On 30 July 2020 Singapore’s new “omnibus” Insolvency, Restructuring and Dissolution Act 2018 (the Insolvency Act) came into effect. This marks the third phase in recent years to strengthen Singapore’s restructuring and insolvency laws.
The Insolvency Act consolidates the laws on insolvency, bankruptcy, restructuring and dissolution into a single enactment and introduces a number of changes to the restructuring and insolvency framework in Singapore including: (i) the introduction of a new licencing and regulatory regime for insolvency practitioners (liquidators, judicial managers and receivers); and (ii) enhancing the judicial management provisions to allow for a company to place itself into judicial management without a court order.
In respect of contractual rights, the Insolvency Act introduces new restrictions on exercising contractual rights to (among other things) terminate, amend or accelerate payments under an agreement due to the fact that proceedings (schemes of arrangement and judicial management) have commenced or that the company is insolvent (these clauses are commonly known as ipso facto clauses). The prohibitions do not apply if the relevant proceedings commenced prior to 30 July 2020 and importantly, a counterparty is not prevented from exercising its contractual rights (including to terminate, amend and accelerate payments) if the contractual rights are triggered as a result of another (non-insolvency related) event, such as non-payment or breach of an obligation.
Scope of S.440 of the Insolvency Act – foreign companies?
Subject to some limited exceptions, S.440 of the Insolvency Act applies to any corporation liable to be wound up under the Insolvency Act and this includes foreign companies that have a substantial connection with Singapore. In Singapore, the “substantial connection” test is a relatively low threshold and includes carrying on business in Singapore, having substantial assets in Singapore or having Singapore law-governed finance documents.
Scope of S.440 of the Insolvency Act– which contracts are excluded?
Contracts entered into before 30 July 2020 are excluded from the scope of the new restrictions.
There is also a narrow list of contracts that are excluded from the ambit of S.440 including certain contracts that relate to the national or economic interest of Singapore, a commercial charter of a ship and certain financial contracts such as derivatives and margin lending agreements. One notable exclusion from the list of exempted contracts are loan agreements. This is in contrast to the position in England and Australia where, in the case of England, loan agreements and, in the case of Australia, syndicated loan agreements have been specifically excluded from the purview of the restrictions on ipso facto clauses. The Singapore position is however closely aligned with the position in Canada on which the Singapore legislative prohibitions are modelled.
The Insolvency Act is silent on whether the contract must be governed by Singapore law in order to fall within the scope of the restrictions. It is beyond the scope of this note to consider the potential conflict of laws implications that this uncertainty may create, but needless to say that judicial authority on this point would be welcomed by legal practitioners and commercial parties alike.
Singapore as an Insolvency and Restructuring Hub
Ipso facto clauses are commonly found in commercial contracts and provides the party seeking to rely on such a clause with an early warning sign that the counterparty debtor may be in financial difficulties. The party seeking to rely on the clause may be able to enforce its rights to terminate the contract (prematurely), amend the terms (which could include imposing more onerous obligations on the counterparty) or seek an accelerated payment. However, the effect of terminating the supply of goods and services or accelerating debts in respect of a company that is in financial distress hinders debtor rehabilitation and the new limits imposed on the exercise of these rights gives debtors facing insolvency a fighting chance to rehabilitate and continue as a going concern.
Foreign companies that are able to meet the “substantial connection” test will be able to avail themselves of the protections provided under S.440 of the Insolvency Act. In light of the current economic climate, this phase of updates to Singapore’s restructuring and insolvency legislative regime comes at an opportune time and will be welcomed by debtors.
 S.440 of the Insolvency, Restructuring and Dissolution Act 2018 (No.40 of 2018).