Judicial Management PDF

Corporate and Commercial Practice Insolvency Law and Practice Judicial Management Mr Wilson Zhu Copyright © 2024, Singapore Institute of Legal Education 1  Relevant Legislation Part 7 of t...

Corporate and Commercial Practice Insolvency Law and Practice Judicial Management Mr Wilson Zhu Copyright © 2024, Singapore Institute of Legal Education 1  Relevant Legislation Part 7 of the Insolvency, Restructuring and Dissolution Act (“IRDA”). Court has jurisdiction to grant judicial management orders over any corporation liable to be wound up under the IRDA Aims and features Rehabilitation and Preservation Introduced in 1987 after the Pan-El financial crisis in Singapore Modelled after the UK administration regime To allow companies in financial trouble an opportunity to rehabilitate and/or to preserve the company’s business as a going concern Aims and features To preserve interests of creditors on basis that they would be better served under JM compared to winding up JM seen as a preferred alternative to winding up – the latter being a measure of last resort. Aims and features Moratorium against proceedings and enforcement allows company time and space to formulate restructuring proposal or turnaround its business Directors replaced by independent professionals. All directors’ powers vest in the judicial managers. Insolvency Threshold Company must be insolvent or likely to become insolvent Test  The applicant must show that the making of the order “would be likely” to achieve one or more of the 3 purposes in s89(1)(a)-(c) of the IRDA.  3 statutory purposes 1. Survival of the company, or the whole or part of its undertaking as a going concern; 2. The approval of a Section 210 of the Companies Act or s71 IRDA of a compromise or arrangement; and 3. A more advantageous realisation of the company’s assets than in a winding up. Opposition to judicial management Court must dismiss JM application if: opposed by person entitled to appoint R&M under a debenture secured by a floating charge, and if prejudice caused to the person opposing is “disproportionately greater” than prejudice caused to unsecured creditors: s91(6) IRDA. Subject to s91(10) – Court still has discretion to appoint JMs if public interest requires Public interest exception Section 91(10) IRDA If the Court considers that it is in the public interest, it has the power to make a judicial management order even in the face of opposition from a floating charge holder Public interest exception 2 local cases:  Re Cosmotron Electronics (Singapore) Pte Ltd  Re Bintan Lagoon Resort Ltd Re Cosmotron Electronics (Singapore) Pte Ltd Co petitioned for JM order to facilitate relocation of manufacturing assets Opposed by 5 creditors holding > 50% total debt of co High Court found no public interest for JM order to be made Requirement under S227B(10)(a) Companies Act was not one which applicant needed to satisfy Court had overriding power to make JM order due to public interest even if Court was not satisfied that one or more of the statutory purposes would be achieved  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. Court-ordered judicial management Who can apply? Section 90 IRDA:  The company itself (acting via a members’ resolution);  The directors of the company (acting pursuant to a directors’ resolution); or  Any creditor of the company. Procedure Application is by way of Originating Application (in open court) Supported by affidavit setting out the grounds of the application Voluntary judicial management New provision - company can also be placed into JM by a creditors’ resolution at a creditors’ meeting, without an Order of Court. Shareholders’ resolution and appointment of interim judicial manager See s94 and 95 of the IRDA Appointment of Judicial Manager Must be licenced insolvency practitioner See requirements at s50 IRDA Company’s nominee may be opposed by creditors  Effects of JM application Statutory moratorium a) No resolution shall be passed for the winding up of the company; b) No steps shall be taken to enforce any charge or security over the company’s property; and c) No other proceedings and no execution or other legal process shall be commenced or continued except with leave of Court  Section 95 IRDA Moratorium after JM Order Expanded moratorium (Section 96(4)) applies until discharge of JM Order Moratorium extends to prohibit right of re-entry or forfeiture under a lease, and appointment of receivers or managers R&M to vacate & winding up application dismissed Note: s95(3)(b) and 96(5)(b) IRDA – Minister can prescribe by regulations certain carveouts to moratorium Contractual right of set-off Not affected by moratorium : s96(5) IRDA Cases:  Electro Magnetic (S) Ltd v DBS  Altus Technology Pte Ltd (under judicial management) v OCBC Period of JM JM order, unless discharged, remains in force for 180 days from making of order May be extended by court Note: s111(3) IRDA allows extension of JM order by approval of creditors by majority in number and value in writing or at a meeting, without court order  Functions, powers and duties of judicial manager Section 99 IRDA and the First Schedule Immediate steps: Take possession of company records Secure company premises Review company operations Meet key employees Judicial manager cannot Deal with property held on trust Make any payment towards discharging any debt incurred prior to judicial management, save as allowed under s99(6) IRDA Statement of proposals Section 107 IRDA Proposals for achieving one or more of the statutory purposes Must be sent to creditors within 90 days from JM order Discharge Section 112 IRDA Duty to apply to Court for the discharge of the judicial management order if it appears to him that the purpose or purposes specified in the order either have been achieved or cannot be achieved  Protection of creditors Section 115 IRDA Act Court may grant relief if judicial manager has managed the company’s affairs in a manner which is unfairly prejudicial to: - the creditors or members generally; or - some part of the creditors or members; or - a single creditor representing at least one quarter in value of debt of the company Notice Copyright © 2024, Singapore Institute of Legal Education. All rights reserved. The Course materials are developed by the Singapore Institute of Legal Education, based on the content, syllabus, and guidance provided by the Chief and Principal Examiners and their teams. No direct or indirect reproduction, publication, communication to the public, adaptation or any other use (that is prohibited and/or proscribed by copyright laws) of the Course materials in whole or in part in any form or medium is allowed without the written permission of the Singapore Institute of Legal Education. Part B Candidates should refer to the Code of Conduct for more information, particularly, the sections on conduct and behaviour, and the use of SILE resources.