Singapore gives bondholders new way to chase default losses

[SINGAPORE] Singapore is giving liquidators of insolvent companies a new tool to retrieve funds for bondholders and other creditors.

Court-appointed managers will now be able to seek funding from investors unrelated to the case to pay the cost of pursuing claims, in exchange for part of the proceeds. That change came under the Insolvency, Restructuring and Dissolution Act, which was passed by lawmakers on Oct 1.

Singapore's corporate debt market has been shaken in recent years by more than S$1.5 billion of defaults as oilfield contractors and shipbuilders stumbled. Many bondholders in these cases are individuals who lack the means to take legal action themselves, so the ability of judicial managers and liquidators to tap third-party funding to chase lost monies should help recoveries.

"In insolvency matters, creditors including bondholders can benefit to the extent that the liquidators are able to claw back any proceeds for the bankruptcy estate," said Tom Glasgow, head of investment in Asia at IMF Bentham Ltd.

Having investors funding another's claim for profit has been around in countries including Australia for more than a decade.

The legal changes in Singapore, aimed at strengthening the legal framework for debt workouts, are attracting more litigation-finance professionals to the city.

"We are already seeing a lot of opportunity in the Singapore market and expect an increase in opportunity as businesses in Asia continue to grow," Patrick Moloney, chief executive officer at Sydney-based Litigation Capital Management Ltd, said in emailed comments. LCM is opening an office in Singapore in November, Mr Moloney said.

Peers including UK-listed Burford Capital Ltd. and Woodsford Litigation Funding set up operations in Singapore last year.

"It does present some opportunities for us with all the changes in the law, which is why we set up an office in Singapore," said Charlie Morris, Managing Director for Asia Pacific at Woodsford. "Insolvency managers may not have the appetite or own money for litigating, and that's where people like us can step up."

BLOOMBERG