The JM provisions are in sections 403 to 430 of the CA 2016, along with the Ninth Schedule of the CA 2016. The abovementioned amendment was made to clarify that shareholders do not need to divest their shares before a cram down can be made. A creditors scheme of arrangement is a binding court-approved compromise or arrangement between a company and its various creditors under Part 5.1 of the Corporations Act. The role of the monitor . MAN Energy Solutions SE (“MAN SE”) opposed the moratorium application. The Court had the power to sanction a proposed Scheme of Arrangement, even if there were dissenting classes of creditors, where the Scheme did not discriminate unfairly between two or more classes of creditors and was fair and equitable to the dissenting classes and subject to the absolute priority rule. The application should not be made at the eleventh hour. Section 2 - Moratorium Where Directors Propose Voluntary Arrangement. One of the concerns with a scheme of arrangement presently is that there is no automatic moratorium whilst the scheme goes through and excluding companies with capital markets arrangements will not address this concern. The restraining order would restrain any further legal proceedings to be initiated against the applicant company applying for a scheme of arrangement. A moratorium is a period of debt relief during which creditors cannot take any action against you for debts you owe them. In the original arrangement, the debtor then has 21 days to respond to the statutory demand. A creditors' scheme of arrangement is a statutory contract or arrangement between a company and its creditors (or any class of them) made pursuant to the Companies Act 2006. Do NOT follow this link or you will be banned from the site! Phase 1 – Appointment of voluntary administrator A decision to appoint a voluntary administrator for a company is made by either: 1. My view is that the proper step is to assess whether there is a need to amend the language of section 368(2) of the CA 2016. Section 391/Clause 230 is the enabling section which empowers a company to contemplate a scheme of compromise or arrangement. a temporary suspension of a certain activity) to restrain further legal action or proceedings against the company in question unless the Court has granted leave for these proceedings to go ahead.For example, the company may apply to the Court to restrain the commencement of certain legal actions stated under section 211B(1) of the Companies Act (CA). Features of a scheme of arrangement in Guernsey. In CVA, section 398 of the CA 2016 provides that a “moratorium in voluntary arrangement commences automatically from the time of filing of the following documents by the company to the Court”. The 2017 Amendments saw the introduction of sections 211A to 211J, which set out an enhanced framework for Schemes of Arrangement in Singapore. [16] The amendments set out provisions for the filing of the proof of debt, inspection of another creditor’s proof of debt, [17]adjudication of the proof of debts by the Chairman of the meeting,[18] and for how objections from creditors were to be made and resolved.[19]. The Company has accordingly filed an application in the Singapore High Court for a moratorium under section 211B of the Companies Act in HC/OS 981/2019 on 1 August 2019. There was no intended change to the conditions (a) to (d). Unlike small companies, medium and large sized companies cannot ... satisfaction” of the company debts or “a scheme of arrangement of its affairs”, there is … The applicant company must provide, among others, evidence of support from the company’s creditors for the intended or proposed compromise or arrangement, a brief description of the intended compromise or arrangement, a list of every secured creditor and a list of all unsecured creditors not related to the company. Section 64 of the IRDA re-enacted Section 211B of the Companies Act, with one crucial difference contained in sub-section 12(b), which provides that neither an order of Court to restrain proceedings against a company in a scheme of arrangement or the automatic moratorium will affect the commencement or continuation of any proceedings that may be prescribed by regulations. a valuation report on each of the company’s significant assets. Now section 71(3) of the IRDA. Now section 68(7) of the IRDA. In both the CVA and JM provisions, there is clear language to allow for an automatic moratorium to restrain legal proceedings. Moratorium granted to allow proposal of scheme of arrangement 7 After Pan-United Concrete filed CWU 252/2016, the Defendant applied in Originating Summons 1277 of 2016 (“OS 1277/2016”) for a moratorium pursuant to s 210(10) of the Companies Act (“CA”). A scheme of arrangement enables a company to agree with its creditors, or one or more classes of its creditors, a compromise in respect of its debts owed to those creditors. Although there’s no formal moratorium under the scheme procedure, the English courts do have discretion to stay litigation or any judgment5 in special circumstances pending the scheme outcome. The first example of this trend came with EMAS Offshore and its application dated 31 August 2017 for a worldwide moratorium under the enhanced Singapore scheme of arrangement. [1] Amongst other things, the foreign company had to be able to show that it had a “substantial connection with Singapore”,[2] for e.g. There are key carve-outs to the moratorium, notably that the moratorium cannot be used if the company is party to a capital market arrangement of at least £10m. The Explanatory Statement of the Bill explained the reason for the introduction of the new subsections: “Clause 14 seeks the amend section 176 of Act 125 to ensure that creditors are aware of an application made under subsection (10) and to ascertain that restraining orders under that subsection are only granted under specific conditions to avoid any abuse.”. 24NCC-126-04/2013, grounds of judgment dated 22 July 2013), Re PECD Bhd & Anor (No 2) [2008] 10 CLJ 486 and Re Sanda Industries Bhd & Ors [1999] 1 CLJ 459, the Court essentially held that the pre-conditions in section 176(10A) of the CA 1965 had to be complied with at the very initial application for a restraining order. The restraining order in a scheme of arrangement requires a court order to give moratorium protection against legal proceedings. Some of the permanent changes include new moratorium protections, the abolition of ipso facto clauses from certain contracts and the creation of a restructuring plan. Now section 70(3) of the IRDA. Prior to the 2017 Amendments, a company could only apply for a moratorium[4] if it had already made a Scheme proposal. The 2017 Amendments introduced a cross-class cram down mechanism for Schemes of Arrangement. With the commencement of the IRDA, the sections in the Companies Act dealing with Schemes of Arrangement have been repealed and largely ported over into Part V of the IRDA. Dear Sirs, honestbee Pte. There is no moratorium period to protect the company unless it enters administration first; Even when sufficient creditors have agreed to the Scheme, it still requires court approval; Schemes of Arrangement are generally more expensive than insolvency procedures such as Company Voluntary Arrangements, due to their added complexity The most significant amendments implemented in 2017 are set out below. Ltd. (the “Company”) intends to propose a scheme of arrangement between the Company and its creditors. This was decided in a recent High Court decision dated 22 April 2019. Phase 2 – 1st Meeting of Creditors The voluntary administration must co… [16] Section 211F(2) of the Companies Act. Such an application can be made at the same time as or prior to the making of the application to court to convene the relevant meetings of creditors. The argument is that the original introduction of the conditions (a) to (d) to section 176(10) was to make sure that “creditors are aware of an application” beforehand and that “specific conditions” needed to be met “to avoid any abuse.” This meant that those conditions had to be met at the time of the initial application for the restraining order. The Court set aside the initial grant of the restraining order as the applicant companies had not satisfied the pre-conditions at the time of the application. The Court is satisfied that the compromise or arrangement does not discriminate unfairly between 2 or more classes of creditors, and is fair and equitable to each dissenting class. On the other hand, a restrainin… (10) Where no order has been made or resolution passed for the winding up of a company and any such compromise or arrangement has been proposed between the company and its creditors or any class of those creditors, the Court may, in addition to any of its powers, on the application in a summary way of the company or of any member or creditor of the company restrain further proceedings in any action or proceeding against the company except by leave of the Court and subject to such terms as the Court imposes. Section 211B(1) of the Act provides that a court may make an order for moratorium protection where “…a company proposes, or intends to propose, a compromise or an arrangement between the company and its … [12] Section 211E(9) of the Companies Act. Now section 64(5) of the IRDA. A scheme of arrangement is a statutory procedure pursuant to Part 26 of the Companies Act 2006, whereby a company may make a compromise or arrangement with its members or creditors. Scheme moratorium: court can order a stay on creditor proceedings pending a scheme of arrangement (High Court) Practical Law UK Legal Update 8-537-3769 (Approx. It is not an insolvency proceeding but can be implemented in ... debt-to-equity swap, moratorium or amendments to existing agreements). Sign up to receive email updates straight to your inbox! Creditors would be stopped in their tracks in pursuing their legal remedies. [6] Section 211B(8) read with section 211B(13) of the Companies Act. In the case of a CVA, the moratorium is automatically extended until the CVA proposal is implemented, accepted/rejected or withdrawn. However, the 2017 Amendments gave the Court power to order a “super priority” for debts incurred by the company in respect of rescue financing. Scheme of arrangement – enhanced moratorium with (initial) automatic 30-day moratorium on application. Schemes of arrangement have also been used by companies to return surplus capital to shareholders in a timely, cost effective, and tax efficient manner. Looking at the legislative history, Malaysia is unique in imposing these conditions (a) to (d) in the grant of a restraining order in a scheme of arrangement. Malaysia introduced section 176(10A) of the CA 1965 through the Companies (Amendment) No. (a) the Court is satisfied that there is a proposal for a scheme of compromise or arrangement between the company and its creditors or any class of creditors representing at least one-half in value of all the creditors; (b) the Court is satisfied that the restraining order is necessary to enable the company and its creditors to formalise the scheme of compromise or arrangement for the approval of the creditors or members under section 366; (c) a statement of particulars as to the affairs of the company made up to a date not more than three days before the application is lodged together with the application; and. (a) it is satisfied that there is a proposal for a scheme of compromise or arrangement between the company and its creditors or any class of creditors representing at least one-half in value of all the creditors; (b) the restraining order is necessary to enable the company and its creditors to formalise the scheme of compromise or arrangement for the approval of the creditors or members pursuant to subsection (1); (c) a statement in the prescribed form as to the affairs of the company made up to a date not more than three days before the application is lodged together with the application; and. The applicant would have to marshall support from the creditors for them to back a proposed director. [17] Section 211F(6) of the Companies Act. Automatic moratorium for up to 30 days upon the filing of the application of a company which is proposing, or intends to propose, a scheme of arrangement for the protection of a moratorium. One of the stated basis for its opposition was that any scheme to be proposed was doomed to fail, given that MAN SE held an arbitration award against IMSPL, which constituted to 76% of IMSPL’s unsecured debt. Where previously, only Singapore-incorporated companies could undergo a Scheme of Arrangement in Singapore, the 2017 Amendments gave foreign companies doing business in Singapore access to the Scheme of Arrangement regime. Significance: Indonesian company successfully applied for a moratorium under section 211B of the Companies Act, now section 65 of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA“) (which came into force on 31 July 2020). However, there are difficult pre-conditions to meet for securing a restraining order. Sorry, your blog cannot share posts by email. Pending scheme of arrangement or restructuring plan. Read more at The Business Times. The Court held that upon its proper construction, the conditions of section 368(2) had to be complied with at the time the application was made for a restraining order under section 368(1) of the CA 2016. The restraining order would restrain any further legal proceedings to be initiated against the applicant company applying for a scheme of arrangement. However, in recent years, Schemes of Arrangement and their associated moratoriums have been an increasingly popular tool used by companies attempting to restructuring, and it will be interesting to see how the law surrounding the various provisions are developed and refined in the coming months. The following is issued on behalf of the Hong Kong Housing Authority: Under the current time-limited arrangement, banks and financial institutions participating in the provision of mortgage loans for the Subsidised Sale Flats Scheme (SSFS) (participating financial institutions) may offer a mortgage principal moratorium plan (moratorium plan) to SSFS flat mortgagors. Are you owed money? Briefly, a Scheme of Arrangement will become binding on a company’s creditors after the following three steps are completed: Prior to the IRDA, the legislative framework for Schemes of Arrangement was set out in Part VII of the Companies Act. The Court ultimately decided to grant IMSPL’s moratorium application. Updates on restructuring process – Scheme of Arrangement 1. Scenario 2: Only the extension of the restraining order period must satisfy the pre-conditions. The issue was whether an initial grant of a restraining order of not more than 90 days must meet the pre-conditions or only a longer or extended period of a restraining order must meet the pre-conditions. Section 211A has been re-enacted as section 63 of the IRDA. CVA is a newly introduced corporate rescue mechanism under the Companies Act 2016 (“CA 2016”). Once the Court has sanctioned the Scheme, it will become binding on all creditors upon the lodgement of the Court order sanctioning the Scheme with the Registrar of Companies. Finally, the court can extend the moratorium under s.A15 IA 86 if the company is convening a meeting of creditors to consider a scheme of arrangement or the newly introduced restructuring plan under Companies Act 2006. Significantly, a scheme of arrangement can be used to implement a restructuring where not all creditors agree to the compromise proposed. A majority in number of the creditors meant to be bound by the arrangement, who voted at the creditors’ meeting, have agreed to the arrangement; The majority in number of creditors mentioned above represents three‑fourths in value of the creditors meant to be bound by arrangement; and. To my knowledge, this is also the first decision on this issue under the new section 368(2) of the Companies Act 2016 (CA 2016). This is more so with the word “and” between conditions (c) and (d) which suggested a cumulative reading of conditions (a) to (d) of section 368(2). In practice however, the absolute priority rule created practical difficulties because Singapore lacked a statutory mechanism to compulsorily divest shareholders of their shares in the company. Are you thinking of applying for a debt solution such as a Trust Deed or Debt Arrangement Scheme (DAS), but need more time to mull it over and are worried about what your creditors are going to do? IMSPL Pte Ltd (“IMSPL”), an entity in the Skaugen Group of companies, filed an application for a moratorium order pursuant to Section 211B of the Companies Act. [15] Section 211I(3) of the companies Act. The process is heavily court supervised, with court approval needed to convene meetings of creditors, for the scheme booklet and for the scheme itself (once it has been approved by creditors). Moratorium on diligence; Diligence; Register of Insolvencies; Debt Arrangement Scheme (DAS) About DAS. The creditors would be alerted to the intended action and may accelerate their legal actions. 2 Bill 1998. Although there’s no formal moratorium under the scheme procedure, the English courts do have discretion to stay litigation or any judgment5 in special circumstances pending the scheme outcome. CONSUMER electronics retailer TT International is seeking a fourth extension of a moratorium that restricts creditors from taking further action against it, as well as for the implementation of its scheme of arrangement, it announced on Friday evening. This would essentially require an applicant to reveal to the creditors beforehand that it was intending to apply for a restraining order. [1] Section 211A(3) read with section 351 of the Companies Act. A moratorium for medium or large companies can only be achieved if a CVA is combined with an administration, where the moratorium is therefore effected by virtue of the administration. However, the requirements to fulfil for a restraining order is burdensome and difficult to satisfy. Understandably, lenders were reluctant to provide such rescue financing in case the restructuring failed, putting them in line together with other creditors of the company. Hence, a Scenario 1 would apply where the initial application for the restraining order would already require, at the very least, condition (d) to be met. Significance: Indonesian company successfully applied for a moratorium under section 211B of the Companies Act, now section 65 of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA“) (which came into force on 31 July 2020). The restraining order in a scheme of arrangement requires a court order to give moratorium protection against legal proceedings. Compare debt solutions; Debt Advice and Information Package; Owed money. [14] Section 211H(4) of the Companies Act. [6] Further, such an application could be made as long as the company intended to propose a Scheme. For example, Singapore also had near-identical language in its original section 210(10) of the Singapore Companies Act for a restraining order in a scheme of arrangement. As an example, Singapore introduced an option for an automatic moratorium under its scheme of arrangement provisions. This is a guide for companies and their advisers involved in, or affected by, schemes of arrangement between a company and its members under Pt 5.1 of the Corporations Act. In particular, clause 14 of that Bill inserted the subsection (10A) to (10E) into section 176 of the CA 1965. In practice, this meant that the company had to cobble together a Scheme proposal, make an application for leave to convene a creditors’ meeting,[5] and concurrently, apply for a moratorium. A similar issue also arose under the predecessor provision of section 176(10A) of the CA 1965. On 30 July 2020, the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) came into operation. Worried about debt? Necessary qualifying factors for moratorium protection under Section 211B. Authorised and regulated by the Solicitors Regulation Authority. Ltd. (the “Company”) intends to propose a scheme of arrangement between the Company and its creditors. Moratorium debts and priority pre-moratorium debts also have protection from compromise in a CVA, scheme of arrangement, or the new restructuring plan procedure, again if the process occurs within 12 weeks of the end of the moratorium. After the expiry of this period, the debtor is deems not able to repay the debt and the creditor can file a winding up petition. Under the current Singapore regime, an automatic 30-day moratorium arises by court order upon the filing of an application for a moratorium in a scheme of arrangement 1. Malaysia’s scheme of arrangement framework allows for a restraining order to be granted. Is your business prepared for climate change? 50). A secured creditor (with a security interest in all or substantially all of the company’s property); or 3. 2 This moratorium was first provided for in s 210(10) of the … The directors (by resolution of the board and in writing); or 2. section 368(2)(a) to (d), must be satisfied in either scenario 1 or scenario 2 below: (1) If no order has been made or resolution passed for the winding up of a company and a compromise or arrangement has been proposed between the company and its creditors or any class of those creditors, the Court may, in addition to any of its powers, on the application in a summary way of the company or any member or creditor of the company, restrain further proceedings in any action or proceeding against the company except by leave of the Court and subject to any terms as the Court may impose. 2. She added that Indonesia-based Modernland group very recently obtained moratorium protection in Singapore and is similarly seeking to adopt a pre-packaged scheme of arrangement. [18] Section 211F(7) of the Companies Act. The High Court set out brief grounds of judgment and with the full grounds to follow. A scheme of arrangement is a statutory, binding compromise reached between a company and its shareholders or creditors. 2 This moratorium was first provided for in s 210(10) of the Companies Act.1 However, as part of a … The cross- class cram down was therefore dependent on the shareholders’ voluntary cooperation, which was unlikely to be forthcoming in practice. Now section 68(6) of the IRDA. SCHEME OF ARRANGEMENT. Schemes of Arrangement A scheme of arrangement is an arrangement or ‘compromise’ proposed by a company, creditor, member, liquidator or administrator under Part 26 of the CA 2006. Where a company was in financial distress and required urgent protection from creditor actions, it would be difficult for the company to meet this pre-condition. These difficulties would be more acute if there is urgency due to the financial condition of the company applying for a scheme of arrangement. claims that are subordinated to the claim of a creditor in the dissenting class) to not retain any property unless the more senior claims are paid in full. The Company has accordingly filed an application in the Singapore High Court for a moratorium under section 211B of the Companies Act in HC/OS 981/2019 on 1 August 2019. I can mention that I was involved at the hearing so I know the arguments that were raised. An applicant must meet the statutory pre-conditions for the grant of a moratorium (otherwise known as a restraining order) under Malaysia’s scheme of arrangement even at the initial application stage. restructure using a scheme of arrangement is the debtor’s ability to obtain a moratorium on all legal proceedings against it. ... Moratorium… It is pertinent to note that there is no automatic moratorium for scheme of arrangements unlike a corporate voluntary arrangement and judicial management. A scheme of arrangement does not automatically result in amoratorium, which prevents creditors from bringing any legal proceedings orother action against the company while the moratorium is in place. [7] Section 211C of the Companies Act. [9] There are at least 6 reported judgments which refer to a moratorium granted under section 211B in related proceedings or which deal with the grant of a moratorium under section 211B itself. loans) provided to troubled companies for the purpose of restructuring. Schemes of Arrangement have been a part of Singapore’s restructuring and insolvency landscape since 1967. Stay under scheme? A scheme can also be used to implement a pre-pack, where all the stakeholders are agreed on its terms. ... A Singapore court has extended Cayman oil company KrisEnergy’s worldwide restructuring moratorium until late August, just a week after a Cayman court allowed a creditor to commence a local winding-up petition against its subsidiary. Now section 68(8) to 68(10) of the IRDA. The funds provided are necessary to achieve a more advantageous realisation of the company’s assets of a company than on a winding up of that company. A … forecasts of profitability and cash flow from the operations of the company and its subsidiaries. There is authority for them The relatively recent (10-15 years) growth in the use of schemes of arrangement as a restructuring tool of choice is largely … In this article, which is the second article in our series, we will touch upon the Scheme of Arrangement provisions contained in the IRDA, including an overview of a Scheme of Arrangement and its features, significant amendments to the Scheme of Arrangement regime that were implemented in 2017 and relevant modifications made to the regime in the IRDA. 5. Rescue financing generally refers to financing (for e.g. But there were never grounds of decision of the Federal Court or the Court of Appeal to determine the issue. The moratorium will be extended to the date specified in the order. [11], In this regard, Section 211E of the Companies Act provided that the Court can grant such super priority if:[12]. [15] Hoe Leong Corporation was one of the first few companies to make an application under section 211I (judgment unreported). [2] Section 351(1)(d) of the Companies Act. A restraining order can be a crucial tool to allow the distressed applicant company to have a moratorium from creditors’ actions and to allow for a successful restructuring of the company’s debts through a scheme of arrangement. There are also provisions to extend the moratorium if a company initiates a company voluntary arrangement (CVA), scheme of arrangement or a restructuring plan. The Court held that the test was “that of whether on a broad assessment, there was sufficient evidence for the court to determine that there was a reasonable prospect of the compromise or arrangement working and being acceptable to the general run of creditors.”[10] The Re IM Skaugen decision clarified the threshold required for companies to apply for a Section 211B moratorium and has been applied on a number of occasions since. The Court referred to an earlier decision in Jin Lin Wood Industries Sdn Bhd & Anor v Mulpha International Berhad. [3] Section 351(2A) of the Companies Act. I heard OS 1277/2016 on 15 December 2016 and granted a 12-week moratorium. The moratorium will be extended to the date specified in the order. 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(10A) The Court may grant a restraining order under subsection (10) to a company for a period of not more than ninety days or such longer period as the Court may for good reason allow if and only if–. To succeed in an application under section 211I, the company must satisfy the Court that had a creditors’ meeting been summoned, the proposed Scheme would have been approved by the statutory majority. A liquidator/provisional liquidator. Section 368 of the CA 2016 sets out the restraining order provisions. Section 211B of the Singapore Companies Act allows for a 30-day automatic moratorium period. I set out some thoughts on the arguments and the possible issues arising. MAN Diesel & Turbo SE (“MAN”), a creditor of IMSPL, opposed IMSPL’s application. The CVA provisions are in sections 395 to 402 of the CA 2016, along with the Seventh and Eighth Schedule of the CA 2016. [13] Section 211H(3) of the Companies Act. Briefly, a Scheme of Arrangement will become binding on a company’s creditors after the following three steps are completed: The company must apply to … [4] Under Section 210(10) of the Companies Act. [19] Section 211F(8) to section 211F(10) of the Companies Act. … restructure using a scheme of arrangement is the debtor’s ability to obtain a moratorium on all legal proceedings against it. Prior to the IRDA, the procedures for a Scheme of Arrangement were set out in Section 210 and 211 of the Companies Act (Cap. In a decision on 22 April 2019, the High Court in Kuala Lumpur allowed the creditors’ applications to set aside the grant of the restraining order. However, there are difficult pre-conditions to meet for securing a restraining order.
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