Over the past year, the Covid-19 pandemic upended many industries. While the construction industry has largely been able to operate throughout the pandemic, albeit with increased and ever-changing restrictions on jobsites, one consequence of these disruptions may be an increase in construction-related bankruptcy filings. Already in 2021, there have been over 70 construction-related bankruptcy filings across the country. For many property owners and real estate developers, these filings create a nightmare scenario where work may slow or even stop entirely.
The Insolvency, Restructuring and Dissolution Act 2018 (the "IRDA") came into force on 30 July 2020. The consolidation of all personal and corporate insolvency and debt restructuring legislation into a single statute, along with other legislative changes, seeks to further strengthen Singapore's position as an international debt restructuring hub. This note highlights certain key changes effected by the IRDA that are relevant to loan market participants.
Restrictions on ipso facto clauses
The Insolvency, Restructuring and Dissolution Act 2018 (the "IRDA") came into force on 30 July 2020. The consolidation of all personal and corporate insolvency and debt restructuring legislation into a single statute, along with other legislative changes, seeks to further strengthen Singapore's position as an international debt restructuring hub. This note highlights the new restrictions on ipso facto provisions effected by the IRDA, which will be of particular interest to loan market participants.
Restrictions on ipso facto clauses
A worldwide moratorium is one of the most important protections and tools available to a debtor in the Singapore cross-border restructuring regime. A recent Singapore High Court case, Re: Zetta Jet Pte Ltd and Others (Asia Aviation Holdings Pte Ltd, intervener) [2019] SGHC 53 ("Re Zetta Jet (2)"), highlighted some important considerations relating to such a worldwide moratorium, in particular dealing with potential conflicts between different jurisdictions.
Singapore's Cross-border Restructuring Regime
After months of public consultations and revision, the Singapore parliament passed the Companies (Amendment) Bill (the "Bill") on 10 March 2017 amending the Singapore Companies Act (the "Companies Act"). The Bill contains, among others, significant and novel changes to Singapore's insolvency laws. This is no doubt a giant step towards positioning Singapore as Asia Pacific's Debt Restructuring Hub with cross-border restructuring capabilities.
Introduction - The Bill
Earlier this year the Committee to Strengthen Singapore as an International Centre for Debt Restructuring (the "Committee") published, and the Singapore Ministry of Law accepted, recommendations aimed at enhancing Singapore's position as a `lead centre' for international debt restructuring. Is Singapore now well-positioned to become Asia Pacific's debt restructuring hub?
Background
In general, a company has two bankruptcy alternatives: liquidation under Chapter 7 and reorganization under Chapter 11.
Under Chapter 7, upon the filing of a bankruptcy petition, a trustee is appointed to gather and sell all of the debtor’s assets as quickly as possible. Once the trustee liquidates all of the assets, it must pay creditors in accordance with the priority scheme mandated by the Bankruptcy Code:
In today’s economy, we continue to see bankruptcies occurring in the construction sector. An owner, contractor, or subcontractor in financial distress can easily delay a project — or worse, jeopardize the project in its entirety. Contractors need to understand their rights in order to minimize their exposure in bankruptcy-related situations.
Protecting Contractors — Frequently Asked Questions