring decisions made. Additionally, the insolvency framework in the US and England are well understood and are well suited to effecting restructurings. These factors have helped New York and London to attract debtors from all over the world. A good example of this would be Vinashin, a Vietnamese state-owned ship builder which restructured its debts through a UK scheme of arrangement in September 2013.

Singapore’s role in Asian insolvencies
How will these trends in insolvency work affect Asia? To start with, despite the present challenging economic climate, Asia is still expected to continuing growing and contributing as a major driver of the global economy. Some of the growth will be driven by new business ventures, and some of the growth will be driven by domestic businesses seeking to regionalise. Some of these businesses will flourish but, inevitably, we should also expect to see more Asia-centric insolvencies.
Singapore intends to play an important and constructive role in supporting such cases. We have made good progress as a regional hub for financial and dispute resolution services, and we have now set our eyes on becoming a hub to facilitate insolvencies and restructurings in the region.
Singapore has excellent fundamentals to achieve such a goal. Like the existing insolvency hubs in New York and London, Singapore too is a global financial services hub. We are ranked 4th in the Global Financial Centres Index. Our insolvency framework also offers similar restructuring opportunities as those accorded under English law. Finally, we have a strong professional services sector that can handle the complex and sophisticated work that cross-border insolvency entails.
Singapore also has a suite of dispute resolution services that few jurisdictions can match. The Singapore International Arbitration Centre is among the top choices for resolving international disputes through arbitration, and the new Singapore International Commercial Court is another supporting pillar, offering international commercial litigation solutions. Finally, the Singapore International Mediation Centre complements our other dispute resolution institutions by providing an alternative avenue for resolving disputes. Having a range of options to resolve disputes and impasses will help restructurings conducted in Singapore to reach outcomes that satisfy all parties involved.

Strengthen Singapore’s Insolvency Framework
We will continue to strengthen the insolvency regime in Singapore. As I highlighted earlier, it is important for insolvency law to evolve and meet the needs of the present day. Hence, Singapore is actively taking steps to improve its insolvency framework. Earlier this year, amendments were made to the Bankruptcy Act to introduce a new system for personal debtors to be discharged from bankruptcy and for large institutional creditors to bear greater responsibility in the administration of bankruptcy.
The next major change to Singapore’s insolvency framework will take the form of an Omnibus Insolvency Bill. The Bill will introduce several reforms to Singapore’s corporate insolvency framework pursuant to the recommendations made by the Insolvency Law Reform Committee, or the ILRC.
Several reforms recommended by the ILRC will strengthen our Judicial Management and Scheme of Arrangement regimes, which are the primary tools used for restructuring in Singapore. I will touch on 3 reforms that will help enhance the attractiveness of Judicial Management and Schemes of Arrangement to foreign debtors.
First, these reforms will allow for super-priority for rescue financing. This reform will enable a distressed business to obtain the necessary liquidity to carry on operating while a restructuring is being negotiated.
Second, cram-down provisions similar to those found in US Chapter 11 proceedings will be introduced. These provisions will allow schemes of arrangements to be sanctioned even if a class of creditors vote against the scheme, subject to certain safeguards. This reform will prevent a restructuring from being derailed by a class of creditors who are generally not prejudiced by the restructuring.
Finally, Judicial Management will be made available to foreign companies. This reform will give foreign debtors the option of coming to use our Judicial Management process to restructure their debts.
These reforms will enhance the attractiveness of Singapore’s restructuring processes and perhaps even give Singapore an edge on existing restructuring procedures in the US and England.
The Insolvency Bill will adopt the UNCITRAL Model Law on Cross-Border Insolvency. Adoption of the Model Law will enhance Singapore’s capabilities in resolving cross-border insolvency issues as there will be greater certainty in the recognition and treatment of foreign proceedings. The Model Law will also facilitate international cooperation between Singapore and other foreign countries in insolvency-related matters. This is an important step in enabling Singapore to act as a hub for regional insolvencies.
In addition to these reforms, the Ministry of Law is actively exploring other measures to make Singapore a more attractive destination for foreign debtors to come and restructure their debts. Such measures being considered include: (i) making it easier to establish jurisdiction over a foreign debtor for a restructuring, (ii) improving the recognition and enforceability of Singapore restructurings globally, (iii) introducing processes similar to ‘pre-packaged’ restructurings, (iv) using alternative dispute resolution processes to complement and facilitate restructurings proceedings, and (v) strengthening the local insolvency profession.

Spreading the word
These reforms will ensure that Singapore’s insolvency framework remains world-class and make Singapore an attractive destination for foreign debtors to come to resolve insolvency issues. However, the strength of our insolvency regime is just one piece of the puzzle. In a recent study published by South Square and Grant Thornton, Singapore was rated very highly as an effective jurisdiction for cross-border insolvency by practitioners who have had direct experience with the regime here. However, Singapore scored poorly from practitioners without such direct experience. The study concluded that a significant perception gap of Singapore’s insolvency regime exists. So, not only must we have a strong regime, it is also important that we reach out to potential users.
A strong partnership between the Government and the private sector is needed to close this perception gap and develop Singapore as a restructuring hub. The Government intends to continue working in close partnership with the private sector to achieve this.
To do this, the Ministry of Law is also seeking recommendations from various stakeholders in the insolvency industry to ensure that our insolvency regime meets the needs of debtors in the region and that the strengths of our regime are brought to the attention of these debtors when a decision on where to restructure is being made.
We welcome you to work with us and we will certainly welcome any feedback on how we can achieve these goals.
In conclusion, Singapore is ideally placed to succeed as a regional restructuring hub given our strong legal framework, our status as a global financial centre, our well-regarded dispute resolution institutions and a strong insolvency profession. On this foundation, Singapore will now step up and grow as a regional insolvency hub.
I hope that this conference will allow participants to exchange many ideas, including on the exciting new opportunities for a closer partnership with us as Singapore takes a big step towards becoming a regional restructuring hub. On that note, I wish you all a fruitful discussion.
Thank you.

Last updated on 14 Sep 2015