ALB speaks with Matthew Teo, director of employment at Helmsman, about the challenges, critical determinants of successful restructuring versus insolvency, comparison of Singapore's restructuring and insolvency laws with international standards, and advice for companies facing financial difficulties or contemplating restructuring in the maritime industry.
ALB: What are the primary challenges in shipping and oil-related insolvencies or restructurings in Singapore over the past decade?
Teo: The maritime industry presents unique challenges in insolvency and restructuring scenarios. A significant hurdle is the complex corporate structure typical of shipping conglomerates. The industry standard of incorporating special purpose vehicles for individual vessel ownership, while beneficial for risk management, significantly complicates the restructuring process. This practice, designed to insulate other vessels from potential arrests, necessitates separate court applications for each entity to secure statutory protections during restructuring.
Moreover, the inherently mobile nature of maritime assets introduces jurisdictional complexities. Vessels traversing international waters are subject to various maritime laws and arrest risks in different jurisdictions. This mobility demands a coordinated, multi-jurisdictional legal approach to asset protection during restructuring, requiring seamless collaboration among legal professionals across borders.
Another critical factor is the diverse array of stakeholders in the maritime sector, each with distinct interests and objectives. The capital-intensive nature of the industry means secured creditors, such as financing banks, often hold extensive security over group assets, including vessel mortgages and earnings assignments. Simultaneously, we must consider the interests of charterers, shareholders, employees, and various other creditors. Balancing these competing interests requires exceptional negotiation skills and strategic foresight to achieve a viable restructuring plan.
ALB: In your experience, what are the crit-ical determinants of successful restructuring versus insolvency?
Teo: The viability of restructuring hinges on several pivotal factors. Primarily, the company must possess a sustainable value proposition. Entities in declining industries face insurmountable odds unless they can successfully pivot their business model or demonstrate exceptional value in their assets. The presence of valuable assets can attract external investment, significantly enhancing restructuring prospects.
The root cause of financial distress is equally crucial in determining outcomes. Temporary downturns due to exogenous factors are more amenable to restructuring than systemic operational issues. Companies experiencing short-term difficulties due to external market conditions often have a higher probability of successful reorganisation. Furthermore, the support of major creditors is indispensable to the restructuring process. While modern restructuring laws may allow for creditor cramdowns, securing majority creditor backing remains fundamental to a successful reorganisation. Without this support, even the most well-crafted restructuring plans may falter.
ALB: How do Singapore’s restructuring and insolvency laws compare internationally, and what improvements could enhance the country’s position?
Teo: Singapore has significantly modernised its restructuring and insolvency framework with the introduction of the Insolvency, Restructuring and Dissolution Act 2018. This comprehensive legislation consolidates and enhances previous reforms, incorporating debtor-friendly features that position Singa-pore as a leading restructuring hub.
Key provisions include automatic moratorium on creditor actions, which provide crucial breathing space for distressed companies. The ability to obtain extra-territorial moratoriums for schemes of arrangement is particularly noteworthy, offering protection beyond Singapore’s borders. Additionally, the Act introduces simplified restructuring procedures, streamlining the process for eligible companies.
These progressive features set Singa-pore apart from other prominent restructuring jurisdictions such as the UK and Australia, potentially making it a more attractive venue for complex international restructurings. However, in considering further improvements, we must carefully balance debtor protection with maintaining Singapore’s reputation as a stable business jurisdiction.
As a major trade and finance centre, Singa-pore must safeguard against potential abuse of its restructuring processes by insolvent companies engaging in forum shopping. The challenge lies in fostering genuine business restructurings while preserving the integrity of our financial ecosystem. Any future reforms should aim to enhance efficiency and effectiveness without compromising the rights of creditors or the overall stability of the business environment.
ALB: What advice would you offer companies facing financial difficulties or contemplating restructuring?
Teo: My foremost recommendation is to engage external advisors - legal counsel and independent financial experts - at the earliest signs of distress. This proactive approach enables companies to address issues swiftly and leverage appropriate legal protections before the situation deteriorates. Early intervention often provides a wider range of restructuring options and increases the likelihood of a successful outcome. Equally critical is maintaining transparent communication with creditors. Opacity breeds mistrust, leading creditors to assume worst-case scenarios and take defensive actions that can jeopardise restructuring efforts. Open dialogue fosters an environment of cooperation, which is essential for any successful restructuring endeavour.
Companies should conduct a thorough and honest assessment of their financial position and business prospects. This evaluation should inform a realistic restructuring plan that addresses the root causes of financial distress while capitalising on the company’s strengths and market opportunities. Furthermore, companies should familiarise themselves with the available legal tools and protections under Singapore’s restructuring framework. Understanding these options allows for more strategic decision-making and can provide crucial leverage in negotiations with creditors. Lastly, time is often of the essence in restructuring scenarios. Swift, decisive action coupled with clear communication can make the difference between a successful turnaround and insolvency. Companies should be prepared to make difficult decisions and implement necessary changes promptly to maximise their chances of recovery.
