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The Insolvency, Restructuring and Dissolution Bill has passed into law
SHORTLY after filing for a moratorium to support its restructuring proceedings, certain creditors of Hyflux declared an event of default had occurred. Based on this, the creditors exercised their contractual rights, such as the acceleration of repayment terms and set-off rights in respect of the debts owing to Hyflux. This further exacerbated the precarious financial situation of Hyflux.
If a similar situation arises in future, the Insolvency, Restructuring and Dissolution Bill passed into law on Monday would restrict creditors from exercising such rights solely on the basis of the debtor’s filing of a restructuring moratorium.
Senior Minister of State for Law Edwin Tong cited Hyflux as an example that could have benefited from the omnibus Bill that consolidates personal and corporate insolvency and debt restructuring laws into a single piece of legislation.
Hyflux, knee-deep in debt, filed for court protection against creditors’ claims in May - before the Bill comes into effect.
One of the provisions of the Bill is a new restriction on the operation of certain types of ipso facto clauses in contracts that allow one party to terminate or modify a contract upon a specified event occurring to the other party. In this case,the Bill prohibits one party from ending the contract solely because the counterparty has filed for restructuring.
Mr Tong said: “This new provision therefore facilitates the attempts of such a company to restructure by protecting its valuable commercial contracts from being terminated by reason only that the company has embarked on restructuring efforts, under certain specified circumstances.”
This would allow the company in finacial distress to continue with its business operations while restructuring its debts, provided that there are no other events of defaults triggered outside the scope of the provision.
“A successful restructuring benefits the creditors, as it preserves the going-concern value of a company. I would go beyond that to say that a successful restructuring will maximise the benefits to the company’s stakeholders as a whole, including its employees and trading counter-parties, ” he added.
The Insolvency, Restructuring and Dissolution Bill seeks to enhance the law to further strengthen the debt restructuring regimes, as well as regulate insolvency practitioners.
With the passing of the Bill, the Bankruptcy Act will be repealed, and the provisions in the Companies Act pertaining to corporate insolvency and restructuring will be removed.
The repeals however will not affect existing cases and pending applications commenced under the Bankruptcy Act and Companies Act before the date of commencement of the Bill. The relevant provisions of the Bankruptcy Act and Companies Act will continue to apply to those cases and applications.