SINGAPORE - The pandemic has sunk a prominent player in the cruise industry. Genting Hong Kong filed to wind up last month after failing to secure funding to help it stay afloat following the insolvency of its German shipbuilding subsidiary.

About a week later, its subsidiary Dream Cruises followed.

The Straits Times speaks to several experts here on what it means when a company files to wind up. These processes may vary in other territories, such as in Bermuda, where Genting Hong Kong and Dream Cruises are incorporated.

Q: What happens when a company files to wind up, and what causes this?

Insolvency - being unable to pay debts when these are due - is a common reason to wind up a company. When this happens, its affairs and assets are entrusted to a liquidator.

The latter will aim to realise the company's assets and pay dividends to creditors, said Mr Gary Loh and Mr Leow Quek Shiong, both from BDO Singapore's restructuring and forensic department.

Typically, when a company is wound up, all its operations will cease, although a liquidator may carry on the business if it is beneficial for the winding up.

In the case of Dream Cruises, which is still running cruises here, it appears that the appointed provisional liquidators are reviewing affairs and may not have made any decision to stop operations, Mr Loh and Mr Leow said.

A winding-up application does not mean that a company is bankrupt. It is an application to the court to decide if the company should be wound up, said Mr Victor Goh, partner and practice leader of restructuring and recovery at Baker Tilly Singapore.

The court can dismiss the application, or order the company to wind up and appoint provisional liquidators or liquidators.

Generally, provisional liquidators can help to safeguard assets of a company before the court appoints a liquidator. For example, it prevents proceedings against the company from commencing, such as creditor action.

In the case of Genting Hong Kong, this gives the company breathing space so its provisional liquidators can determine if restructuring is possible, Mr Goh said.

Q: Genting Hong Kong said the aim is not to liquidate the companies but to identify potential plans and facilitate restructuring of the group. How is restructuring different from liquidation?

In Singapore, liquidation would mean a liquidator taking over the business and winding it down with the aim to pay off creditors, said Mr Paresh Jotangia, a restructuring and insolvency partner at Grant Thornton Singapore. One option is selling the company's assets.

A restructuring is like a resuscitation for the company either through operational or financial changes, such as rescheduling debts.

A successful restructuring, which tends to bring about better returns to creditors than liquidation, depends on several factors such as creditor support, available cash and whether new investors can be found.

If a restructuring fails, it is likely the firm will liquidate, he said.

Q: Will a winding-up application for one company affect its subsidiaries?

It would apply only to the specific entity, said Mr Tan Wei Cheong, executive director of financial advisory at Deloitte Singapore.

However, related companies within a group would typically have intertwined business relationships and flows of funds, such as a subsidiary relying on financial support from the parent company. A default by any entity may trigger cross defaults across the entire group.

In other situations, different groups may have a common controlling shareholder but may not have intertwined banking relationships that could cause cross default when one group defaults on its own loans.

Q: How will consumers be affected?

In liquidation, net funds will be distributed to creditors based on their priorities under the relevant laws.

Certain claims of creditors will be accorded a higher priority, such as those who had been pledged assets of the company.

Consumers with claims against insolvent companies typically fall into the category of unsecured creditors and likely will recover just a fraction of their claims, said Mr Tan.

Some examples of unsecured creditors would be people who had paid for cruises, or other day-to-day suppliers or contractors, said Mr Jotangia.