Scheme of Arrangement in Singapore: A Brief Overview
A scheme of arrangement is a court-approved process that allows a company in financial distress to restructure its debt obligations and other affairs. It's a flexible tool that can be used to reorganize a company's capital structure, sell assets, or implement other restructuring measures.
Key Features of a Scheme of Arrangement:
Court-sanctioned: The entire process requires court approval, ensuring fairness and transparency.
Debtor-in-possession: The company remains in control of its operations during the restructuring process.
Flexible: Can be tailored to suit the specific circumstances of the company.
Binding on all creditors: Once approved, the scheme is binding on all creditors who are part of the scheme, regardless of whether they voted in favor of it.
How Does it Work?
Proposal Development: The company develops a restructuring plan outlining the proposed changes.
Court Approval: The company seeks court approval to convene meetings of creditors and shareholders to vote on the scheme.
Creditor and Shareholder Meetings: Creditors and shareholders vote on the proposed scheme.
Court Sanction: If the scheme is approved by the required majority of creditors and shareholders, the court grants final approval.
Implementation: The agreed-upon restructuring plan is implemented.
Advantages of a Scheme of Arrangement:
Preserves going concern value: The company can continue operations while restructuring.
Flexibility: Can be tailored to suit the company's specific needs.
Speedier than liquidation: Often a quicker process than liquidation or judicial management.
Recent Developments
Singapore has introduced several reforms to enhance the scheme of arrangement process, making it a more attractive option for distressed companies. These include:
Pre-packaged schemes: Allow for faster implementation by obtaining creditor approval before filing the scheme with the court.
Expanded moratorium: Provides temporary protection from creditors during the restructuring process.
Cross-border recognition: Facilitates restructuring of companies with international operations.
It's important to note that while a scheme of arrangement can be a powerful tool, it's a complex process that requires careful planning and legal expertise.
Eligibility Criteria for a Scheme of Arrangement in Singapore
A company may be eligible to initiate a scheme of arrangement if it faces financial difficulties or requires restructuring to improve its financial position. However, the specific eligibility criteria are not rigidly defined.
Generally, a company is considered a suitable candidate for a scheme of arrangement if:
It is experiencing financial distress, such as insolvency or liquidity problems.
It has a viable business plan for restructuring and recovery.
The scheme is likely to be approved by a sufficient majority of creditors and shareholders.
The Voting Process in a Scheme of Arrangement
The voting process is a crucial stage in a scheme of arrangement. It involves obtaining the approval of creditors and shareholders for the proposed restructuring plan.
Creditors
Classification of creditors: Creditors are typically classified into different classes based on the nature of their claims (e.g., secured creditors, unsecured creditors, trade creditors).
Voting requirements: The scheme must be approved by a majority in number representing three-quarters in value of each class of creditors who are present and vote at the meeting.
Compromises: The scheme may involve different terms for different classes of creditors.
Shareholders
Voting requirements: The scheme must be approved by a majority in number representing at least 75% in value of shareholders present and voting at the meeting.
Court Approval
Even if the scheme is approved by creditors and shareholders, the court must ultimately sanction the scheme. The court will consider various factors, including the fairness of the scheme to all parties involved.
Potential Challenges in a Scheme of Arrangement
While a scheme of arrangement can be a valuable tool for restructuring a company, it is not without its challenges:
Complexity: The process is complex and time-consuming, requiring significant legal and financial expertise.
Uncertainty: There is no guarantee that the scheme will be approved by creditors and shareholders, or that the court will sanction the scheme.
Cost: The process can be expensive due to legal and professional fees.
Publicity: The process may attract negative publicity, which could impact the company's reputation and business operations.
Operational disruptions: Implementing the scheme can disrupt normal business operations.
Stakeholder conflicts: There may be conflicts of interest among different groups of stakeholders, making it difficult to reach an agreement.
How Legal and Financial Advisors Can Help in a Scheme of Arrangement
Legal and financial advisors are crucial in navigating the complexities of a scheme of arrangement. Their expertise can significantly enhance the chances of a successful restructuring.
Role of Legal Advisors
Strategic Guidance: Develop a comprehensive restructuring strategy aligned with the company's goals and financial situation.
Compliance: Ensure adherence to legal requirements and regulations throughout the process.
Negotiations: Represent the company in negotiations with creditors, shareholders, and other stakeholders.
Documentation: Prepare necessary legal documents, including the scheme proposal, court filings, and agreements.
Court Proceedings: Handle court applications and hearings related to the scheme.
Risk Assessment: Identify potential legal risks and develop mitigation strategies.
Role of Financial Advisors
Financial Analysis: Conduct a thorough financial assessment of the company's position.
Restructuring Plan: Develop a detailed financial restructuring plan, including debt reduction, asset disposal, and operational improvements.
Valuation: Determine the fair value of the company's assets and liabilities.
Forecasting: Create financial projections and forecasts to demonstrate the viability of the restructured business.
Investor Relations: Assist in attracting new investors or negotiating with existing ones.
Due Diligence: Conduct financial due diligence on potential investors or buyers.
Combined Expertise
The combined expertise of legal and financial advisors is essential for a successful scheme of arrangement. They work collaboratively to:
Optimize the restructuring plan: Ensure the plan is both legally sound and financially viable.
Manage stakeholder relations: Effectively communicate with creditors, shareholders, and other stakeholders.
Mitigate risks: Identify and address potential legal and financial risks.
Enhance the chances of approval: Present a compelling case for the scheme to creditors and the court.
By engaging experienced legal and financial advisors, companies can increase their chances of successfully navigating the complex process of a scheme of arrangement and emerging from financial distress in a stronger position.
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