Debt Restructuring Singapore – An overview of debt restructuring

Companies typically face cash flow issues from time to time and most directors are most focused on cash flow monitoring.  The Typical Singapore company owner would from time to time wonder what are the options available when his business does not turn out well.

What is Debt Restructuring in Singapore

Debt restructuring is the process where a professional is called in to assist a company to negotiate a debt haircut with its creditors or a repayment plan to avoid a company going into liquidation or winding up.

Types of debt restructuring in Singapore

Debt restructuring in turn is divided into two parts, informal debt restructuring and formal debt restructuring.

Informal debt restructuring involves what is called in debt restructuring terms a “workout” where a professional comes in to advise the company to negotiate with its creditors to work together to have a repayment plan to increase the chances of their debts being repaid in full.  This usually would involve a company having a extended repayment period for loans. 

Formal debt restructuring comes in a few forms: (i) Judicial management; and (ii) schemes of arrangement

Judicial Management

This is a situation where a company is unable or unlikely to pay its debt but its creditors will be better served by its continuation as a going concern as opposed to winding up.  The court will appoint a juridical manager, usually an accounting firm to look into the finances of the company.

This application blocks the company from any winding up or debt collection application.  The aim is to give full power to the judicial manager to protect assets of the company and be in a better position to repay creditors in the future. 

If turning around of the company fails, then the Judicial manager may make a winding up application.

Schemes of Arrangement happen in Singapore

Schemes of Arrangement

In this situation, creditors and shareholders will voluntarily agree to vary their existing contractual rights in exchange to receive certain payouts from a company. 

For a scheme of arrangement to work, ¾ of the members of a relevant class of creditors/shareholders is needed before the court will approve the scheme of arrangement.

Who can carry out debt restructuring in Singapore

Usually this is done by an accounting firm or an accountant who is trained in negotiating with creditors.  These variations to existing contractual obligations will need to be negotiated across the board of a class of creditors.

One key advantage of a workout or informal debt restructuring is that it gives creditors and the debtor better flexibility to restructuring their outstanding payment obligations and preserves the business as a going concern.

Whichever option is the best for your company, you would want to contact us to learn more about the best way to restructure the debt obligations of your business.

About Raffles CPA

Raffles CPA is a niche professional firm headquartered in Singapore with a relentless dedication to help global and local clients in solving their complex business problems in areas of corporate services, accounting, capital market, legal and compliance.

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