3. Judicial Management under IRDA

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Questions and Answers

What is the primary condition under which the Court can still appoint a judicial manager despite the opposition from a floating charge holder?

The company must demonstrate severe financial distress.

The creditors must agree to the appointment.

There must be clear evidence of fraud within the company.

It must be in the public interest, as determined by the Court. (correct)

In the case of Re Cosmotron Electronics (Singapore) Pte Ltd, what was the Court's finding regarding the public interest?

The public interest justified the appointment of a judicial manager.

No public interest for JM order was found. (correct)

The public interest necessitated immediate liquidation of assets.

The public interest required a restructuring plan to be presented.

Who can initiate a court-ordered judicial management application according to Section 90 IRDA?

Only shareholders of the company.

Any employee of the company.

The company, its directors, or any creditor. (correct)

The regulatory authority responsible for overseeing the company.

What was the main clarification provided by the High Court in the case of Re Bintan Lagoon Resort Ltd regarding public interest?

The test is whether the public interest necessitates the judicial manager's appointment. Signup and view all the answers

How can a company be placed into judicial management voluntarily?

With a creditors' resolution at a creditors' meeting. Signup and view all the answers

What is a primary aim of judicial management under the Insolvency, Restructuring and Dissolution Act?

To allow companies an opportunity to rehabilitate their business Signup and view all the answers

Which of the following statements is true regarding the moratorium in judicial management?

It grants the company time to develop a restructuring proposal Signup and view all the answers

What happens to directors’ powers during judicial management?

All directors' powers vest in the judicial managers Signup and view all the answers

Under what condition would a court dismiss a judicial management application?

If opposition is from a person entitled to appoint a receiver & manager under a debenture Signup and view all the answers

Which statement best describes the statutory purposes of judicial management?

To achieve survival of the company or a favorable asset realization Signup and view all the answers

Which legislation governs the judicial management process?

The Insolvency, Restructuring and Dissolution Act Signup and view all the answers

What was a notable reason for the introduction of judicial management in 1987?

To respond to the Pan-El financial crisis Signup and view all the answers

What advantage does judicial management offer to creditors compared to winding up?

Better preservation of the company as a going concern Signup and view all the answers

What must be true for a judicial manager to be appointed under the IRDA?

The judicial manager must be a licensed insolvency practitioner. Signup and view all the answers

Which of the following actions is prohibited during the statutory moratorium of a company under judicial management?

Passing a resolution for winding up the company. Signup and view all the answers

Which condition allows for the extension of a judicial management order without requiring a court order?

Approval of creditors by majority in number and value. Signup and view all the answers

Under what circumstances is the judicial manager required to apply for discharge of the judicial management order?

If the specified purposes have been achieved or cannot be achieved. Signup and view all the answers

What is the maximum duration a judicial management order can remain in force before needing to be discharged?

180 days. Signup and view all the answers

Which statutory provision protects creditors if a judicial manager is deemed to have mismanaged the company?

Section 115 IRDA. Signup and view all the answers

Which of the following is NOT required as per the statutory requirements following a judicial management order?

Increasing financial capital immediately. Signup and view all the answers

How does the moratorium imposed by a judicial management order affect the right of re-entry under a lease?

It suspends the right of re-entry. Signup and view all the answers

Study Notes

### Judicial Management

Judicial management is covered under Part 7 of the Insolvency, Restructuring and Dissolution Act (IRDA).
The IRDA allows the courts to place a company under judicial management if it is liable to be wound up under the IRDA.
It was introduced in 1987 after the Pan-El financial crisis in Singapore.
It is modelled after UK's administration regime.
Its aim is to rehabilitate companies and/or preserve the business as a going concern.

### Objectives

It aims to preserve the interests of creditors, as they are likely to receive more under judicial management than in a winding-up scenario.
This makes judicial management preferable to winding-up, which is a measure of last resort.
A key feature is the moratorium, where proceedings and enforcement against the company are prohibited, giving it time to restructure or recover.
Directors are replaced by independent professionals (judicial managers) who take over all of the directors' powers.

### Insolvency Threshold

A company must be insolvent or likely to become insolvent to be placed under judicial management.

### Statutory Test

The applicant must demonstrate that the order would likely achieve one or more of the following statutory purposes:
- Survival of the company or its undertaking as a going concern.
- Approval of a compromise or arrangement under Sections 210 or 71.
- A more advantageous realisation of the company's assets than in a winding-up.

### Opposition to Judicial Management

An application for judicial management can be opposed by a person entitled to appoint a receiver and manager under a debenture secured by a floating charge, if the prejudice to the opponent is "disproportionately greater" than the prejudice to unsecured creditors.
The court still has discretion to appoint judicial managers if it is in the public interest.

### Public Interest Exception

The court has the power to appoint judicial managers even when opposed by a floating charge holder if it is in the public interest.

### Local Cases

Re Cosmotron Electronics (Singapore) Pte Ltd
- The company sought a judicial management order to facilitate relocation of its manufacturing assets.
- Five creditors holding >50% of the company's total debt opposed the application.
- The High Court found no public interest for a judicial management order to be made.
- The court found that it had overriding power to make a judicial management order even when the statutory purposes had not been met, due to public interest.
Re Bintan Lagoon Resort Ltd
- The High Court clarified that the test was not merely whether it was in the public interest to appoint a judicial manager, but whether the court considered that the public interest in the circumstances required the appointment.

### Judicial Management Orders

A judicial management order can be obtained through an application by:
- the company itself.
- the company's directors.
- a creditor of the company.

### Voluntary Judicial Management

Companies can also be placed under judicial management by a creditors' resolution, without a court order.

### Appointment of a Judicial Manager

The judicial manager must be a licensed insolvency practitioner.
The company can nominate their own judicial manager, which can be opposed by creditors.

### Effects of a Judicial Management Application

A statutory moratorium is imposed when an application is made, which prohibits:
- Winding up resolutions.
- Enforcement of charges or security over the company's property.
- Legal proceedings unless with court leave.

### Moratorium after a Judicial Management Order

The moratorium is expanded after a judicial management order is made.
This prohibits:
- Lease re-entry and forfeiture.
- Appointment of receivers or managers.
- Receivers and managers from vacating the premises, and winding up applications are dismissed).

### Contractual Right of Set-Off

The right of set-off is not affected by the moratorium.

### Period of Judicial Management

A judicial management order remains in force for 180 days, unless it is discharged.
This time can be extended by the court.
The order can be extended by a majority of creditors (according to number and value) in writing or at a meeting, without a court order.

### Functions, Powers, and Duties of Judicial Managers

Their responsibilities are outlined in Section 99 of the IRDA and the First Schedule.
Immediate actions include:
- Taking possession of the company's records.
- Securing the company's premises.
- Reviewing company operations.
- Meeting with key employees.

### Restrictions

They cannot deal with property held on trust.
They cannot make payments towards debts incurred before the judicial management order, except as allowed under Section 99(6).

### Statement of Proposals

Judicial managers must submit a statement of proposals outlining how they plan to achieve one or more of the statutory purposes.
This document must be sent to creditors within 90 days of the judicial management order.

### Discharge

The judicial manager must apply to the court for discharge if the statutory purposes have been achieved or cannot be achieved.

### Protection of Creditors

The court can provide relief if a judicial manager has acted in a way that is unfairly prejudicial to:
- The creditors or members generally.
- Some part of the creditors or members.
- A single creditor representing at least one quarter in value of the company's debt.

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Description

This quiz covers the key aspects of judicial management as outlined in the Insolvency, Restructuring and Dissolution Act (IRDA). Learn about its objectives, the process of appointing judicial managers, and the implications for companies and creditors. Test your knowledge of how judicial management aims to rehabilitate businesses in financial distress.