Re IM Skaugen SE [2018] SGHC 259 (27 November 2018) is an important first decision on the moratorium provisions of the new scheme of arrangement sections of the Companies Act. The High Court had a practical commercial approach to considering individual applications by related companies seeking to develop a group restructuring plan. It also made clear that even if no compromise had been put to creditors for their support, the company still had to show creditor support for the moratorium.
Re IM Skaugen SE [2018] SGHC 259 (27 November 2018) is an important first decision on the moratorium provisions of the scheme of arrangement sections of the Companies Act, in particular, section 211B of the Companies Act. The case is also important as an example of how the Singapore courts will approach applications for relief under section 211B by related companies that are seeking breathing space to develop a group restructuring plan. Importantly, the Singapore High Court noted that it would consider the individual applications taking into account the fact that the scheme was intended to be part of a master restructuring plan that paves the way for the rehabilitation of the group as a whole.
Facts
This case involved an application for a scheme of arrangement by IMSPL Pte Ltd (IMSPL) under section 211B of the Companies Act. At the same time that it did so, applications for a scheme of arrangement were also filed by its parent company and its related company. Its parent company is IM Skaugen SE (IM Skaugen), a company incorporated in Norway; its related company is SMIPL Pte Ltd (SMIPL), another Singapore incorporated company.
MAN Energy Solutions SE (MAN) is a creditor of IMSPL. It opposed the application by IMSPL for the scheme of arrangement. MAN is not a creditor of IM Skaugen or SIMPL.
Procedure under section 211B
Under section 211B, a company that applies for a scheme of arrangement must file the following with the court:
“(a) evidence of support from the company’s creditors for the intended or proposed compromise or arrangement, together with an explanation of how such support would be important for the success of the intended or proposed compromise or arrangement;
(b) in a case where the company has not proposed the compromise or arrangement to the creditors or class of creditors yet, a brief description of the intended compromise or arrangement, containing sufficient particulars to enable the Court to assess whether the intended compromise or arrangement is feasible and merits consideration by the company’s creditors when a statement … relating to the intended compromise or arrangement is placed before those creditors;
(c) a list of every secured creditor of the company;
(d) a list of all unsecured creditors who are not related to the company or, if there are more than 20 such unsecured creditors, a list of the 20 such unsecured creditors whose claims against the company are the largest among all such unsecured creditors.”
MAN asserted that it was the principal creditor of IMSPL and as it opposed the scheme, the requirement to show evidence of creditor support under limb (a) was not satisfied. IMSPL argued that it did not have to satisfy limb (a) as it had not proposed the compromise or arrangement to its creditors and accordingly it only had to satisfy limb (b), providing the court with a brief description of the intended compromise or arrangement.
Requirement to show creditor support
The Court had to consider whether limbs (a) and (b) imposed separate and alternative requirements. If so, an applicant for a scheme of arrangement should satisfy either the requirements in limb (a) or the requirements in limb (b), in addition to the requirements in (c) and (d). On this view, where limb (b) applied and the applicant had not yet proposed a compromise or arrangement to its creditors, all it had to do in applying for a scheme of arrangement would be to provide the court with a brief description of the intended compromise or arrangement.
The Court noted that under limb (a) where a compromise or arrangement had been proposed to a company's creditors, the company had to show evidence of support from its creditors together with an explanation of how such support would be important for the success of the intended or proposed compromise or arrangement. However, where no compromise or arrangement had been proposed (i.e., limb (b)), this did not mean that the company did not have to show evidence of support from its creditors. The company would have to show evidence of support but such evidence would be of support for the moratorium. This was in addition to the requirement in limb (b) that the company would have to provide the court with a brief description of the intended compromise or arrangement.
The Court reasoned that this construction was necessary to give effect to the term "intended ... compromise or arrangement" in limb (a). Further, it opined that it could not be the case that it would be easier to proceed to obtain a moratorium if no compromise or arrangement had been proposed. The need to give evidence of creditor support for the moratorium was an important measure to prevent abuse.
Lack of support from major creditor of one company not fatal
As noted, IMSPL was only one of the three companies in the IMS group that was applying for a scheme of arrangement under section 211B. At the same time as its application, its Norwegian parent, IM Skaugen, and its sister company, SMIPL, were making applications for a scheme of arrangement too. While the applications had to necessarily (under the legislative scheme) be made as individual applications, the restructuring that was contemplated was a group restructuring.
As noted earlier, MAN, the creditor of IMSPL that was opposing its application, was not a creditor of either IM Skaugen or SMIPL and could not therefore oppose their applications. IM Skaugen and SMIPL were able to show, on the other hand, that they had the support of their major creditors.
While the Court noted that it doubted whether the facts showed that MAN was in fact the principal creditor of IMSPL, it also held that even if this were the case, the lack of support from MAN would not be fatal to the grant of a moratorium. This was because in a group restructuring where the proposed scheme involved interlinked companies, the court was entitled to have regard to the support provided to the restructuring of the group as a whole. Bearing in mind that creditors could in the course of proceedings change their minds as changes were made to the proposed plan, the Court held that on a broad assessment, there was sufficient evidence to suggest that the intended compromise or arrangement had a reasonable prospect of working and being acceptable to the general run of creditors.
The Court therefore ordered a moratorium of three months for all companies. By way of coda, it should be noted that the moratoriums were not renewed after three months as the proposed restructuring fell through.
Observations
One concern with section 211B has been whether section 211B(4)(b) made it easier to apply for a scheme of arrangement. This is because, as noted in the case, section 211B(4)(b) allows the applicant to make an application even if it has not proposed a compromise to its creditors by providing the court with “a brief description of the intended compromise or arrangement”. This case provides assurance that even if no compromise has been proposed to creditors, the court will still expect the applicant to show that it has the support of the creditors for the moratorium and not simply that a plan will be put to them later.
As noted, the case involved an application by IMSPL for a scheme of arrangement and similar applications had also been brought by other companies in the IMS group. In assessing whether there was creditor support for the scheme of arrangement of IMSPL, it is significant that the High Court here was willing to look beyond the objections of MAN, the major creditor of IMSPL. Instead, it considered the fact that applications for a scheme of arrangement had been brought by the other companies in the group and that these had the support of the major creditors of those companies. As this was in reality a group restructuring, the Court was willing to take a broader view of whether there was sufficient evidence to suggest that the intended compromise or arrangement had a reasonable prospect of working and being acceptable to the general run of creditors.
