SGX RegCo proposes rule changes to aid company restructuring
FINANCIALLY distressed companies undergoing restructuring may dispose of significant assets without the approval of shareholders and have their trading suspension waived under “exceptional circumstances”.
That’s if proposed changes by the Singapore bourse’s regulatory arm are implemented.
The proposals by Singapore Exchange Regulation (SGX RegCo) are part of efforts to “smoothen and speed up” the restructuring of financially distressed companies, said Tan Boon Gin, the regulator’s chief executive officer.
A consultation paper detailing the proposed changes will be available on SGX RegCo’s website and open for public consultation from Friday (Feb 23) to Mar 22.
Speaking at a media briefing on Thursday, Tan said that the proposed changes will align the restructuring process for SGX-listed companies under Singapore’s Insolvency, Restructuring and Dissolution Act 2018 (IRDA), which saw the consolidation of the Republic’s personal and corporate insolvency regimes.
While the Act aims to “strike a balance between shareholders and creditors to give companies the best chance of success at restructuring”, SGX’s listing regulations were not drafted with the legislation in mind, he said.
“It is therefore important that we make the necessary changes to our rules to complement IRDA and support the restructuring of listed companies under IRDA as well as Singapore’s efforts to be a restructuring hub,” said Tan.
The proposed changes will also increase the chances of “white-knight rescues” where friendly investors bail out financially distressed companies. This will be of more value to shareholders, he added.
Among other things, SGX RegCo is proposing that the judicial manager or liquidator no longer needs to seek shareholders’ approval for significant disposal of assets of the issuer or its subsidiaries.
The regulator said in its consultation paper that seeking shareholder approval may not be practical as this requires more time, deterring potential buyers.
It is also proposing that issuers be granted a waiver from trading suspension under “exceptional circumstances” where it is certain that the restructuring process will be completed. For example, an issuer could have already worked out a court-approved arrangement with its creditors, also known as a pre-pack scheme.
Waiving the trading suspension would reduce disruption to the issuer’s operations and encourage stakeholders’ confidence in an issuer’s restructuring, said SGX RegCo.
The regulator also suggested that financially distressed issuers immediately release an announcement on SGX if they are going through a court-supervised moratorium. Similar regulations are implemented in other territories such as Malaysia and Hong Kong.
Currently, SGX’s listing rules only require issuers to make an immediate announcement when they are going through a winding-up process or judicial management to allow investors to make informed decisions.
To reduce the regulatory burden of financially distressed companies, SGX RegCo is also proposing that issuers provide quarterly, rather than monthly, updates on their financial situation as it’s unlikely that there will be significant changes every month.
“Sensible changes” to benefit stakeholders
Industry observers said that the proposed changes, if implemented, would benefit all stakeholders, including shareholders and creditors.
Clare Wee, Insol International’s regional head for Asia, said that the proposed changes should incentivise companies to achieve compromises at an early stage to avoid a trading suspension, resulting in a better outcome overall for all parties.
Insol International is the worldwide federation of national associations of accountants and lawyers who specialise in turnaround and insolvency.
Lawyer Stefanie Yuen Thio said that shareholders with more substantial holdings may feel that the proposal to remove shareholder approval for the significant disposal of assets would “swing the balance of power towards creditors”.
However, Thio, who is the joint managing partner of TSMP Law Corporation, said that the ability to keep the shares traded and to move quickly would benefit both the company and its creditors.
Nevertheless, Robson Lee, a partner at Kennedys Legal Solutions, noted that the proposals do not address the issue of whether shareholder approval is required when new assets are injected into the company.
He was of the view that the regulation for shareholders to approve the acquisition of new assets should be maintained, given that it could “totally transform the business” and expose it to new risks.
David Gerald, president of the Securities Investors Association (Singapore), pointed out that companies sometimes seek to restructure only when they are “deeply insolvent”. He said that companies should seek out restructuring early to maximise a positive outcome for all stakeholders, including shareholders.
Overall, industry observers agreed that the suggested changes would improve Singapore’s standing as a business designation.
Thio said that the proposals were “sensible changes” aligned with IRDA’s streamlined processes, while Lee said that the changes were consistent with Singapore’s aim to position itself as a leading debt restructuring hub.
Wee of Insol International added that the move would ensure Singapore remains competitive and attractive as a business and restructuring destination.
Tan said that SGX RegCo will make a final decision on the proposed changes after taking in public feedback. There is no timeframe set yet on when they will be implemented.
