Introduction

No company is immune to financial troubles in the face of an economic or industry downturn, not least issuers listed on the Singapore Exchange (SGX). The recent collapses of SGX-listed issuers, including Hyflux Ltd, Swiber Holdings Limited and Ezion Holdings Limited, serve as a stark reminder of this fact. The ramification of such a collapse extends well beyond the usual stakeholders, from retail shareholders who will lose their investment to the SGX’s standing as a bourse from the ensuing publicity.

Against this backdrop, the Singapore Exchange Regulation (SGX RegCo) has issued its consultation paper on 23 February 2024 (Consultation Paper) to seek market feedback for its proposals to enhance the corporate restructuring and trading resumption framework under the SGX-ST Listing Manual (Listing Manual). The consultation remains open until 22 March 2024.

What are the key amendments?

1. Announcement and reporting obligations

The Listing Manual currently requires an issuer to announce any court application made to place the issuer or its subsidiaries under liquidation or judicial management, and any appointment of a receiver, judicial manager or liquidator. SGX RegCo has proposed requiring the issuer to also announce any court application made for a court-supervised moratorium proceeding involving a compromise or arrangement between itself (or its subsidiaries) and its creditors, in acknowledgement that the issuer is likely unable to continue as a going concern if it has filed for such a moratorium.

Issuers in financial distress (including issuers who have announced certain breaches of loan agreements and debt securities) are, at present, also obligated under the Listing Manual to provide monthly updates regarding its financial situation, as well as announce material developments that occur between these updates. Recognising that there is unlikely to be reportable developments on a monthly basis, SGX RegCo proposes that these issuers (including issuers under a moratorium) be required to provide quarterly updates instead.

Finally, an issuer is exempt from announcing its quarterly financial statements (if applicable) where, amongst other things, it is undergoing judicial management, winding up or provisional liquidation. SGX RegCo has suggested to extend this exemption to issuers who are subject to a moratorium under the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) or the Companies Act 1967, since such an issuer would likely be unable to prioritise resources to prepare such statements, and material developments on its state of affairs will be released in accordance with the existing listing rules.

2. Disposal of assets

Rule 1014 of the Listing Manual requires major transactions (or transactions where the relative figures computed based on Rule 1006 exceed 20%) to be made conditional upon shareholders’ approval in general meeting.

Recognising that the lengthened timelines and lack of certainty from seeking shareholders’ approval may deter potential buyers of the assets of financially distressed issuers, SGX RegCo has proposed to exempt disposals by an issuer’s judicial manager or liquidator (appointed pursuant to the IRDA) from the application of Rule 1014. In setting forth this proposal, SGX RegCo considered that the interests of existing shareholders are trumped by the interests of creditors and the financially distressed issuer’s need to meet ongoing working capital requirements. Furthermore, liquidators and judicial managers are already subject to duties in respect of the sale of assets under the IRDA. Notwithstanding the above, the issuer is still required to announce the information required by the Listing Manual.

SGX RegCo has also sought feedback on the scope of its proposed exemption from Rule 1014 for disposals of assets by an issuer’s subsidiaries under liquidation or judicial management. Its primary proposal is to limit the exemption to “significant subsidiaries”, or subsidiaries whose (a) net tangible assets is 20% or more of the issuer’s consolidated net tangible assets, (b) net assets is 20% or more of the issuer’s consolidated net assets, or (c) pre-tax profits account for 20% or more of the issuer’s pre-consolidated pre-tax profits, given that it expects a restructuring to involve only the issuer or such subsidiaries. In the alternative, it has considered extending the non-applicability of Rule 1014 to all subsidiaries of the issuer that are not listed on the SGX or an approved exchange.

3. Trading suspension and resumption

Currently, the SGX may suspend trading in the securities of the issuer if, amongst other things, it is unable to continue as a going concern, including where a court application is made to place the issuer (or its significant subsidiary) under liquidation or judicial management. SGX RegCo proposes to extend the grounds for a trading suspension to include the issuer (or its significant subsidiary) seeking judicial management through an “out-of-court” process (as introduced under the IRDA). In the same vein, an issuer (or its significant subsidiary) undergoing a moratorium would also be grounds for a trading suspension, given they are unlikely to be able to continue as a going concern and the uncertainty in their affairs while negotiations with creditors are ongoing.

SGX RegCo is considering a waiver of a trading suspension if a financially distressed issuer applies for such waiver and there are exceptional circumstances which apply. It is hoped that such a waiver would result in less disruption to the issuer’s operations and encourage stakeholders’ confidence in the restructuring. The applicable exceptional circumstances include:

1. where the issuer has worked out a compromise or arrangement with its creditors in a short span of time and the court may under the IRDA approve such “pre-pack” schemes without any creditor meetings being held;
2. where the issuer has complied with the statutory requirements on the “pre-pack” scheme under the IRDA; or
3. where the statutory majority is obtained based on the issuer’s supporting affidavit, such supporting affidavit does not disclose any objections from the issuer’s creditors or stakeholders and the issuer explains why the waiver is critical to a successful debt restructuring.

Lastly, the Listing Manual presently requires issuers whose trading is suspended for being unable to continue as a going concern to submit a resumption of trading proposal to the SGX. The SGX may delist the issuer if it does not receive a resumption proposal within 12 months of the date of suspension, or if the issuer does not implement its resumption proposal within 6 months from the date of the SGX’s no-objection to the proposal. Such issuers are also expected to provide monthly updates on asset valuations, cash utilisation and update of milestones. In the interests of consistency, SGX RegCo has suggested applying this process to trading suspensions for all the grounds set out in Rule 1303 of the Listing Manual, save for insufficient public float or the lack of a continuing sponsor (in the case of Catalist issuers). To ease the burden on issuers and dispense with the need for technical compliance, these updates are proposed to be required only every quarter instead of each month.

Separately, SGX RegCo intends to issue a practice note on the resumption of trading, and has requested for feedback on the same. The practice note will provide specific guidance based on the circumstance that a trading suspension was imposed on the issuer e.g., inability to continue as a going concern, or unclear state of affairs (such as being in negotiations with creditors relating to a compromise or arrangement). The practice note will cover, amongst other things, the steps to be taken and criteria to be met by issuers for the resumption of trading, and the SGX’s expectations on the details to be set out in the trading resumption proposal.

Concluding remarks

The measures set out in the Consultation Paper to reduce compliance costs will be a welcome reprieve for financially distressed issuers, who are already significantly indebted and required to incur a plethora of advisory and administrative costs for the restructuring. Time and resources of the financially distressed issuers are finite, oftentimes they face reduced manpower, such that they need to prioritise fighting fires to stay alive. The remaining enhancements serve to provide clarity and certainty to the scope of the financially distressed issuer’s obligations under the Listing Manual, and lay out a structured way to meet SGX’s expectations with respect to trading suspensions and resumptions.

The proposed exemption of judicial manager disposal of assets from shareholders’ approval is a practical relief, given the need to expedite the sale of the issuer group’s assets to facilitate its restructuring. However, it does lead one to wonder if a similar exemption should be applied to the other corporate actions which the judicial manager may have to take to carry the restructuring to fruition. For example, a debt restructuring would very often involve the issue of shares or other securities in the issuer and as such issuance would far exceed any share issuance mandate passed by the issuer’s shareholders, shareholders’ approval would have to be sought under Chapter 8 of the Listing Manual.

It is currently proposed that companies undergoing a moratorium or an “out-of-court” judicial management may be subject to a trading suspension. The rationale for a trading suspension is that it freezes the last traded price of the stock and allows stakeholders and advisers to negotiate a workout without the distraction of a moving stock price. The contrary argument is that the distressed issuer’s listing status is one attraction to potential investors and a trading suspension should not be the norm for companies undergoing such restructuring processes. Otherwise, a trading suspension may signal the death knell of the issuer. As such, a balance needs to be struck and whether an issuer is to be subject to a trading suspension perhaps ought to be considered on a case-by-case basis.

It is noteworthy that Singapore’s first ever “pre-pack” scheme involved a mainboard listed company, namely Hoe Leong Corporation Ltd. While it is good to encourage distressed issuers to restructure by way of a “pre-pack” scheme, this may not always be feasible depending on factors such as creditor composition and the level of creditor support. Also, the issuer may take some time to socialise the restructuring proposal with the creditors. While the cross-class cramdown mechanism has not been deployed yet in Singapore, it should be noted that it is not available for a “pre-pack” scheme.

As for the resumption of trading, more guidance from SGX would be welcome, given that the threshold appears to be a high one. For instance, in the case of Asiatravel.com Holdings Ltd, SGX found that the proposal was inadequate and did not satisfactorily address issues on the company’s ability to operate as a going concern. This is notwithstanding the fact that the Court had sanctioned the company’s scheme of arrangement that the creditors had approved. The company had submitted, amongst other things, a two-year business projection in its resumption of trading proposal. The concern is that if the requirements for a resumption of trading proposal are similar to that of an IPO, this may deter potential white knights seeking to inject new business into distressed issuers.

All in all, the SGX RegCo proposals are certainly the proverbial bridge over troubled water for financially distressed issuers, and time will tell whether these proposals will aid them in their successful restructuring and rehabilitation.