Resolving distressed situations in Singapore and South East Asia
01 December 2023
01 December 2023
It's not a scenario that any executive wants to face, but the cold, hard reality is that the headwinds in the global economy mean more and more businesses in the region are struggling.1 This situation is unlikely to change in the short term: according to the World Bank’s latest Global Economic Prospects report, global growth has slowed sharply and the risk of financial stress in emerging market and developing economies is intensifying amid elevated global interest rates.2
For many organisations, this may be the first time they are facing such a challenging environment and are having difficult conversations about how to weather the storm and emerge stronger on the other side. Every business is different, and the stresses and strains facing one will not be the same for all. The same is true of the solutions available.
The good news for any struggling businesses is that Singapore is one of the best jurisdictions in the region to resolve distressed situations and allow businesses to emerge fighting fit and ready to get back to what they do best.
In 2017, Singapore had the foresight to adopt a new legal regime that provides an enhanced framework for companies facing economic distress. Known as the Insolvency, Restructuring and Dissolution Act (or IRDA), this regionally ground-breaking piece of legislation aims to optimise the prospects for ailing businesses to achieve rehabilitation and allow creditors to make better recoveries than in a liquidation, and to develop Singapore into an international centre for debt restructuring.3
But what does this mean in practice for regional businesses facing the early signs of distress?
Singapore offers struggling businesses, both based in Singapore and elsewhere in the region, an efficient and effective process to restructure their financial liabilities and ultimately to continue trading, whilst also allowing founders and shareholders to retain the value of their investment.
There are a number of tools available under the Singapore regime that directors of a struggling business may want to consider:
Ultimately, the goal is using these tools (and others available) is to avoid the company entering into liquidation, which is typically the worst outcome for all stakeholders.
The best first step is always to take professional advice early. There is a large, highly skilled community of restructuring professionals in Singapore who offer a full range of expertise that can help any business facing challenging times – whether in Singapore or elsewhere in the region. This includes both financial and legal advisors, as well as turnaround specialists which specific industry expertise.
Finally, don't be afraid of the terms "restructuring" or "reorganisation" – where once there was a stigma around businesses that have been through such a process, savvy operators are learning to use these tools for their advantage, protecting the real economy and ultimately delivering a better outcome to all involved.
Note: This article was first published in the British Chamber of Commerce Singapore's Orient Magazine (November 2023 issue). For more details, please click here.
Footnotes:
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.