Judicial Management: A Practical Guide PDF

Takeaways Judicial management allows companies to rehabilitate their business and preserve value for creditors. It offers a standstill for claims and enforcement, and the appointment of independent officers to run the company. Directors are replaced by independent insolvency practitioners. The c...

Takeaways Judicial management allows companies to rehabilitate their business and preserve value for creditors. It offers a standstill for claims and enforcement, and the appointment of independent officers to run the company. Directors are replaced by independent insolvency practitioners. The court can grant a judicial management order even in the face of opposition from creditors or a person with a floating charge over the company\'s assets. Andrew Yip (00:00.896) In this lecture, we will be dealing with the topic of judicial management. The statutory framework for judicial management is in part seven of the Insolvency, Restructuring and Dissolution Act, the ERDA. Judicial management used to be available only to companies incorporated in Singapore. But after recent changes to the Companies Act and subsequently to the IRDA, judicial management has been extended to any corporation liable to be wound up in Singapore. This means that foreign companies can also apply for judicial management if there is a substantial nexus with Singapore. Judicial management is not available to certain prescribed entities, and these include banks, finance companies and insurance companies. Andrew Yip (00:53.39) Judicial management is intended to allow companies to rehabilitate their business and to preserve value for creditors. One of the main features of judicial management is a standstill for claims and enforcement and the appointment of independent officers to run the company. Rehabilitation can be done in a number of ways. This includes the restructuring or reorganisation of a company\'s operations and debts, or even the injection of funds by an investor or rescue financial. Andrew Yip (01:26.585) Judicial management can be contrasted against winding up. A winding up is usually a last resort because it ends up in the dissolution of a company. In contrast, judicial management offers the prospects of recovery for the company or a better realization of assets. Andrew Yip (01:47.17) Judicial management helps companies to restructure through a moratorium against proceedings and enforcement. This gives time and space for a company to formulate a proposal for its creditors. The other main feature is that directors are replaced by independent insolvency practitioners. All directors\' powers will invest in the judicial managers. This can be contrasted as well to a scheme of arrangement, which is a debtor in possession regime. Judicial management is therefore useful for cases where a company\'s management is either unable to act or does not command the trust or confidence of its Andrew Yip (02:33.486) For a company to be placed into judicial management, the prerequisite is that the company must either be insolvent or is likely to become insolvent. And this is usually not a difficult test to satisfy. The test for insolvency will be dealt with in detail in a separate lecture on winding Andrew Yip (02:56.43) Section 89 of the ERA sets out the statutory requirements for judicial management. The applicant must show that the making of a judicial management order would be likely to achieve one or more of the three purposes spelled out at Section 89. Andrew Yip (03:16.206) These statutory purposes are, number one, the survival of the company or the whole or part of its undertaking as a going concern, number two, the approval of a Section 210 or Section 71 order, compromise or arrangement, and number three, a more advantageous realization of the company\'s assets than in a winding up. It\'s important to note that it\'s not a given that a judicial management application will always succeed. A person with a floating charge over all or substantially all of the company\'s assets has special rights to oppose the grant of a judicial management order. The court must dismiss a judicial management application if such a person objects, and if the court accepts that a person opposing will suffer disproportionately greater prejudice than unsecured creditors if the judicial management order was granted. The court retains discretion to grant the judicial management order even in the face of opposition from creditors or opposition from a person with a floating charge over all of the company\'s assets. This is the public interest exception under section 91 of the ERA. If the court considers that it is in the public interest, it has the power to make a JM order even in the face of such opposition. The public interest exception has been raised in two local cases, Cosmetron Electronics and Rie Bintan Zegun Andrew Yip (04:55.128) The public interest exception was first raised in the case of Cosmetron. The application was heavily opposed by creditors, and on the facts, the court found that there was not sufficient public interest for a judicial management order to be Andrew Yip (05:12.278) Likewise, the court in Bintan Lagoon Resort also found that there was no overriding public interest in appointing JM\'s in the particular case. The court held that the mere fact that employees would be terminated in the company\'s liquidation would not, in itself, constitute sufficient interest to appoint judicial managers. Andrew Yip (05:36.312) There are two ways to place a company into judicial management. The first is by a court application. The company or any creditor of the company can make that application. Andrew Yip (05:49.784) The application will be by way of an originating summons supported by an affidavit. Notice of the application has to be advertised and gazetted and the hearing will be held in open court. The other introduces a new way to place a company to judicial management. The company can now do so by passing a shareholder\'s resolution to appoint an interim judicial manager. A creditors meeting will then be held, where creditors can approve the appointment of a permanent judicial manager. This can be a more cost -effective option if the number of creditors in the company is Only licensed insolvency practitioners can be appointed as judicial managers. These have traditionally been professional accountants, but the requirements have recently been expanded. See the requirements at Section 50 of the EARDA. Upon the filing of an application for judicial management, a statutory moratorium automatically comes into effect. Among other things, no resolution can be passed for the winding up of the company. No steps can be taken to enforce any charge or security over the company\'s property and no other legal proceedings and no execution or other legal process can be commenced or continued except with leave of court. Upon the grant of a judicial management order, an expanded moratorium will apply until the discharge of the judicial management. This includes a prohibition against re -entry or a forfeiture against property. Any receivers and managers appointed prior to the judicial management orders must also step down from their appointment. Any winding up applications that are still pending will also be dismissed. Do note that the Minister can Andrew Yip (07:40.94) by regulations, certain carve -outs to the moratorium in order to allow certain proceedings to be commenced or continued despite the judicial management moratorium. Currently, the filing of writs for an ambivalently action against a vessel will not be affected by a moratorium, and this is to preserve in -ramp claims against a vessel. A judicial management moratorium does not affect creditors\' personal to effect the set -off or adapting -off against the company. This is because contractual set -off rights are seen as self -help remedies rather than as a proceeding or an enforcement or security. The principles are stated in the cases of electromagnetic as well as in ALTOS technology and have been codified in Section 96, Subsection 5 of the ERDA. By default, a judicial management order remains in force for an initial period of 180 days from the making of the order. The judicial management period can also be extended by an order of court. Do note that a judicial management order can be extended once without an order of court, and this can be done with the approval of creditors by a majority in number and value, either in writing or at a creditors\' meeting. Once a judicial management order is made, the judicial manager takes control of all of the property of the company. All powers conferred and duties imposed on the directors will then be exercised by the judicial managers. The judicial manager has wide powers to do such things as are necessary to manage the affairs, the business and the property of the company. This includes the power to sell and grant security over property of the company. The judicial manager can also apply for super priority to be granted over existing securities or over existing assets in favour of the funder who is prepared to give rescue financing. Andrew Yip (09:49.806) The judicial manager\'s powers are limited to dealing with property belonging to the company. It follows that the judicial managers cannot deal with monies held on trust by the company. The judicial managers also cannot make payments to discharge debts that the company was subject to as at the date of the judicial management order, and this is so unless the circumstances in section 996 of the Erda are satisfied. The judicial managers are required to formulate a statement of proposals for the creditors\' consideration, and these would contain the judicial managers\' plans for achieving one or more of the purposes of the judicial management. As stated earlier, the judicial manager has 90 days to do so, but this can be extended by an order of court. The statement of proposals must be laid before a meeting of creditors. The proposal can be accepted or rejected or modified by the creditors. If approved, the judicial managers will manage the affairs of the company in accordance with the proposals. I do note that the Statement of Proposals is intended to set out a roadmap towards rehabilitation, but unlike in a scheme of arrangement, the Statement of Proposals will not, by itself, effect a compromise of claims or to restructure debt. Instead, the Statement of Proposals will contain broad steps to be taken in order for the GMs to propose a scheme of arrangement within judicial management. Andrew Yip (11:24.792) The judicial managers have a duty to apply to court for the discharge of the judicial management orders if it appears that the purpose or the purposes specified in the order have already been achieved or are incapable of achievements. Concurrently, the judicial managers can also apply for a release from liability relating to any acts or omission by him as a judicial manager. Such releases do not relieve the judicial manager from liability. for any misapplication or retention of money or property of the company, or from any law to which he would be subject, in respect of negligence, default, misfeasance, breach of trust, or breach of duty. Andrew Yip (12:09.678) The creditor or member can also apply to discharge the judicial management order or to seek reliefs against the judicial managers. This is usually on the grounds that the judicial manager has managed the company\'s affairs in a manner which is unfairly prejudicial to the creditors generally, or some part of the creditors, or to a single creditor holding more than 25 % in value of the debt of the company.