Singapore: A Quick Reference Guide For Companies In Financial Distress

Last Updated: 12 November 2019
Article by Subramanian Pillai and Daphne Tan
Most Read Contributor in Singapore, November 2019


The Ministry of Trade and Industry's consecutive cuts to its forecast of Singapore's GDP growth and the Monetary Authority of Singapore's most recent quarterly brief1 signal that Singapore may be approaching a period of economic downturn.2 Statistics from the Ministry of Law indicate this to be so, as applications for corporate insolvencies have steadily increased since 2011.3 At the industry level, worse-than-expected performance in trade and manufacturing has been identified as the primary cause for the Ministry of Trade and Industry's cuts. The likelihood of recovery in these sectors in the near term has also, unfortunately, been expressed to be muted at best, with negative spillover effects anticipated to affect the trade-related services that have hitherto remained resilient in the face of the slowing global economy, such as transportation and storage.

Though optimism has been expressed as to the performance of other sectors such as ICT and business services, the subdued prospects of the key industries identified above and strong headwinds that Singapore is expected to face for the remainder of the year make it likely that more and more companies will come to experience financial distress in the near term. Consequently, for many companies in the affected sectors, the threat of insolvency may loom large on the horizon. However, insolvency need not be a fait accompli, and this CNPUpdate provides a brief overview of the options that are available to companies in financial distress under Singapore law, with a particular focus on how companies can attempt to recover, rescue or restructure their business and emerge therefrom.

What does financial distress look like?

A company is said to be in financial distress if, for example, and amongst other things, it is unable to generate sales and revenue, struggles to obtain credit, has payables that consistently exceed its receivables, and/or is unable to obtain or purchase stock or supplies from its usual suppliers. Companies in this situation will soon find themselves cash-flow insolvent if they are unable to raise funds and/or pay their obligations as and when they eventually fall due and/or if they are unable to negotiate the delayed payment of their obligations.

What happens when a company is in financial distress?

In the event a company's debt to anyone creditor exceeds S$10,000 and the company is unable to pay or compound this debt to the satisfaction of the creditor within three (3) weeks from the creditor's service of a statutory demand, the creditor is free to apply to the High Court of Singapore for the company to be compulsorily liquidated.4 Once the High Court has ordered that a company be compulsorily liquidated, a liquidator (a public accountant who is not the auditor of the company, and who typically specializes in liquidation) will take over the management of the company and will:

  • attempt to recover and realise the company's assets in a way that is most advantageous to the company;
  • investigate the affairs of the company and the conduct of its directors and officers;
  • review and adjudicate the claims of the company's creditors; and
  • distribute the company's assets in accordance with the law.

In other words, the company's business will be shut down, the company's assets sold and the proceeds of sale distributed to its creditors on a pari passu5 basis in accordance with the priority accorded to them by law, and the company dissolved.

How can a company recover from financial distress and avoid compulsory liquidation?

A company in financial distress can enter into a scheme of arrangement with its creditors. It can also, in the course of entering into a scheme of arrangement, apply for super-priority for rescue financing in the event it is unable to obtain financing on a non-priority basis. A company in financial distress can also enter into judicial management (similar to administration in the United Kingdom) and the company can, whilst under judicial management, enter into a scheme of arrangement and in the course of entering into a scheme of arrangement, apply for super-priority for rescue financing.

These options are available to companies incorporated in Singapore and foreign companies which are not registered in Singapore but which have a substantial connection with Singapore, provided that the company is not already the subject matter of liquidation proceedings.6 Each of these options involves an application to the High Court of Singapore and avails the company of a moratorium (a temporary prohibition) during which legal proceedings (including arbitration)7 cannot be brought or continued against the company.8 This moratorium prevents the company from being prematurely forced into insolvency and allows the company to focus its efforts and resources on recovery.

We provide a brief outline of these options below.

Schemes of arrangement

What is a scheme of arrangement?

A scheme of arrangement is an agreement between a company, its shareholders, and creditors in relation to the company's debt and the restructuring and/or compromise thereof. Generally speaking, in a scheme of arrangement, the creditors of the company agree to compromise their claims against the company in exchange for the company's commitment to repay the creditors in accordance with the terms of the scheme, as the creditors' collective compromise would result in a more favourable rate of recovery.

Why would the company's creditors agree to enter into a scheme?

Simply put, the creditors, in a scheme, will each be repaid a lower amount than is owed to them. However, in entering into a scheme, it is more likely that the creditors will, as a collective body, be repaid some of the monies due to them. If the creditors reject the scheme and choose to bring their individual claims against the company and force the company into liquidation, the creditors must note that the company's assets will be distributed in accordance with the ranking of claims prescribed by the law. Apart from secured interests such as fixed charges and retentions of title, and claims by beneficiaries of a trust under which the company is trustee,9 the ranking of claims against a company can be summarized as, in descending order:

  • First, the costs and expenses of liquidation;10
  • Second, the preferential debts prescribed under the Companies Act (which are, generally speaking, the company's debt obligations to its employees),11 which will be accorded greater priority in the event the company's assets are insufficient to meet its debt obligations to its general creditors to the extent of preceding the interests of holders of debentures under any floating charge;12
  • Third, debts secured by floating charges;13
  • Fourth, work injury compensation and tax liabilities;
  • Fifth, unsecured creditors; and
  • Sixth, the shareholders of the company.

It is apparent that unsecured creditors do not rank highly, and the unfortunate reality is frequently that the company may not have enough assets remaining after paying its employees to satisfy the amounts that remain owing to its unsecured creditors. If the creditors of the company enter into a scheme, however, the company is effectively allowed to continue to survive and do business and attempt a recovery, making it more likely for the company's unsecured creditors to recover something from the company.

How can the company enter into a scheme of arrangement with its creditors?

A scheme of arrangement can be pre-agreed between the company and its creditors (in which case the scheme is considered to have been "pre-packed").14 Alternatively, schemes can be agreed after the majority of appropriately-classified creditors representing at least 75% of the creditors of the company in value have agreed to the scheme in a formal meeting of the creditors summoned pursuant to a court order, in accordance with the Companies Act.15 Regardless of whether the scheme is pre-packed or otherwise, the sanction of the High Court must be obtained and, once obtained, will bind all of the company's creditors, including those who object to the scheme.16

If the company has yet to propose a scheme but intends to propose one, the company can apply for a moratorium under section 211B of the Companies Act. Upon the filing of an application under section 211B, an automatic interim 30-day moratorium applies. Whilst the company need not have proposed a scheme if applying for a moratorium under section 211B, the company must have prepared a draft proposal that is sufficiently detailed so as to enable the High Court to consider its feasibility. If on the other hand, the company has already proposed a scheme, the company, its shareholders, or creditors may apply for a moratorium under section 210(10) of the Companies Act.

What are some of the factors that the company and/or its shareholders/directors should consider in relation to the terms of the scheme?

Companies typically grant various forms of security to their creditors and/or counterparties to secure their obligations to them. Typical examples of such security include fixed and floating charges, pledges over assets, and mortgages over property, and in some cases the directors and shareholders of the company (including corporate shareholders) may also have executed personal (or corporate) guarantees to secure the company's obligations. The mere fact that a scheme of arrangement has been sanctioned does not mean that providers of security (namely, the company and, where applicable, its directors and/or shareholders (including corporate ones)) have been discharged from their obligations to the creditors to whom they have provided security. The scheme must expressly provide for the discharge for that to be the case.17 Providers of security should remember to negotiate for a term providing for the discharge to be included in any scheme of arrangement. Providers of security should also note that they are entitled to apply for leave to propose a scheme.18 There is nothing in the Companies Act which prohibits such providers from doing so. Note, however, that providers of security must satisfy the court that there is a nexus or connection between the obligation from which they are seeking release and the company's debt.

Super-priority for rescue financing

What is super-priority and how does a company applying for super-priority help the company obtains rescue financing?

A company in financial distress may, in the course of applying for the court's sanction of a scheme of arrangement, apply for super-priority for rescue financing. Companies regularly obtain external financing in the normal course of business. However, a company that is in financial distress may have substantial difficulty raising external financing as lenders may be unwilling to lend monies to a company that is in financial distress for various reasons. First, such a company is less likely to be able to repay the debt with interest in full and poses a higher credit risk, with the consequence that financiers are naturally less willing to provide financing without enhanced security. Second, the transactions entered into by a company approaching insolvency, including security interests, may be avoided in the event the company enters into insolvency, rendering the enhanced security susceptible to avoidance in the event the company's attempt at recovery fails.19

Beleaguered companies may, therefore, wish to consider applying for the court's approval to grant rescue financiers super priority20 in the ranking of claims against the company.21 Indeed, rescuers may require super-priority as a condition to finance the company. Super-priority can be granted such that the company's debt to the rescue financier will rank pari passu with the level of priority sought and can be granted such that the company's liabilities to the rescue financier ranks as favourably as pari passu with the cost and expenses of liquidation (i.e., the highest rank) in the appropriate case. In practice, however, this makes it more likely that the assets of the company will be depleted prior to distribution to the next class of claims in the debt waterfall in the event the company's attempted recovery fails.

How can the company obtain this super-priority?

An application for super-priority for rescue financing can be made in the course of the company's application to the court for its sanction of a scheme of arrangement. In addition to establishing that the company has made reasonable efforts to obtain rescue financing on a non-priority basis, an application for super-priority must set out the level of priority sought and the rationale therefor.22

Judicial management

What is judicial management?

Judicial management is a form of "professional-in-possession" or "PIP" (as opposed to "debtor-in-possession" or "DIP") restructuring where a judicial manager (a public accountant who is not the auditor of the company) takes over the affairs of the company and attempts to rehabilitate the company for the duration of the judicial management order. The judicial manager can, once appointed, carry on the business of the company, avoid or affirm certain transactions entered into by the company within the applicable period of time prescribed by the law,23 borrow money and grant security over the company's property, pay the company's debts, and/or enter into a scheme of arrangement on the company's behalf. The directors of the company cannot act for and on behalf of the company for the duration of the judicial management order, and in contrast to a scheme of arrangement under which control of the company remains with its directors and officers, the "possession" of the company is no longer said to lie with the debtor, i.e. the company, per se.

How can the company enter into judicial management?

A court order is presently required in order to place the company into judicial management. The application is to be made to the High Court, and the creditors, directors, and shareholders of a company may apply.24 Once the Insolvency, Restructuring and Dissolution Act has come into force, the creditors of the company can resolve to place the company under judicial management instead.25

A judicial management order can be extended. However, judicial management is a temporary measure only, and an order for judicial management will not be extended indefinitely. Note, also that:

  • a judicial management order will only be granted if the company's business appears to still be viable and if it can be shown that there is a reasonable prospect that the company can be rehabilitated; and
  • any creditor that has appointed or is entitled to appoint a receiver and manager over the whole or substantially the whole of the company's assets may block the application,26 unless it can be established that the public interest requires the making of the order for the judicial management.27

A temporary statutory moratorium applies once an application for judicial management has been filed, and a more extensive moratorium will come into effect if the application is granted.28

My company or debtor is in financial distress, but I am confident that it can recover given the chance. Which of these options should I prefer?

The principal difference between a scheme of arrangement and entering into judicial management is management control over the company. When a company enters into judicial management, a third party – the judicial manager – enters into the company and exercises management control over the company. If you are confident in the company's ability to recover under the management and direction of its existing directors and officers (who typically possess more domain and expert knowledge of the company's business and operations, and are therefore in usual circumstances immediately apprised of the company's capabilities and strengths), a scheme of arrangement may be more suitable.

On the other hand, if you feel that the company has a better chance at recovery under the care of a public accountant due to their accounting expertise or if you simply prefer the company to be run by an independent professional for corporate governance purposes or in order to protect management from incurring personal liability for trading while the company is insolvent, a judicial management order may be more appropriate.

What are the company's options if it cannot recover?

If rescue and/or restructuring have failed, the company is vulnerable to be compulsorily liquidated. Directors of companies that have been compulsorily liquidated may, in certain circumstances, be deemed unfit and be disqualified from acting as a director and from acting or taking part in the management of a company for up to 5 years.29 The compulsory liquidation of a company is therefore not inconsequential and is something that should be avoided if possible.


Although financial stress and the risk of insolvency continually heighten as the economy approaches a downturn, insolvency needs not be a fait accompli. Singapore's restructuring laws provide financially distressed companies with a number of options with which recovery and rehabilitation can be attempted. If you wish to obtain further information on this update or wish to discuss how you may recover, rescue or restructure your business, please feel free to contact us.


1. Monetary Authority of Singapore, Recent Economic Developments in Singapore (6 September 2019)> .

2. See Ministry of Trade and Industry, "MTI Expects GDP Growth to be '0.0 to 1.0 Per Cent' in 2019", Press Release (13 August 2019),; "MTI Expects GDP Growth to be '1.5 to 2.5 Per Cent' in 2019", Press Release (21 May 2019); "MTI Maintains 2019 GDP Growth Forecast at '1.5 to 3.5 Per Cent'", Press Release (15 February 2019) .

3. A total of 169, 189, 199, 246, 255, 256, and 312 applications were filed for the compulsory liquidation of companies since 2011 to 2018. Statistics obtained from the Ministry of Law's website. See Ministry of Law, Corporate Insolvency Statistics .

4. Section 254(2)(a), Companies Act.

5. Meaning that the creditors within the same ranking of priority will be treated as equals amongst themselves and the assets of the company that are remain available for distribution will be distributed to them as such.

6. See sections 227AA, 351(d), and 351(2A), Companies Act.

7. Re IM Skaugen SE and other matters [2019] 3 SLR 979 at [78] and [79].

8. In relation to judicial management, see sections 227C and 227D(4), Companies Act. In relation to schemes of arrangement, see sections 210(10) and 211B(1), Companies Act.

9. These interests/claims are said to stand "outside of" or "apart from" from the liquidation of the company, as the beneficiary of the charge, retention of title, or trust is entitled to enforce their security and/or legal or equitable interest over the company property over which the charge, retention, or trust was formed.

10. 328(1)(a), Companies Act.

11. Section 328(1)(a) to (e) and (f), Companies Act.

12. Section 328(5), Companies Act.

13. Section 328(5), Companies Act.

14. Section 211I, Companies Act.

15. Section 210(3AB), Companies Act.

16. Section 210(3AB), Companies Act.

17. See Pathfinder Strategic Credit LP and another v Empire Capital Resources Pte Ltd and another appeal [2019] 2 SLR 77 at [80].

18. See Pathfinder Strategic Credit LP and another v Empire Capital Resources Pte Ltd and another appeal [2019] 2 SLR 77 at [80].

19. See note 23 below.

20. 211E, Companies Act.

21. 328, Companies Act.

22. Re Attilan Group Limited [2018] 3 SLR 898 at [56].

23. See sections 98, 99, and 103 of the Bankruptcy Act and sections 259, 329, 330, and 339 of the Companies Act.

24. Section 227B(1), Companies Act.

25. Section 94, Insolvency, Restructuring and Dissolution Act 2018.

26. Section 227B(5), Companies Act.

27. Section 227B(10)(a), Companies Act.

28. Section 227C, Companies Act.

29. Section 149, Companies Act.

This update is provided to you for general information and should not be relied upon as legal advice.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions