(Delivered in Parliament on 10 March 2017)
Madam, I wish to declare that company and insolvency laws form part of my legal practice areas.
This Amendment Bill came up for first reading only last Tuesday. Today, after 8 days of sittings for the Budget and Committee of Supply debates, this Bill is up for the Second Reading and debate. A large part of this bill was the result of the recommendation by the Insolvency Law Review Committee back in October 2013. Much time has elapsed since then. The Bill is finally out. I hope all MPs have time to digest the Bill in such a short time, as we ought to but, Madam, can the MPs not have more time to consider such Bills properly before it is put to the second reading?
Corporate secretarial and filing requirements
Madam, under this Bill, there are quite a bit of changes to the Companies Act. There are various amendments relating corporate secretarial and filing requirements. I am agreeable to these proposals as they aim to improve practices and reduce regulatory burden.
I have two clarifications. One of the amendments involve the dispensation of compulsory Annual General Meetings (AGMs). On this issue, may I ask the SMS whether ACRA does provide for public access, suitable literature or other resources on minority rights? If not, will the Government consider doing so in light of the proposed changes? I believe this will be useful to some shareholders as they grapple with the changes in law.
Additionally, would the Government look into the possibility of streamlining the filing obligations of companies such that the annual ACRA filings can be combined with IRAS tax filing into a composite submission. I believe that this will make compliance easier and businesses do not need to grapple with different deadlines and different filing obligations.
Inward re-domiciliation regime
The Bill also seeks to introduce an inward re-domiciliation regime to allow foreign companies to transfer their registration to Singapore. I support the intention of allowing foreign companies to re-domicile as a Singapore company if this may help to attract existing foreign companies to re-locate their operations and headquarters to Singapore and bring more business and investments to Singapore or enhance Singapore as a key corporate hub and business centre.
However, I have some concerns. I hope we may not, by these provisions, end up encouraging corporate inversion without bringing real gains to Singapore. Will the companies suffer reputational damage in their home countries for reasons of tax avoidance? Will Singapore by encouraging corporate inversions draw the ire of other countries? Will we, for example, go the way of say Ireland and draw the ire of countries like USA?
Two years ago, Australian companies BHP Billiton and Rio Tinto were under the spotlight from the Australian tax authorities for what was described as the ‘Singapore Sling’ tax avoidance scheme where they were said to have channeled profits through marketing hubs in Singapore. The Australian tax authorities seemed to have accepted that they were for legitimate business activities and they were under legitimate tax avoidance schemes. Nevertheless, it appears from media reports that our so-called ‘Singapore Sling’ schemes were not as welcoming to the Australian taxmen as the real McCoy usually served to Aussie tourists in the Long Bar at Raffles Hotel.
While I recognize that (1) it is our sovereign right to decide freely on how we want to tax and the rules therefor and (2) that we need to always make our tax regime attractive in many ways to attract companies to come to Singapore, nevertheless, as a country how we organize our tax regime must also be welcomed by other countries within the international tax environment.
In recent years and as we have certainly seen after the Panama Papers episode, popular opinion around the world on the issues of tax avoidance practices have started to change. Tax avoidance practices which used to be carried out without any questions asked, together with the reputation of certain once popular offshore tax havens have taken a beating. I am sure the Government has considered these issues. Nevertheless, these are my concerns and I hope the SMS can provide some assurances.
Debt restructuring and judicial management
Part of the major changes to this Bill consists of various new provisions relating to debt restructuring proposals. Among other things, new features for schemes of arrangements include enhanced moratoriums against creditor action. The court will also be allowed to approve rescue financing provided for debt restructuring and to give such financing super priority over existing creditors’ claims. Schemes of arrangement can also be approved even if some creditors object.
The Bill is also making it easier for companies to apply for judicial management and there are also provisions for super priority for rescue financing in judicial management. I understand that such priority for rescue financing together with cram down provisions are concepts which are borrowed from US bankruptcy law. The Bill will also make judicial management available to foreign companies.
On 1 September 2016, the Korean shipping conglomerate, Hanjin, obtained a rehabilitation order from the South Korean courts to protect itself from creditors and to allow it to restructure their debts.
On 17 February 2017, after five and a half months, we read from media reports that the Seoul Central District Court had declared Hanjin bankrupt.
After the rehabilitation order, we read in media reports of their ships being turned away by container terminals, ships abandoned without sufficient funds for operation or to pay its crew, desperate cargo owners trying hard to retrieve their cargo still stuck in containers onboard the Hanjin ships.
With the insolvency declared last month, I wonder whether Hanjin or any of its creditors have really benefitted from the initial order for protection. What did the initial order for insolvency protection do for all its creditors? In reality, I understand that many debts, owed to many shipping and other businesses worldwide, are still unpaid.
In Singapore, many Singapore companies on the brink of insolvency often apply to the Singapore High Court for some variants of ‘insolvency protection’ measures which stated aims usually include restructuring business or restructuring debt payments. These may be in the form of schemes of arrangements, restructuring their debt obligations and payments or by way of judicial management, giving a chance to rehabilitate themselves with the hope of being restored. Some of these schemes or measures have worked in some cases but quite often, these schemes did not work to revive and sustain the ailing companies and eventually the companies had to be wound up. At best, it may buy some time before a company or its key and usually secured creditors work desperately to see if they can avoid writing off the huge amount of securitized loan granted to the ailing company or its vessels.
Meantime, by applying for judicial management or scheme of arrangement, it stalls the efforts of other creditors who may otherwise have different recourse to pursue their debts whether in the same jurisdiction or even abroad. These trade creditors may have already commenced actions in court, even obtained judgment or through admiralty claims, have arrested ships in Singapore or elsewhere. With the judicial management and scheme of arrangements applications, the company would have also applied for stay of such proceedings making these proceedings ineffective. The insolvency regime will allow debtors to buy some time before they go. These provisions have often been used to the advantage of troubled companies as well as their banks. The Bill will provide them with greater powers now. At the end of the day, like in the Hanjin case, unsecured creditors quite often end up with limited or no recovery.
Madam, I support the proposed amendments on debt restructuring and judicial management insofar as they will hopefully provide ailing companies with more meaningful options of recovering from their near insolvent situations.
That said, I hope that in the application of these laws, the Courts, will not allow the balance to be shifted too far away from the interest of unsecured trade creditors, in favour of ailing companies and their secured creditors.
I hope the courts, as the gatekeeper, will rigorously scrutinize the viability of all schemes, proposals and applications put forward by ailing companies in their application to the courts and the applicants can be called to account for the viability of their proposals.
Madam, oftentimes, such applications are taken out at short notice. This is often the case even though many ailing companies would usually have much time to sort out their problems. If the court should require more time to scrutinize the viability of proposals made, then that should override any arguments of urgency. Similarly, all creditors should be given sufficient time to scrutinize all such applications before an order is granted. In my view, in fairness to all creditors, and in the interest of resolving their debt situation, ailing companies should be encouraged to consider any application for debt restructuring or judicial management a little earlier than is usually being done now. And with the new provisions certainly in judicial management, I hope this can now be done.
Madam, before I move on to another area of the Bill, may I seek a clarification from the SMS, regarding Clause 25(f), where the Act will empower the Minister to prescribe the class of companies in relation to which a judicial management order must not be made, may I know what are the limitations intended here?
UNCITRAL Model Law on Cross-Border Insolvency
Next, the Bill adopts the UNCITRAL Model Law on Cross-Border Insolvency. In a globalized world, many companies and businesses operate globally and when some of these companies run into problems, insolvency issues may also turn cross border. With businesses and assets in multiple countries, this is unavoidable. When rules on insolvency may vary from country to country, it may bring complications to insolvency procedures or proceedings for companies with businesses, assets and debts in multiple jurisdictions. Though relatively few countries have ratified the UNCITRAL Model Law on Cross-Border Insolvency, for the reasons I have given above, I am of the view that we should support, ratify and apply the model law in Singapore.
Another reason to support this would be the fact that Singapore is a key legal hub in the world, and with increasing number of international corporate players having a base here and doing business in Singapore.
Finally, the fact that some of these signatories include key legal jurisdictions like the US, UK and Australia makes it a more cogent case for Singapore to apply the Model Law too.
Madam, ultimately, whether through the introduction of the Model Law or other measures in this bill such as super priority for rescue financing or other proposed enhancements to debt restructuring and judicial management provisions in the Act, I hope that the amendments to our insolvency law today will help to enhance the reputation of Singapore as both a leading international legal hub in the world as well as a leading hub in the world for insolvency work.
Madam, in closing, I support this Bill.