First Impressions: Singapore International Commercial Court Approves Cross-Border Prepackaged Scheme of Arrangement for Unregistered Foreign Company

The Singapore International Commercial Court (the "SICC"), a division of the General Division of the High Court and part of the Supreme Court of Singapore, was established in 2015 as a trusted neutral forum to meet increasing demand for effective transnational dispute resolution. It recently considered, as a matter of first impression for the SICC, whether to approve a prepackaged scheme of arrangement for a group of Vietnam-based real estate investment companies under Singapore's recently enacted Insolvency, Restructuring and Dissolution Act 2018 (the "IRDA"). In Re No Va Land Investment Group Corp., [2024] SGHC(I) 17 (June 7, 2024) ("NVLIG"), the SICC sanctioned a prepackaged scheme, emphasizing that its "description of its experience with the Application constitutes useful precedent for the management and prosecution of similar restructurings that may arise in the future," including its analysis of disclosure obligations with respect to prepackaged schemes under the IRDA.

The IRDA

The IRDA came into force on July 30, 2020. It consolidates all personal and corporate insolvency and debt restructuring legislation into a unified statutory scheme in an effort to strengthen Singapore's position as hub for international debt restructuring. Notable features of the IRDA include: 

• A provision permitting a scheme of arrangement to be approved over the objection of a dissenting class of creditors that arguably does not require shareholders to give up their shares (a "cross-class cram down"); 
• Restrictions on the enforcement of "ipso facto" contract clauses that allow a counterparty to terminate or modify a contract or accelerate payment upon the event of the debtor's insolvency or restructuring; 
• A provision permitting a company to enter "judicial management" without a court order with the approval of a majority in number and value of the creditors present and voting, thereby minimizing expense, formality, and delay, and providing distressed companies with another viable option to commence a restructuring; 
• Civil penalties for officers and directors who engage in "wrongful trading" by: (i) causing an insolvent company to incur debts or other liabilities that it has no reasonable prospect of repaying in full; or (ii) causing a company to incur debts or other liabilities that it has no reasonable prospect of repaying in full and that result in the company becoming insolvent; and 
• A provision authorizing judicial managers and liquidators to borrow funds for the purpose of prosecuting, among other things, avoidance, wrongful trading and fraudulent trading, and wrongful trading claims, and assigning the litigation proceeds to the funders.

Section 246(1)(d) of the IRDA provides that a foreign unregistered company qualifies for winding up in Singapore provided it can demonstrate a "substantial connection" with Singapore by reason of one or more of the following factors:

• Singapore is the "center of main interests" of the company;
• The company conducts business in Singapore or has a place of business in Singapore;
• The company is a registered foreign company;
• The company has substantial assets in Singapore;
• The company has chosen Singapore law as the law governing a loan or other transaction, or the law governing the resolution of one or more disputes arising out of or in connection with a loan or other transaction; and
• The company has submitted to the jurisdiction of the High Court of Singapore for the resolution of one or more disputes relating to a loan or other transaction.

According to the High Court of Singapore, a substantial connection with Singapore can be inferred from: (i) the existence of non-transient business activities, control, and assets in Singapore; and (ii) acceptance of Singapore jurisdiction or the application of Singapore law to a dispute. See Re PT MNC Investama TBK [2020] SGHC 149, at [12]–[13].

Whether a scheme of arrangement should be sanctioned by a Singapore court is determined by the IRDA, but court rulings interpreting certain related legislation—the Companies Act 1967 (2020 rev. ed.) and the Companies Act (Cap 50, 2006 rev. ed.) (collectively, the "CA")—are still relevant. Precedent under the CA established that a court can sanction a scheme if: 

• All of the statutory requirements for approval have been satisfied; 
• The constituency of the meeting of creditors convened to solicit approval of a scheme was fairly representative of the creditor class, and minority creditors were not coerced to accept it to promote adverse interests; and 
• Approval of the scheme was reasonable as a matter of honesty and sound business judgment. 

See The Royal Bank of Scotland NV (formerly known as ABN Ambro Bank NV) and others v. TT Int'l Ltd and another appeal [2012] 2 SLR 213, at [70].

The IRDA includes additional requirements for approval of a scheme of arrangement that is "prepackaged" because it is approved by creditors without a meeting convened as part of restructuring proceedings. Those requirements include:

• The company must provide each creditor meant to be bound by the scheme with a statement containing specified information (IRDA ss 71(3)(a) and 71(6));
• The company must provide adequate publication notice of the application for scheme approval (IRDA s 71(3);
• The company must provide notice and a copy of the application to affected creditors (IRDA s 71(3)(c)); and
• The court must be satisfied that, if a meeting of creditors had been convened for the purpose of seeking approval of the scheme, a majority in number of the creditors, and the holders of at least 75% in value of creditor claims, present and voting, would have approved the scheme (IRDA s 71(3)(d)).

According to the court in Re DSG Asia Holdings Pte Ltd [2022] 3 SLR 1250, the standard for approval of a prepackaged scheme is one of "a clear case of agreement to the scheme." Particularly, there has been proper disclosure, satisfaction of voting requirements, and proper classification of creditors. Id. at [31].

NVLIG

No Va Land Investment Group Corp. ("No Va") is a real estate investment holding company with more than 90 affiliates incorporated and based in Vietnam. In July 2023, severe distress affecting the real estate sector caused No Va to default on US$300 million in bond debt governed by New York law and listed on the Singapore stock exchange. Disputes regarding the terms of the bond indenture were subject to arbitration in Singapore.

After extensive negotiations with bondholders to achieve a consensual restructuring of the bonds, No Va and certain bondholders agreed on the terms of a prepackaged scheme of arrangement. Although no meeting of creditors was convened for the purpose of soliciting approval of the proposed scheme, the scheme was overwhelmingly supported by all participating bondholders (with holders of more than 95% of the outstanding bonds voting in favor of the scheme and none objecting). Before casting their votes, bondholders were provided with extensive documentation and other relevant information designed to allow them to make an informed decision regarding the benefits of the proposed scheme compared to a potential liquidation.

On April 11, 2024, No Va filed an application in the SICC seeking approval of the prepackaged scheme under the IRDA.

The SICC's Ruling

The SICC granted the uncontested application on April 26, 2024—only 15 days after the petition date.

The court issued its "grounds of decision" on June 7, 2024. Writing for the SICC, International Justice—and former U.S. bankruptcy judge—James Michael Peck concluded that "[t]he applicable standard for approving a pre-pack was satisfied in this instance without any doubt." NVLIG, [2024] SGHC(I) 17, at p. 13 ¶ 29. He further noted that the scheme of arrangement "was prototypical of what could be accomplished rapidly in a pre-pack and pointed to the utility of following expedited restructuring procedures in a cross-border context." Id. at p. 17 ¶ 39.

Justice Peck explained that the SICC had jurisdiction to approve the scheme. As a starting point, section 18D(2)(C) of the Supreme Court of Judicature Act 1969 (2020 rev. ed.) provides that the SICC has jurisdiction to hear any proceedings related to corporate insolvency, restructuring, or dissolution under the IRDA that are international and commercial in nature and that satisfy any other conditions specified by the rules of court. Among other things, Justice Peck noted: (i) "[t]he subject matter of the case was corporate bonds, a classic and archetypal commercial matter"; and (ii) No Va satisfied the "international" requirement as a "foreign company" because it was incorporated outside of Singapore (in Vietnam); had a place of business, property, and creditors located in a foreign country; had liabilities and contractual obligations arising in a foreign country that were subject to foreign law (including the bonds, which were governed by New York law); and was controlled from a foreign country. Id. at pp. 14–15 ¶¶ 31–34. 

Justice Peck further explained that the uncontroverted evidence demonstrated that No Va had a "substantial connection" to Singapore, and was therefore entitled to relief under the IRDA.

Next, the SICC found that the scheme satisfied all of the disclosure requirements set forth in section 71(3) of the IRDA (the "Disclosure Requirement"), which authorizes a court to approve a prepackaged scheme only if creditors have been provided with: (i) information regarding the company's property, assets, business activities, financial condition, and prospects; (ii) information regarding the terms of the scheme and its impact on creditors; and (iii) such other information as is necessary for creditors to make an informed decision whether to accept or reject the scheme.

According to Justice Peck, this Disclosure Requirement is not a "fixed checklist," and "what constitutes proper disclosure will depend on the particulars of each case." Id. at p. 18 ¶ 43. He also observed that "[a] pragmatic approach would be to look to commercial practices within the relevant restructuring market for an ex ante benchmark of the adequacy of disclosure." Id. at 19 ¶ 46. However, Justice Peck cautioned, the court "cannot solely look to the market and has a responsibility to independently find that disclosure practices followed in each case are proper and in compliance with the Disclosure Requirement." Id. at p. 20 ¶ 49. He also cautioned that the extensive disclosure of information does not necessarily amount to adequate disclosure, noting that "[m]ore paper does not necessarily mean better disclosure." Id. at p. 24 ¶ 61.

Justice Peck emphasized that, although a meeting of creditors was not formally convened in the prepackaged scheme before the court, the financial disclosures provided to creditors were "accomplished with evident care and attention to detail," in keeping with the disclosure standards governing schemes of arrangement (albeit not specifically under the IRDA) articulated by the Singapore Court of Appeal in Pathfinder Strategic Credit LP and another v. Empire Capital Resources Pte Ltd and another appeal [2019] 2 SLR 77. Id. at pp. 21–24. That guidance, he explained, which was designed to ensure that creditors are well informed, "appl[ies] with equal force in a pre-pack scheme of arrangement and should be read in conjunction with the Disclosure Requirement" of section 71(3) of the IRDA. Id. at p. 25 ¶ 64.

Having concluded that approval of No Va's prepackaged scheme was warranted, the SICC noted that "[t]he proceedings were entirely consensual and, in that sense, unremarkable for a judicial point of view, but the case is noteworthy, nonetheless, due to [No Va's] pioneering cross-border use of recently adopted pre-pack procedures." Id. at p. 28 ¶ 74.

Outlook

Prepackaged restructuring plans have long been an important feature of U.S. bankruptcy law, under both chapter 11 and chapter 15, and their utility as a vehicle for accelerating reorganization proceedings and reducing administrative costs has prompted several other countries, including the United Kingdom, the Philippines, and Singapore, to incorporate pre-pack features and procedures into their restructuring laws. Singapore's regime for prepackaged schemes of arrangement is relatively recent, and the jurisprudence addressing its requirements is still evolving. The SICC's ruling in NVLIG is therefore notable for the guidance it provides on the IRDA's rules and procedures regarding pre-packs. Prepackaged foreign restructurings have been recognized in the United States under chapter 15— notably, the prepackaged restructuring of Diebold Nixdorf—and, all else being equal, such prepackaged restructurings taking place under the auspices of the IRDA are likely to be to be recognized under chapter 15, assuming the necessary recognition prerequisites are established. 

The year 2024 has already been a year of notable developments in Singaporean bankruptcy and restructuring jurisprudence involving the SICC. In addition to its landmark ruling in NVLIG, the SICC on January 18, 2024, handed down its first insolvency-related ruling in Re PT Garuda Indonesia (Persero) Tbk [2024] SGHC(I). In that matter, the court granted recognition in Singapore of an Indonesian debtor-airline's "suspension of payments" proceeding under Singapore's version of the UNCITRAL Model Law on Cross-Border Insolvency. With both of these cases, each authored by a former U.S. bankruptcy judge—Chief Judge Sontchi (D. Del.) and Judge Peck (S.D.N.Y.), who is now a SICC Justice—Singapore and the SICC are demonstrating that the IRDA is a capable tool for complex cross-border corporate restructurings and is a viable alternative to court-supervised restructurings under U.S., UK, or other restructuring regimes.

This article was prepared with the assistance of Kit Shu, a foreign legal consultant in Jones Day's New York Office.

Read the full Business Restructuring Review here.