New laws will help ailing firms stay afloat

SINGAPORE (The Straits Times/ANN) - Sources estimate 5 to 8 firms here will seek protection under new debt-restructuring laws.

More distressed companies in the oil and gas, shipping and offshore marine sectors could seek protection under a new insolvency framework to come into effect soon.

The framework - adopting some elements of the United States bankruptcy code - aims to give troubled entities greater flexibility to restructure and survive.

Firms in these ailing industries have been hit hard by the oil price rout so a fair number are set to seek protection to restructure under the new rules, TSMP Law restructuring partner Alexander Pang said.

Industry sources estimate five to eight ailing firms, which have either raised finance here, or have creditors, operations or offices here, could seek the new protection.

One possible candidate is Ezra Holdings, which sought Chapter 11 protection in the US in March, given a lack of such protections here. There is talk the firm could apply for local protection as well, under the revised debt-restructuring laws here.

The move would be motivated by the fact that Singapore parties not doing business in the US have little to fear in not complying with a US order. But they will have to comply with a Singapore court order, TSMP Law joint managing director and senior counsel Thio Shen Yi said.

The amendments to the Companies Act - passed by Parliament in March - are set to take effect soon. After that, the High Court will be able to order a moratorium in favour of a firm proposing a scheme of arrangement for debt restructuring.

The moratorium, a temporary protection barring creditors from claiming a firm's assets,will be issued automatically upon application for up to 30 days - with worldwide effect.

The changes are being made now as Singapore companies will have to repay about $38 billion worth of local bond debt over the next four years, Mr Pang said. "In this environment, the possibility of some defaults occurring is high," he added.

If there is no strong, effective debt-restructuring framework, the oil and gas sector could face severe issues as the industry recovers, said Mr Patrick Ang, deputy managing partner at Rajah & Tann Singapore.

"The key players could disappear. But debt restructuring helps preserve company value, and keep the industry alive, so that those with the relevant industry skills can look forward to keeping their job in future. This is critical for our economy."

Another critical change is empowering the High Court to issue a judicial management order when a firm is likely to be unable to pay its debts, and not when it is unable to pay its debts. This allows the judicial management process to start earlier.

"In the past, Asian firms tended to shy away from getting into debt restructuring, or wait too long and then do it when it is too late. I think this amendment will change that mindset," Ang said.

Small and medium-sized enterprises may be able to seek help through a scheme of arrangement under the revised rules. But larger firms will likely be under pressure to opt for judicial management, as creditors may prefer an independent third party to manage the distressed company, Pang said.

One key change is that the court will also be able to give rescue financing "super-priority" over all other debts. What that does is help distressed businesses by attracting investors to pump in money earlier.

Current laws have no provisions for white knights to put in money earlier. But the new rules can help as banks or investors may be willing to inject fresh capital into a distressed, but economically sound business, if that capital has priority over existing debts, Ang said.

These changes are part of efforts to establish Singapore as a global debt restructuring hub for Asia.


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