When Singapore container shipping giant Pacific International Lines (PIL) teetered on the brink of pandemic-induced bankruptcy in 2021, it appeared to spell the end of the world’s 12th-largest carrier.

But instead of going under, Singapore’s High Court greenlit a plan for the distressed firm to restructure its US$3.3 billion (S$4.4 billion) debt.

It was the lifeline needed to pull off a spectacular recovery. Within a year, PIL’s balance sheet jumped from US$44.7 million in the red to US$2.6 billion in earnings. It paid back creditors US$1 billion ahead of schedule, and even donated a large sum to charity.

This success story encapsulates Singapore’s pro-restructuring approach to insolvency. It aims to rescue more failing businesses in a “complex world with multifarious challenges”, said Judge of the Appellate Division Kannan Ramesh, who co-chairs the Supreme Court’s Commercial Practice Panel.

He was speaking at the fourth instalment of the Singapore Courts (SG Courts) event titled “Conversations with the Community” series on March 27, held at the National University of Singapore’s law faculty. It is an engagement series that brings together academia, legal and other sectors to forge multi-sector collaboration.

In his opening address titled “Healing Businesses in a New World: Problems, Opportunities and Solutions”, Justice Ramesh said Singapore’s approach should “move away from the perception that business failures are necessarily tied to wrongdoing or poor management”. He outlined some challenges that businesses face today, and why it is important to facilitate the rehabilitation of companies in distress.

“We must recognise that the risks of business failure – indeed, business failure itself – are inherent aspects of the entrepreneurial journey… These risks may materialise for a host of reasons, many of which may be beyond the entrepreneur’s control.”

How do the courts give failing businesses the opportunity to rehabilitate? Watch the fourth session of “Conversations with the Community” in this video below.

Justice Ramesh added that “an effective R&I (restructuring and insolvency) regime should thus distance itself from any stigma associated with business failure”.

A balanced approach

In this context, Singapore’s court-led restructuring regime aims to strike a flexible balance between protecting creditors’ interests and rehabilitating viable businesses, Justice Ramesh said.

It does so by allowing a failing company to continue operations under court supervision – with safeguards and conditions, such as appointing a chief restructuring officer or monitor to act as the gatekeeper, serving as the eyes and ears of the court in the company.

“It’s not a free ride,” Justice Ramesh said. “You have to comply with whatever (the court determines) is appropriate in the circumstances.”

Under Singapore’s approach, heading to court in a “freefall bankruptcy” is increasingly discouraged by advisers, said WongPartnership partner Manoj Sandrasegara, during the panel discussion at the event.

He observed that with the rise of pre-packaged plans (a scheme of arrangement negotiated and agreed upon with creditors before a formal restructuring or insolvency process begins), “companies are going in when they’re stressed, not when they’re distressed”.

He and other experts pointed out that Singapore’s trusted restructuring process also encourages out-of-court arrangements, with some companies considering factors such as avoiding a potential media frenzy, or greater chance of liquidation if negotiations drag.

“Broadly, people know what the rules are. (That) gives you more of an ability to not go to court, because bondholders and creditors know what will happen if you go to court,” said Mr James Sprayregen, partner at US-headquartered law firm Kirkland & Ellis and founder of its worldwide restructuring group.

“That enables you to cut a deal out of court, because of comfort with the legal system. And I think that’s a huge benefit. It helps the efficiency of the system.”

Trading debt?

To strengthen the ecosystem, Singapore needs to develop a robust debt-trading market that will make it easier for distressed firms to secure rescue financing, panellists added.

Conventional lenders like banks are often unwilling to extend such financing because of the risks involved when the debtor is in distress, they shared. The reluctance to lend may be even greater when the debtor’s business involves significant environment, social and governance (ESG) issues, or are in less-sustainable industries such as coal, shipping and mining.

“If you have those who specialise in debt and are comfortable with riskier situations, they are then far more likely to extend risky financing, and that enables you to achieve more turnarounds,” said Dr Lim Lian Hoon, partner at management consultancy AlixPartners.

Robust debt markets like that of the US have also resulted in the creation of a “concentrated” group of hedge funds with the expertise to navigate bankruptcies, added Mr Harold Foo, deputy director and counsel for parliamentary affairs at the Ministry of Law.

“Backed by the experiences of other jurisdictions, we can see how this will be key (in) facilitating successful restructurings,” he said. “That is something increasingly seen as a way to help smaller businesses… that comes with a caveat that the company must be worth saving.”

Justice Ramesh emphasised that the courts should remain the steward of the entire restructuring process.

“We must decide – based on the prevailing global challenges, existing commercial realities and societal needs – where, in the spectrum between a creditor-driven and debtor-focused model, Singapore should be,” he said. “Balancing protection and potential, risk and reward, is at the heart of this ongoing challenge.”

Register your interest for upcoming sessions of “Conversations with the Community” by emailing conversations@judiciary.gov.sg. Visit www.judiciary.gov.sg for more details.

In partnership with SG Courts