Schemes of Arrangement in Singapore: Empirical and Comparative Analyses

[Extract]
The scheme of arrangement ('scheme') has historically been one of the most flexible and popular debt restructuring tools in Singapore and the United Kingdom (UK). Its chief attractions have been the ability of company management, often under the advice of an insolvency practitioner, to take the lead in the restructuring and to effect a 'within-class' creditor cram-down, thereby binding dissenting creditors within an accepting class to the terms of the scheme once the requisite approvals are obtained. Although the scheme procedure is created by legislation (and is found in the Companies Act 2006 (UK) and in the Companies Act (Singapore)), the law has largely been driven by judicial interpretation.

The scheme featured prominently in Singapore's 2017 introduction of wide-ranging reforms to its insolvency and restructuring laws (2017 reforms) with a view to enhancing its attractiveness as an international centre for debt restructuring.3 Central to these reforms is the transplantation (with modification), of certain provisions from Chapter 11 in the United States Bankruptcy Code (Chapter 11), into the well-established scheme framework. The key question that this paper addresses is how well the English-modelled scheme has served as an effective debt-restructuring tool in Singapore, both pre- and post-2017 reforms. Existing bankruptcy scholarship considers that the core of any corporate reorganisation theory is how the value of the restructured enterprise should be divided among the various claims and interests and there are several studies that examine how well the restructuring regime works in this context.4 In assessing how well the scheme has functioned, we make comparisons with the English schemes and Chapter 11 (from which the 2017 reforms have been derived). We evaluate the processes (such as the length of time for the restructuring to be approved by the court, costs and the information made available for the creditors to make voting decisions) and substantive outcomes (such as the haircut and dilution to shareholders' interests) based on a mix of empirical and qualitative data.

Our paper is the first study to address these issues by using a mix of qualitative and quantitative data and case studies on Singapore schemes as debt restructuring tools that cover the 1996-2019 period.5 This period will cover the impact of the 2017 reforms. We seek to answer the following questions. First, what are the factors that are present in the successful schemes? In particular, do they require injection of external new financing and to what extent do shareholders provide such new funds? Second, how are schemes used to resolve outstanding claims by creditors and how much of the value is distributed among creditors and shareholders? Third, has the restructuring process resulted in considerable delay, potentially prejudicing creditors where the moratorium/stay of proceedings is in force? Fourth, how have the 2017 reforms introducing the Chapter 11 provisions affected the way in which schemes are filed? Our paper contributes to the literature on what is currently a dearth of larger scale empirical studies of English 6 or English-modelled schemes.