GRR - APRR - 2021 (Singapore 84-99)

INSIGHT
Asia-Pacific
Restructuring Review 2021
Edited by
Look Chan Ho
© 2020 Law Business Research Ltd

ASIA-PACIFIC
RESTRUCTURING REVIEW
2021
Reproduced with permission from Law Business Research Ltd

This article was first published in October 2020
For further information please contact Natalie.Clarke@lbresearch.com

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Contents
Preface��v
Editor’s Introduction�� 1
Look Chan Ho
Des Voeux Chambers
Australian Restructuring: Legislation, Transactions and Cases��3

Paul Apáthy and Angus Dick
Herbert Smith Freehills
What’s New in China’s Bankruptcy and Restructuring?�� 25

Nuo Ji, Lingqi Wang and Jessica Li
Fangda Partners
Latest Developments in Hong Kong Restructuring Law�� 37

Heidi Chui
Stevenson, Wong & Co
India’s Insolvency and Bankruptcy Code: An Overview�� 51

Abhishek Tripathi and Mani Gupta
Sarthak Advocates & Solicitors
Indonesia’s Bankruptcy Law in Urgent Need of Reform�� 66

Debby Sulaiman
Hiswara Bunjamin & Tandjung
Japan’s Insolvency Regime Under Covid-19�� 74

Shinichiro Abe
Kasumigaseki International Law Office (KILO)
iii
Contents
Recent Developments in Singapore’s Restructuring Regime�� 84

Meiyen Tan, Keith Han, Angela Phoon and Zephan Chua
Oon & Bazul LLP
Corporate Insolvency Proceedings in South Korea��100

Chul Man Kim, Ki Young Kim, Sun Kyoung Kim, Su Yeon Lee, Jin Seok Choi
and Sy Nae Kim
Yulchon LLC
iv
Preface
Welcome to the Asia-Pacific Restructuring Review, a Global Restructuring Review special report.
GRR is the online home for all professionals who specialise in high-stakes restructuring
and insolvency. We tell them everything they need to know about all that matters.
Throughout the year, GRR delivers daily news, surveys and features; organises the liveli-
est events (‘GRR Live’) – covid-19 allowing; and provides our readers with innovative tools
and know-how products.
In addition, assisted by external contributors, we curate a range of comprehensive
regional reviews – online and in print – that go deeper into developments than the exi-
gencies of journalism allow.
The Asia-Pacific Restructuring Review 2021, which you are reading, is part of that series.
It contains the insight and thought leadership of 21 pre-eminent figures in the region.
Across eight chapters and 120 pages, it can be described as a blend of invaluable retro-
spective, handy primer and crystal ball. All our contributors are vetted for their standing
and knowledge before being invited to take part.
Together, they capture and interpret the most substantial recent international restructur-
ing developments from the past 12 months, complete with footnotes and relevant statistics.
This edition covers Australia, China (for the first time), Hong Kong, India, Indonesia,
Japan, Singapore and South Korea.
Among the gems it contains:
• a behind-the-scenes look at three recent Australian restructurings;
• the latest on China’s insolvency regime – including an answer to the question of whether
arbitration clauses remain valid after bankruptcy;
• helpful reviews of key recent cases in Hong Kong and India;
• a note of caution for foreign lenders in Indonesia – if certain debtor-friendly reforms
go through (with helpful graphics); and
• news that Japan has yet to make any covid-specific adjustments to its insolvency regime.
And much, much more.
v
Preface
If you have any suggestions for future editions, or want to take part in this annual
project, we would be delighted to hear from you. Please write to insight@globalrestruc-
turingreview.com.
Our sincerest thanks to all our contributors, but particularly to the remarkable Look
Chan Ho who edited this volume. Thank you all. It’s a blue-ribbon edition.
Global Restructuring Review

London
September 2020
vi
Editor’s Introduction
Look Chan Ho
Des Voeux Chambers
Insolvency law, by nature, flourishes in difficult times. The year 2020 is certainly one of the
most difficult in modern history. While it will be remembered as a year of lockdown, restruc-
turing and insolvency activity in 2020 has never stopped opening up all manner of develop-
ments all over the world, together with rapid insolvency law reform.
The Asia-Pacific region has seen a fair share of recent financial distress and solutions
to distress, as this edition of the Asia-Pacific Restructuring Review demonstrates. Each of
the jurisdictions covered in the Review has its own domestic economic challenges, its own
prescribed solutions and probably too many insolvency developments to write about.
The experts in each jurisdiction have, therefore, helpfully culled the most recent and perti-
nent developments and practices to share with readers. Many of the cross-border devel-
opments are modelled on practices in other parts of the world and may sometimes serve
as a model for international practices within the region. A case in point is mainland China
(included in this Review for the first time). Mainland Chinese insolvency proceedings need
and want other jurisdictions to recognise them. The China chapter shows how the Chinese
courts may learn from international practices and start to reciprocate the goodwill other
jurisdictions have bestowed on Chinese insolvency proceedings.
As restructuring and insolvency practices are ever-changing, it is helpful to take stock
once in a while. In that regard, the Review may serve as an informative snapshot summary of
the most recent trends.
1
Editor’s Introduction | Des Voeux Chambers
Look Chan Ho
Des Voeux Chambers
Look specialises in corporate insolvency and restructuring, with a particular emphasis
on cross-border matters. He is internationally well-known for his high level of legal
expertise and frequently advises on transactions involving novel and complex
legal issues.
Prior to joining the Bar, he practised for more than 15 years as a solicitor in London
and Hong Kong at Freshfields Bruckhaus Deringer and was the Asia head of restruc-
turing and insolvency. His experience includes advising on the first and second cases
of Hong Kong recognition of mainland Chinese insolvency proceedings and the first
reported case of a Hong Kong scheme of arrangement compromising debts governed
by mainland Chinese law.
Look has published extensively on insolvency matters, and his publications are
widely cited internationally, including with approval by the Hong Kong High Court,
the UK Supreme Court, and the US Bankruptcy Court, among other courts.
Des Voeux Chambers (DVC) is a leading set of chambers based in Hong Kong. Building on its history and Tier 1
reputation, its members have cultivated a reputation for combining intellectual rigour with effective advocacy.
DVC is home to over 80 astute legal minds, many of whom have spearheaded ground-breaking cases.
DVC houses leading specialists in administrative and public law, arbitration and mediation, construction
law, chancery and commercial law, company and insolvency law, competition law, criminal law, employment
and anti-discrimination law, family law, intellectual property, international trade, land and planning, securities
law, and tax law. This broad range of expertise makes DVC a convenient one-stop shop for all areas of civil
and commercial dispute resolution and advisory work.
DVC has a strong track record of distinguished judicial and public appointments. Some of our members
have been appointed as Justices of the High Court, including the present Companies Judge. Our senior
members sit as Recorders and Deputy High Court Judges of the Court of First Instance.
38/F Gloucester Tower Look Chan Ho

The Landmark lookchanho@dvc.hk
Hong Kong
Tel: +852 2526 3071
Fax: +852 2810 5287
www.dvc.hk
2
Australian Restructuring:
Legislation, Transactions and
Cases
Paul Apáthy and Angus Dick
In summary
This article covers major legislative developments, restructuring transactions
and case law in Australia since August 2019. Herbert Smith Freehills discusses
these developments with a view to identifying key trends, such as the Court’s
commercial approach to both schemes of arrangement, and the challenges the
pandemic has posed to insolvency processes in Australia.
Discussion points
• Covid-19 temporary law reforms
• New laws to address phoenixing activity
• Major restructuring transactions in the Australian market
• Cross-border cooperation
• The courts adapting to the challenges posed by the covid-19 pandemic
• Clarification regarding circulating security interests
Referenced in this article

• Coronavirus Economic Response Package Omnibus Act 2020 (Cth)
• Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2019 (Cth)
• Re Tiger Resources Limited
• Re Wollongong Coal Limited and Jindal Steel & Coal Australia Pty Ltd
• Re Halifax Investment Services Pty Ltd (in liq)
• Re CBCH Group Pty Ltd
• Re RCR Tomlinson Ltd
3
Australian Restructuring: Legislation, Transactions and Cases | Herbert Smith Freehills
Introduction
Restructuring activity in Australia over 2019 was relatively subdued given continued rela-
tively benign economic conditions. However, the climate changed markedly in March 2020
with the onset of the global covid-19 crisis.
The severity of the economic impact of the covid-19 pandemic was ameliorated by various
temporary measures introduced by the federal government, including:
• the ‘job-keeper’ government financial support provided to businesses, with the aim of
encouraging them to keep workers;
• a mandatory code of conduct introduced to require landlords and tenants of small and
medium-sized enterprises to negotiate in good faith a proportionate sharing of the finan-
cial impact of the crisis between them;
• encouragement of the major banks to grant deferrals and other support to customers
impacted by the crisis; and
• various temporary changes to insolvency laws aimed at reducing the number of formal
insolvencies triggered by the crisis.
The strength of these temporary measures is demonstrated by the fact that despite Australia
suffering the largest negative economic shock since the great recession, to date 2020 has seen
fewer formal insolvencies than in the same period of the previous year.1
While government support has been a lifeline for many Australian businesses during
the pandemic, it is unclear how long this will continue; a number of measures are currently
scheduled to end or wind back from 25 September 2020. Even with this support in place,
the crisis has caused or further exacerbated the financial distress of a number of significant
Australian companies. As a result, several major restructurings are ongoing at the time of
writing, including those of Virgin Australia and Speedcast.
In this year’s review, we discuss the key developments in the Australian restructuring and
insolvency market over the past year, including:
• the temporary changes in response to the pandemic and the permanent anti-phoenixing
legislative changes;
• the most notable restructurings completed in the last year; and
• a number of important case law developments during this period.
1 Australian Securities and Investments Commission, Insolvency statistics – Series 1 Companies entering
external administration (report, August 2020): https://asic.gov.au/regulatory-resources/find-a-document/
statistics/insolvency-statistics/insolvency-statistics-series-1-companies-entering-external-administration/.
4
Herbert Smith Freehills | Australian Restructuring: Legislation, Transactions and Cases
Legislative reforms
Temporary covid-19 changes
Similarly to steps taken in other jurisdictions, the Australian government has passed various
temporary amendments to Australian insolvency law, with the aim of protecting viable busi-
nesses from the stresses caused by the pandemic and associated lockdown. These amend-
ments were part of the broad package of relief contained in the Coronavirus Economic
Response Package Omnibus Act 2020 (Cth) (the Coronavirus Act).
The two main changes to corporate insolvency law in the Coronavirus Act came into effect
on 25 March 2020 (the effective date), with the aim of preventing unnecessary insolvencies
caused by temporary illiquidity.2 These changes provided for the:
• increasing of the minimum debt amount and the time frame to respond where a creditor
seeks to wind up a company pursuant to a statutory demand; and
• relieving of directors on insolvent trading liability in respect of debts incurred in the
ordinary course of the company’s business.
Both of these temporary changes were introduced for an initial period of six months
commencing on the effective date, but the Australian government has recently announced
their intention to extend this period until 31 December 2020 (the temporary period).3
Statutory demands
Statutory demands are used under Australian law to create a presumption of insolvency
against a company that fails to respond to it. Creditors can issue a statutory demand to
businesses who fail to pay their debts when they fall due. Once issued to a debtor, a statu-
tory demand must be either complied with or successfully challenged by the company. If the
statutory demand is not addressed, the company is presumed to be insolvent,4 and a creditor
can apply to have the company wound up.5
The Coronavirus Act increases the minimum threshold for debts capable of supporting
a statutory demand from A$2,000 to A$20,000 during the temporary period. In addition, if a
statutory demand is issued during the period, the company will have six months to respond
to that demand, a significant increase from the current 21-day period.6
2 Explanatory Memoranda, Coronavirus Economic Response Package Omnibus Bill 2020 (Cth), [12.2].
3 Corporations Act 2001 (Cth), section 588GAA; Corporations Regulations 2001 (Cth), r 5.4.01AA; The
Hon Josh Frydenberg MP and the Hon Christian Porter MP ‘Extension of temporary relief for financially
distressed businesses’ (Media Release, 7 September 2020).
4 Corporations Act 2001 (n 3), section 459C(2)(a).
5 ibid, sections 459A and 459P.
6 ibid, section 459E.
5
Insolvent trading
The Coronavirus Act has introduced a new and additional temporary ‘safe harbour’, intended
to supplement the existing safe harbour protections from insolvent trading liability for
company directors.7
Under the temporary safe harbour, a company director will be exempt from liability for
insolvent trading where a debt is incurred:
• in the ordinary course of the company’s business;
• during the temporary period; and
• before any appointment of an administrator or liquidator during the new safe
harbour period.
Where a subsidiary’s debts are covered by this temporary safe harbour, a holding company
of that subsidiary will also be eligible for a corresponding harbour in respect of the debts
incurred by the insolvent subsidiary,8 provided that the holding company takes reasonable
steps to ensure that the temporary safe harbour applies to each director of the subsidiary
and to the debts incurred.
While the temporary safe harbour is of broader application than the existing safe harbour
regime under Australian law, the existing protections are of continued relevance. To attract
the new safe harbour, a debt must be incurred within the ordinary course of business. The
explanatory memorandum of the Coronavirus Act clarifies that a debt will be taken to have
been incurred in the ordinary course of business if it is ‘necessary to facilitate the continu-
ation of the business during the six month period that begins on commencement of the
subparagraph’. This could be an important gloss on the concept of the ‘ordinary course of
business’ for exceptional transactions, such as rescue financings.
Phoenix amendments to the Corporations Act

The Australia chapter in the Asia-Pacific Restructuring Review 2020 noted the introduction of
the Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019. The Bill was intro-
duced to address ‘phoenixing’, a practice whereby company directors seek to avoid paying
creditors by transferring a company’s assets to a new company controlled by the same owners
(with the first mentioned company then entering formal insolvency with no assets available
to meet creditor claims).
7 Herbert Smith Freehills, ‘Australia’ in Global Restructuring Review, Asia Pacific Restructuring Review
2019, 13; Paul Apáthy et al, ‘Australia’s New Ipso Facto Regime is Now Live: Are Your Rights Affected?’
Herbert Smith Freehills (Blog Post, 3 July 2018): https://www.herbertsmithfreehills.com/latest-thinking/
australia%E2%80%99s-new-ipso-facto-regime-is-now-live-are-your-contractual-rights-affected.
8 In Australia, holding companies may in certain circumstances be liable for the insolvent trading of their
subsidiaries (see the Corporations Act (n 3), section 588V).
6
The Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2019 (Cth) (the
Phoenixing Act) included a number of important modifications to the Corporations Act 2001
(Cth) (the Corporations Act) that came into effect on 18 February 2020, including:9
• the introduction of a new type of voidable transaction, known as a ‘creditor-defeating
disposition’, together with various criminal and civil liability provisions applicable to those
who engage in or facilitate those dispositions; and
• measures designed to prohibit backdating director resignations and prevent companies
being left without directors.
Creditor-defeating dispositions
Under the new section 588FDB of the Corporations Act, a disposition of company property is
a ‘creditor-defeating disposition’ if:
• the consideration payable to the company was less than the lesser of the market value of
the property and the best price reasonably obtainable for the property having regard to
the circumstances; and
• the disposition had the effect of preventing, hindering or significantly delaying the prop-
erty becoming available to meet the claims of creditors in the winding up of the company.
A creditor-defeating disposition may be voidable in the winding up of a company if:10

• the transaction was entered into, or an act was done for the purposes of giving effect to
it, during the 12 months prior to the administration or liquidation of the company; and
• the company was insolvent at the time of that transaction or act, the company became
insolvent because of that transaction or act, or an external administration of the company
occurs as a direct or indirect result of that transaction or act.
A creditor-defeating disposition may become voidable either upon a court order, or by an

administrative order made by the Australian Securities and Investments Commission (ASIC),
which is the Australian companies regulator.11 There are certain exemptions and good faith
defences available both to parties to the transaction and third parties.12
This is the first time that ASIC has been granted the ability to exercise avoidance powers
without a court order. There has been debate on whether this is appropriate or even consti-
tutional. The explanatory memorandum to the Phoenixing Act explains that the purpose of
granting ASIC this power was to ensure that suspicious transactions can be investigated even
where the liquidator has insufficient funds to cover the cost of court action or to allow ASIC
9 Explanatory Memorandum, Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 (Cth) [1.9]
(the Phoenixing EM).
10 Corporations Act (n 3), section 588FE(6A). There are exceptions where the transaction was entered
into or the act was done under a scheme or arrangement or a deed of company arrangement, or by an
administrator, liquidator or provisional liquidator.
11 Corporations Act (n 3), section 588FGAA(3).
12 ibid, sections 588FE(6B)(c) and 588FG.
7
to intervene where the liquidator is not fulfilling its obligation to recover company property;
for example, where the liquidator is complicit in the illegal phoenix activity of a company
director.13 Failing to comply with an administrative order made by ASIC is an offence.14
The Phoenixing Act also provides that it is both an offence, and a contravention giving
rise to civil liability, for an officer of the company to engage in conduct that results in the
company making a creditor-defeating disposition of property.15 Furthermore, any person who
procures, incites, induces or encourages a company to enter into a creditor-defeating dispo-
sition may also commit an offence and be liable for a civil penalty.16 This latter provision is
primarily aimed at ‘unscrupulous facilitators and pre-insolvency advisors, and other entities
that, while not formally responsible for the management of a particular company, are respon-
sible for designing and implementing illegal phoenix schemes’.17 It does, however, give rise
to a potential risk for professional advisers and other participants engaged in restructuring
activity who could, in theory, be at risk of liability where they facilitate a transaction that is
later held to be a creditor-defeating disposition.
There are various defences to civil and criminal liability under these provisions, where
the disposition was made under a scheme of arrangement, under a deed of company arrange-
ment, by a liquidator or provisional liquidator or pursuant to a course of action that is subject
to the pre-existing insolvent trading safe harbour provisions.18 The provisions, therefore,
appear to be designed to encourage parties to undertake restructuring activity under the
auspices of one of these prescribed regimes.
Director accountability
In addition to combating creditor-defeating dispositions, the phoenix amendments to the
Corporations Act aim to improve the accountability of directors for their role in any phoenix
activity by establishing new rules regulating the ability of company directors to resign from
their positions. These rules target the practice of backdating director resignations to avoid
liability for the company’s actions through fabricating a director’s resignation date.19
Should a director resign from his or her position, the resignation must be reported to
ASIC within 28 days. As a consequence of the phoenix amendments, if the resignation is not
reported within the 28-day time frame, the resignation is taken to have occurred on the date
that the resignation is reported to ASIC unless the court is satisfied that it would be just and
13 Phoenixing EM (n 9), [2.52].

14 Corporations Act (n 3) section 588FGAC.
15 ibid, section 588GAB. There are certain additional requirements as set out therein.
16 ibid, sections 588GAC(1)–(2).
17 Phoenixing EM (n 9), [2.81].
18 Corporations Act (n 3), sections 588GAB(3), 588GAC(3) and 588GA(1). Somewhat strangely, a disposition
by an administrator (other than by a deed of company arrangement) does not appear to be a defence
despite transactions made by an administrator being excluded from being voidable under section 588FE.
There are certain additional defences available for the civil liability provisions.
19 Corporations Act (n 3), section 203A.
8
equitable for the resignation to be considered to have occurred before this date.20 Additionally,
a director may not resign if doing so would result in the company having no director (unless
the company is being wound up).21
Key restructurings
Tiger Resources
Tiger Resources Limited (Tiger) undertook a novel and contested restructuring by way of an
Australian scheme of arrangement, despite the group’s facilities being governed by English
law and the group’s borrower, Société d’Exploitation de Kipoi SA (SEK), being incorporated
(and operating copper projects) in the Democratic Republic of the Congo.
Tiger was the Australian Securities Exchange (ASX) listed and Australian incorporated
head company of the Tiger group, and SEK was its (95 per cent owned) direct subsidiary.
SEK financed its mining operations with three major financiers, pursuant to the following
English law governed secured facilities, which were guaranteed by Tiger at the time that the
scheme of arrangement was launched:
• Tranche A debts (senior debt) of approximately US$221 million comprising:
• US$20,306,000 owed to QMetco Limted (QMetco);
• US$144,855,000 owed to Taurus Mining Finance Fund LP (Taurus); and
• US$55,932,000 owed to the International Finance Corporation (IFC); and
• Tranche D and E debts (super senior debt) of approximately US$25.9 million owed to
Taurus and Qmetco:
• US$13,731,000 owed to Taurus; and
• US$12,191,000 owed to QMetco.
In 2019, Tiger’s copper production dropped to 50 per cent of the level achieved in previous
years owing to operational issues, which compounded pressure from falling copper prices.22
Tiger’s strategic plan required capital works to deliver copper enhancing projects, but more
funding was required to pursue these opportunities.23 However, obtaining additional funding
was impossible given the company’s existing debt levels.24 An independent expert’s report
indicated that unless the secured debt was compromised, Tiger would soon be insolvent
owing to persistent cash deficits.25
20 ibid, section 203AA.

21 ibid, section 203AB.
22 King & Wood Mallesons, ‘Taming the Tiger: The Restructuring of Tiger Resources’ (Speech, Turnaround
Management Association, 15 July 2020).
23 ibid.
24 Tiger Resources Limited v International Finance Corporation [2019] FCA 2186, [21].
25 ibid, [19]–[21].
9
Scheme of arrangement
Tiger had reached an agreement with QMetco and Taurus, related entities that planned to
acquire majority interest in Tiger, but not IFC. The agreement involved a debt restructuring
that would involve converting the majority of the senior debt to equity in Tiger (reducing the
senior debt to US$70 million) and that would leave the super senior debt outstanding in full.
Being unable to compromise the IFC secured debt without its consent, Tiger proposed an
Australian creditors’ scheme of arrangement intended to achieve this outcome compulsorily.
Given SEK was not a body corporate incorporated in Australia, or a foreign body corporate
registered under the Corporations Act, as required to fall within the scheme jurisdiction of the
Australian courts under section 411 of the Corporations Act,26 the scheme was instead under-
taken by Tiger as the scheme company. This involved a two-step process under the scheme:
• first, Tiger assumed the senior debt of SEK pursuant to a novation mechanic; and
• second, the senior debt assumed by Tiger was then partially compromised in exchange
for newly issued equity in Tiger (and the term of both the senior debt and the super senior
debt was extended).
Despite the apparent disparity of rights between the senior and super senior debt, both before
and after the scheme, Tiger formulated the scheme on the basis that all the debt would form
a single class and vote together. This was necessary to give Taurus and QMetco in excess of
75 per cent of the debt in the class and thereby pass the scheme resolution, notwithstanding
any objection by IFC.
In addition, as a result of the facilities being governed by English law, the scheme
contained a condition precedent that the scheme be recognised under the Cross-Border
Insolvency Regulations 2006 (UK), or that an order otherwise be obtained to the effect that
the compromise of English law governed creditor claims would be recognised and treated as
effective as a matter of English law.
The scheme independent expert opined that if the scheme was not implemented, the
Tiger group would enter insolvency, with a shortfall anticipated to the senior debt but with
the super senior debt expected to recover in full.
IFC’s challenge to the scheme

At the convening hearing, IFC challenged the proposed scheme, contending the following.
• Exclusive jurisdiction clause: the scheme proceedings should be permanently stayed
because they were in contravention of the English law exclusive jurisdiction clauses in
the loan documents, or alternatively on forum non conveniens grounds (on the basis that
26 It would appear that the English courts would have had jurisdiction to undertake an English scheme of
arrangement (owing to the English law facility documents) in respect of SEK, but the Tiger group did not
choose to take this approach.
10
the debt was governed by English law, and that the existence of the Gibbs rule would
likely require an English scheme of arrangement to compromise the English law debt).27
• No compromise or arrangement: the scheme did not satisfy the requirements of
section 411 of the Corporations Act that there be a compromise or arrangement between
the scheme company and its creditors or a class thereof. IFC argued that no debt of Tiger
(the scheme company) was being compromised; rather it was debt of SEK that was being
extinguished (and assumed) by way of the novation in the first step. The second step
involved compromise of the new debt of Tiger created in the first step (which did not exist
prior to the scheme), which IFC argued could not be used as a ‘bootstrap’ justification to
fall within the provision. While Tiger guaranteed the SEK debt, Tiger’s guarantee obliga-
tion was not directly modified by the scheme terms (although it was indirectly modified
by the reduction of the primary debt).
• Class formation: it was inappropriate for all scheme creditors to vote as a single class,
given the differences between the senior debt and the super senior debt. In particular: the
senior debt was in an inferior security position to the super senior debt; and the senior
debt was having its debt significantly reduced by the scheme, whereas the super senior
lenders were not.28
Convening hearing decision

The convening application was before Gleeson J of the Federal Court of Australia (FCA or
the Court), who ultimately allowed the scheme meetings to be convened, responding to IFC’s
objections as follows.
• The Court was not convinced that the jurisdiction clause in the loan documents was
intended to confer exclusive jurisdiction on the English courts in relation to a scheme of
arrangement, as it did not appear to relate to the settlement of a dispute. Furthermore, it
considered Australia was prima facie the most appropriate forum for resolving insolvency
issues relating to Tiger as an Australian company.
• The Court considered that the scheme was an arrangement for the purposes of section 411
in that it involved an adjustment of Tiger’s existing obligations under its guarantee by
reducing the amount of that obligation.
• The Court reached the preliminary view that the senior lenders should form a separate
class from the super senior lenders, given the significantly different impact of the schemes
on them. However, the Court postponed reaching a final view on the issue until the second
court hearing.
27 Gibbs v Societe Industrielle (1890) 25 QBD 399 (Gibbs). The Gibbs rule states that debts must be
discharged pursuant to the law that governs the debt documents, as the parties have agreed to the
application to the debt of all elements of the debt’s proper law, including that governing discharge.
28 IFC argued that under the independent expert’s evidence, the senior lenders were better off in an
insolvency than under the scheme.
11
Traditionally, a court would not allow a meeting to be convened to vote on a scheme where
the classes of creditors had not been resolved. However, the Court permitted the scheme to
proceed to be voted upon, questions of class composition notwithstanding. The Court empha-
sised that the scheme creditors were a small group (not only were there only three scheme
creditors, but QMetco was a related entity of Taurus) and that proceeding with a meeting
would not produce significant additional costs.
Scheme amendments and scheme meeting

Following the Court’s orders allowing the convening of the meeting to vote on the scheme,
Tiger relied on the Court’s power to vary a scheme under section 411(6) of the Corporations
Act in order to vary its scheme proposal and issued a supplementary explanatory statement.
The Court approved the issuance of this revised scheme and explanatory material to credi-
tors ahead of the meeting.29
Under the revised scheme, Tranche D of the super senior debt would be converted to
equity at the same rate as the senior debt, and Tranche E would no longer form part of the
scheme. The change was targeted at remedying the divergent outcomes for senior and super
senior debt under the original scheme, which gave rise to the class composition concerns at
the convening hearing.
The revised scheme was approved by the requisite majorities at the scheme meeting, with
Taurus and QMetco both voting in favour and IFC electing not to attend.30
Second court hearing

At the second court hearing, IFC continued to oppose the revised scheme on the basis it
advanced at the convening hearing. However, IFC conceded that its opposition would fail
based on the reasoning adopted by the Court in the convening hearing.
In the absence of any submission to the contrary from IFC, the Court accepted that the
scheme was fair and reasonable, and approved it.31
English recognition and effectiveness

Following the second court hearing, IFC sold its debt to a third party who was supportive
of the scheme. This allowed Tiger to successfully apply for an order from the High Court of
England to recognise and give effect to the compromise of English law governed creditor
claims as part of the scheme as a matter of English law, on the basis that IFC and the third
29 Re Tiger Resources Limited (No 2) [2020] FCA 266, [6].

30 ibid, [7]–[9].
31 ibid, [29].
12
party confirmed to the High Court their submission to the jurisdiction of the Australian
courts.32 The scheme satisfied all conditions precedent and became capable of implementa-
tion on 25 March 2020.33
Commentary
The Tiger restructuring is the second contested creditors’ scheme of arrangement in recent
years where the approach to class formation has been a key focus of the argument. In each
case, the scheme company has taken a broad approach to class composition to seek to cram
down minority lenders, despite there being significantly different treatment of lenders within
the class.
When advocating this approach, Tiger pointed to the Boart Longyear decisions34 as justifi-
cation for taking a literal reading of the class composition test in Sovereign Life:35 only where
it is ‘impossible’ for creditors to consult together should they be placed in separate classes.
Gleeson J rightly doubted the class construct initially advanced by Tiger in this case, although
her willingness to entertain the argument beyond the convening hearing is surprising. It
may be that the Boart Longyear decisions have created an Australian divergence from the
traditional understanding of class formation under English law.
Other aspects of the decision are also open to debate. There appears to be some merit to
IFC’s argument that the Tiger scheme involved a compromise of SEK’s, rather than Tiger’s,
debts. Unfortunately, there was little examination of this issue in the judgment.
Minority lenders may feel particularly threatened by cram-down attempts where they are
not provided with an appropriate level of information about the scheme and class composi-
tion ahead of the convening hearing. In the United Kingdom, this issue is addressed by way
of the Practice Statement (Companies: Schemes of Arrangement under Part 26 and Part 26A
of the Companies Act 2006), which provides that it is the responsibility of the applicant to
ensure that notification is given to all persons affected by a scheme in sufficient time to enable
persons affected by the scheme to consider what is proposed, to take appropriate advice and
to attend the convening hearing.36
32 Order of Davis-White J in Re Tiger Resources Limited (CR-2020-001845, 17 March 2020); King & Wood
Mallesons, ‘Taming the Tiger: The Restructuring of Tiger Resources (Speech, Turnaround Management
Association, 15 July 2020). Submission to jurisdiction is a recognised exception to the Gibbs rule.
33 Caroline Keats, ‘Update on Proposed Debt Restructure – Creditors’ Scheme Becomes Effective’:
http://www.tigerresources.com.au/wp-content/uploads/2020/04/Update-On-Proposed-Debt-Restructure-
Creditors-Scheme-Becomes-Effective.pdf.
34 Re Boart Longyear Ltd [2017] NSWSC 567; First Pacific Advisors LLC v Boart Longyear Ltd [2017]
NSWCA 116.
35 Sovereign Life Assurance Company v Dodd [1892] 2 QB 573.
36 High Court of England and Wales, Practice Statement (Companies: Schemes of Arrangement under Part 26
and Part 26A of the Companies Act 2006), 25 July 2020, [8]. Evidence of steps taken to notify interested
persons of these considerations should be introduced at the convening hearing.
13
Unfortunately, there is no equivalent to the Practice Statement in Australia, and therefore

there is some variance in the level of disclosure to creditors ahead of the convening hearing.
There has also been a recent trend towards last minute changes to the scheme terms. In the
case of Tiger, changes were made to the scheme booklet up to 24 hours before the convening
application.37 It also appears that IFC needed to seek a court order to obtain the material that
Tiger intended to rely upon in support of its application at the convening hearing (and then
only obtained this material three days before the hearing).38
Wollongong Coal
The second major creditors’ scheme of arrangement over the past year featured two Australian
subsidiaries of India’s Jindal Steel & Power group. As in the case of the Tiger scheme, the
proponents of these schemes faced the challenge of compromising English law debt through
Australian schemes of arrangement. However, in the case of Wollongong Coal, the borrower
under these facilities was an Australian entity.
The schemes rescheduled the group’s finance debt and allowed the company’s lenders to
choose which of two new facilities they would roll their exposures into (which offered signifi-
cantly differing terms). The schemes also underwent a Lazarus-like revival, through the power
of the court, after they terminated for failure to satisfy their conditions precedent in time.
Background to the schemes

Wollongong Coal Limited (Wollongong) and Jindal Steel & Power (Australia) Pty Ltd (Jindal)
are Australian incorporated subsidiaries of the Jindal Steel & Power group, an Indian steel
and energy company. Wollongong and its subsidiaries operated two Australian collieries:
Russell Vale and Wongawilli, which suffered major operational disruptions for a number of
years. This ultimately caused Jindal to default on its two English law governed loan facilities:
the US$276.99 million Axis Facility and the US$70.05 million SBI Facility (both of which were
guaranteed by Wollongong).39
Following defaults under each facility, Jindal and Wollongong each proposed a credi-
tors’ scheme of arrangement with the objective of, among other things, creating a sustain-
able capital structure, providing the companies with breathing room pending regulatory
approvals to recommence their mining operations and curing defaults under the Axis and
SBI Facilities to facilitate additional financial support from the Jindal Steel & Power group.40
37 Transcript of Proceedings, Tiger Resources Limited v International Finance Corporation (Federal Court of
Australia, NSD2043/2019, Gleeson J, 19 December 2019), [40].
38 Order of Gleeson J in Tiger Resources Limited v International Finance Corporation (Federal Court of
Australia, NSD2043/2019, 13 December 2019).
39 Wollongong Coal Limited, ‘Schemes of arrangement implemented’ (ASX Announcement, 8 May 2020);
Re Wollongong Coal Limited and Jindal Steel & Coal Australia Pty Ltd [2020] NSWSC 73, [11] (Wollongong
sanctioning hearing).
40 Wollongong sanctioning hearing (n 39), [20].
14
Terms of the schemes

Wollongong and Jindal proposed schemes of arrangement under which the secured debt
under the Axis and SBI Facilities were reallocated into one of two rescheduled facilities.
• Rescheduled Facility A contained various reductions of principal amounts of up to
29 per cent depending upon the company achieving certain milestones and an interest
rate margin of 4.5 per cent. All outstanding amounts under Facility A were required to be
repaid by 30 September 2022.
• Rescheduled Facility B was to be repaid in three equal instalments on 30 September
each year in 2026, 2027 and 2028, with no principal reduction mechanic, but at a lower
3 per cent interest rate margin.
Facility B ranked equally with Facility A, but lenders under Facility B were prevented from
exercising their security rights while principal amounts remained outstanding under
Facility A.41
In addition to providing lenders with this option, the schemes also permitted the sale of
certain non-mining assets (that were subject to security under the Axis and SBI Facilities) to
generate capital, which was required to resume mining operations.42
Approval of the schemes

Under a restructuring support agreement signed in November 2019, all creditors under the
SBI Facility and creditors representing 78.94 per cent by value under the Axis Facility agreed
to support the schemes,43 and they were comfortably passed at the scheme meetings held for
the two classes of creditors bound by the scheme: lenders under the Axis Facility and lenders
under the SBI Facility.44
Compromising English debt

Prior to implementing the scheme, the Axis and SBI Facilities were both governed by English
law. This presented an issue for the proposed Australian schemes of arrangement: as discussed
in respect of the Tiger scheme, under the rule in Gibbs as a matter of English law, debt arising
under a contract governed by English law cannot be compromised or discharged by a foreign
(ie, non-English) restructuring or insolvency process.45
The parties addressed this challenge by amending the facility documentation (with
majority lender consent) to change the governing law to New South Wales law prior to
proposing the schemes of arrangement. In a clever twist, the amendment provided that the
governing law would revert to English law on 16 March 2020, allowing sufficient time for the
41 ibid, [17]–[18].
42 ibid, [19].
43 ibid, [14].
44 Order of Black J in Wollongong Coal Limited and Jindal Steel & Coal Australia Pty Ltd (Supreme Court of
New South Wales, 2019/00384003, 20 December 2019).
45 Gibbs (n 27).
15
scheme to take effect while the facility was governed by New South Wales law (with the aim
of circumventing the Gibbs rule), but ultimately allowing the lenders to continue to hold their
debt under English law governed documentation over the longer term.
On the basis that the change of law was not arbitrary (the borrower being incorporated
in New South Wales) and that no lender objected to the change, the Court did not have any
difficulty with this manoeuvre (but also did not consider it necessary to decide whether the
amendment did in fact successfully avoid the rule in Gibbs).46
Resurrection of the scheme

Somewhat unusually, the schemes contained a number of substantive conditions precedent
to their implementation. Unfortunately, these conditions were satisfied one day after the
expiry of the required time frame, resulting in the automatic termination of the schemes
under their terms.47
The substantial majority of scheme creditors remained supportive of the schemes,
notwithstanding the late satisfaction of the conditions. The companies therefore approached
the Court seeking an order retrospectively amending the terms of the schemes to extend the
deadline for achieving the required conditions.48 The Court granted the orders,49 noting that:
• the failure to satisfy the conditions precedent arose from a short delay that would have
been avoided had the parties had the benefit of hindsight;
• the failure of the schemes owing to the short delay would deprive the companies and the
consenting creditors of the benefits of the schemes, and expose the companies to the risk
of external administration;
• both the schemes and the application for retrospective amendment had the support of
the majority of creditors by number and value;50
• there would be no practical utility and considerable wasted costs in reconvening a
meeting to consider new or revised schemes for the companies; and
• the potential for the difficulties in implementing the scheme to delay future payments
to the companies’ creditors was not sufficient reason to deprive interested parties of the
benefit of the schemes.51
The effect of these orders was to bring the schemes back to life, and ultimately allow for their
successful implementation.
46 Wollongong sanctioning hearing (n 39), [63].

47 ibid, [10].
48 ibid.
49 The Court relied upon the power under Rule 1.1 of the Uniform Civil Procedure Rules to extend or abridge
any time fixed by an order of a court, as schemes of arrangement are enlivened by orders of the court:
Re AGL Gas Networds Ltd [2001] NSWSC 165; Re Wollongong Coal Limited; Re Jindal Steel & Power
(Australia) Pty Limited [2020] NSWSC 614, [17] (Wollongong CP hearing).
50 The only creditor who abstained from voting on the scheme, the Bank of Baroda, ultimately indicated via
its solicitors that it did not object to the schemes, Wollongong CP hearing (n 49), [34].
51 Wollongong CP hearing (n 49), [18].
16
Retail Food Group

In 2019, Retail Food Group (RFG) achieved a consensual recapitalisation and balance sheet
restructure while under regulatory investigation and public scrutiny in respect of its past busi-
ness practices. RFG is an ASX listed franchiser, whose key brands include coffee chain Gloria
Jeans and food franchises Donut King, Crust Pizza, Michel’s Patisserie and Brumby’s Bakery.
RFG had suffered several challenging years, culminating in a highly critical review of its
business practices in the Parliamentary Joint Committee’s Fairness in Franchising report
that was released on 14 March 2019. This report recommended (among other things) that
the Australian Competition and Consumer Commission, ASIC and the Australian Tax Office
conduct investigations into the operations of RFG and its current and former directors
and officers.
In addition, RFG was highly leveraged and faced the challenge of refinancing approxi-
mately A$260 million of bank debt that was due to mature in late 2019. RFG engaged with
various capital providers during this time, including granting exclusivity to Soliton Capital in
respect of a potential A$160 million recapitalisation proposal, which was unable to be agreed.
Ultimately, RFG implemented a A$190 million capital raising, combined with a consensual
restructuring of its existing bank debt. The transaction involved:52
• a A$190 million equity raise, which was effected through a fully underwritten
A$170 million placement with institutional investors and a non-underwritten A$20 million
share purchase plan;
• RFG’s lenders receiving a partial repayment of A$118.5 million on their outstanding bank
debt, extinguishing A$71.8 million of their debt (reflecting a write-off of approximately
27 per cent); and
• RFG’s lenders entering into a new A$75.5 million debt facility for a three-year term, which
refinanced the remaining balance of the bank debt.
The share placement was approved by a resolution of RFG’s shareholders at its

general meeting.53
In addition to the recapitalisation, RFG also undertook a broader operational turnaround
programme, which included making changes to its executive team, reducing payroll costs,
upgrading and consolidating its systems, and selling or closing non-performing brands.54
The RFG transaction is notable in that it involved the bank lenders both agreeing a signifi-
cant haircut and to roll a portion of their debt into a new facility, a relatively uncommon
outcome in a high-profile situation of this type in Australia.
52 Retail Food Group, ‘Capital raising launch and guidance’ (ASX Announcement, 11 October 2020).
53 Retail Food Group, ‘Results of General Meeting’ (ASX Announcement, 19 November 2019).
54 Retail Food Group, Annual Report 2019 (Report, 29 October 2019) ii, 5.
17
Recent noteworthy cases

Halifax: cross-border joint court hearings
In Re Halifax,55 the FCA signalled its willingness to facilitate a joint hearing with a foreign
court for the first time.
The Halifax group provided broking and investment services to clients in Australia and
New Zealand. When the group became insolvent, the administrators discovered a A$19 million
deficiency in the group’s client funds. Furthermore, there had been substantial commingling
of the client funds between the group’s Australian and New Zealand entities, which were
subject to liquidations in Australia and New Zealand respectively (although the same indi-
viduals were appointed liquidators in each process).
The liquidators formed the view that the most expeditious way of obtaining certainty on
the relative entitlements of the clients to the commingled funds was to hold a joint hearing
of the FCA and the High Court of New Zealand (HCNZ). Accordingly, the Australian liquida-
tors approached the FCA and requested that the Court issue a letter of request for assistance
to the HCNZ under section 581(4) of the Corporations Act, in which it would request a joint
hearing on the treatment of the funds. It was hoped this would reduce the risk of inconsist-
ency in the judicial advice or directions given by each court in respect of the same commin-
gled pool of funds.
To issue the request, the Court must be satisfied that:
• it has the power to issue the letter of request;
• the foreign court receiving the request has the power to act on the request; and
• issuing the letter of request is consistent with considerations of utility and comity.
While the FCA was satisfied it had the power to issue the request and that the HCNZ could
act on the request, it delayed making any order until representative clients of the Halifax
group first identified who would respond to the application.56 Case management hearings
were subsequently held in the HCNZ on 12 December 2019 and the FCA on 13 December 2019,
where the courts agreed to hold a joint procedural hearing, which took place on 18 December
2019 by videoconference.57
55 Kelly, Halifax Investment Services Pty Ltd (in liq) (No 5) (2019) 139 ACSR 56.
56 ibid, [78]–[80].
57 Order of Gleeson J in Kelly, Halifax Investment Services Pty Ltd (in liq) (NSD2191/2018, 19 February 2020);
KPMG, Update to Investors – 24 December 2019.
18
Following these initial case management hearings a series of joint case management
and directions hearings took place where interested parties were joined to the application.58
The HCNZ and the FCA have also held a joint hearing to consider two applications regarding
whether certain investments could be closed out ahead of the scheduled final hearing
regarding the pooling of commingled funds.59
The Halifax decisions chart new territory in Australia’s (and New Zealand’s) cross-border
jurisprudence. The approach is reminiscent of the joint hearings undertaken by US and
Canadian courts in the Nortel bankruptcy.60 The matter remains ongoing.
Colette group: extended rent-free periods in administration

Under section 443B of the Corporations Act, administrators have a week upon appointment
to decide whether they intend to continue to exercise a company’s rights in respect of leased
property. Should they fail to notify a lessor that they intend to disclaim the lease, the admin-
istrator becomes personally liable for rent payable for the period commencing one week after
the appointment of the administrators until the conclusion of the administration.61
Section 443B strikes a balance between the interests of the distressed company and its
lessors; however, during the covid-19 lockdowns, administrators were faced with a dilemma:
they could either risk sizeable personal liability under a company’s leases or quickly elect to
disclaim key leases under conditions of radical uncertainty. Administrators faced with this
dilemma began to approach the courts for assistance, leading to a number of decisions that
altered the operation of section 443B during the pandemic.
In Strawbridge (Administrator), in the matter of CBCH Group Pty Ltd (admin apptd) (No 2)
[2020] FCA 472, the administrators of the Colette group obtained orders relieving them of
personal liability for rent changed by the group’s landlords during the covid-19 lockdown.62
The administrators argued that relieving them of personal liability would allow them to
pursue a strategy of maintaining the stores in a closed state or ‘mothballing’ until a managed
58 Order of Gleeson J in Kelly, Halifax Investment Services Pty Ltd (in liq) (NSD2191/2018, 19 February 2020);
Order of Gleeson J in Kelly, Halifax Investment Services Pty Ltd (in liq) (NSD2191/2018, 3 April 2020);
Kelly, Halifax Investment Services Pty Ltd (in liq) (No 10) [2020] FCA 1146; Order of Registrar Kumar in
Re Kelly in the matter of Halifax New Zealand Limited (in liq) (High Court of New Zealand, CIV-2019-404-
2049, 28 February 2020).
59 Kelly, Halifax Investment Services Pty Ltd (in liq) (No 7) [2020] FCA 248; Kelly, in the matter of Halifax
Investment Services Pty Ltd (in liq) (No 8) [2020] FCA 533; Minutes of Venning J in Re Kelly in the matter
of Halifax New Zealand Limited (in liq) (High Court of New Zealand, CIV-2019-404-2049, 21 February
2020); Re Halifax New Zealand Limited (in liq) [2020] NZHC 2020. It appears that the FCA and HCNZ
have proceeded to hold these subsequent hearings without the letters of request actually being issued
to date.
60 In re Nortel Networks Inc, No. 09-10138, (Bankr D Del, 12 May 2015); Re Nortel Networks Corp, 2015
ONSC 2987. For more information, see Paul Apáthy and Hongbei Li, ‘Classic cross-border cooperation:
joint court hearings in the Halifax insolvency’ (2019) 20(4&5), Insolvency Law Bulletin 68.
61 Corporations Act (n 3), section 443B(2)(a).
62 The orders were made under Corporations Act, section 447A. This section gives the courts broad discretion
to vary aspects of the administration process.
19
wind-down, sale or recapitalisation could be pursued once the lockdown ended. The admin-
istrator’s modelling suggested that this strategy would produce the best outcome for the
group’s creditors as a whole.63
The Court acknowledged that the proposed course not to pay rent was an unusual one
that would jeopardise the Colette group’s tenancies. Ordinarily, administrators only have a
week to consider whether to disclaim a lease once appointed; after a week, they are personally
liable for any rent incurred by the company.64 Nonetheless, it was ordered that the administra-
tors were justified in causing the companies in the Colette group not to meet their obligations
to pay rent pursuant to any of the leases that accrued up until 5pm on 14 April 2020.65
Similar orders have subsequently been made in a number of other administrations, such
as those concerning Virgin Australia, Techfront and Miniso. In each case, it was held that it
was in the best interests of the company’s creditors as a whole that the administrators be
given further time to disclaim or retain certain leases, though the reasoning in these cases
was more focused on the administrator’s inability to make an informed decision regarding
the leases during the height of the first wave of the pandemic.66
While the courts have demonstrated a willingness to support administrators trying to
maximise creditor value during this extraordinary period, the interests of landlords and other
lessors have not been forgotten. In the administration of the PAS Group, the Federal Court
held that rent that is incurred during the period where administrators have been protected
from personal liability will be payable as a priority expense in the tenant’s liquidation so long
as the rent is properly incurred.67 This gives rent incurred during this period first priority
(together with other expenses of the administration) in any subsequent liquidation of the
tenant company.
RCR Tomlinson: priority to circulating assets in administration

The RCR Tomlinson decision resolved a number of important issues regarding the relative
priorities of secured creditors and employees to certain categories of assets where a company
enters administration.
63 Strawbridge, in the matter of CBCH Group Pty Ltd (No 2) [2020] FCA 472, [25] (CBCH).
64 Corporations Act (n 3), section 443B(2).
65 CBCH, [2]. This order was made under section 90-15 of the Insolvency Practice Schedule to the
Corporations Act (n 3).
66 Eagle, in the matter of Techfront Australia Pty Limited (admin apptd) [2020] FCA 542, [20]-[22];
Strawbridge, in the matter of Virgin Australia Holdings Limited (admin apptd) [2020] FCA 571, [48]-[52];
Jahani, in the matter of Miniso Master Franchisee Pty Ltd (admin apptd) [2020] FCA 1066.
67 Ford (Administrator), in the matter of The PAS Group Limited (admin apptd) v Scentre Management
Limited [2020] FCA 1023, 10; Corporations Act (n 3), section 556(1)(a).
20
Various companies in the RCR Tomlinson group (a major Australian engineering firm)
entered into administration in 2018, and then subsequently liquidation. During the liquida-
tion, a question arose on whether the secured creditors or the employees (who are preferential
creditors under Australian law) had priority to the proceeds of certain categories of assets of
the RCR companies.68
The assets in question were:
• amounts paid under construction contracts that, as at the date of the administrators’
appointment (the appointment date), were not yet contractually due and payable but
could be attributable to work in progress undertaken by RCR prior to the appointment
date (WIP);69
• amounts potentially payable by principals to RCR in circumstances where, following the
appointment date, the principals called on bank guarantees provided by RCR but ulti-
mately not all the funds so called were required to meet claims by those principals against
RCR (surplus proceeds);70 and
• any amounts received by RCR under bank guarantees provided by subcontractors to RCR
to guarantee performance under a subcontract, should RCR call on those bank guarantees
after the appointment date (subcontractor proceeds).71
Section 561 of the Corporations Act provides that in a liquidation of a company, employees
have priority to a security holder to the extent that the security relates to ‘circulating assets’
as that term is defined in the Personal Property Securities Act 2009 (Cth) (PPSA). Circulating
assets are a concept introduced by the PPSA essentially for the purposes of replicating the
concept of a ‘floating charge’ that existed under the pre-PPSA law (and which section 561
referred to prior to the introduction of the PPSA).72
Prior to the RCR Tomlinson case, there was limited case law on how section 561 was to
operate following the introduction of the PPSA and the new concept of a circulating asset.73
The RCR Tomlinson liquidators therefore sought directions from the Court on whether the
WIP, surplus proceeds and subcontractor proceeds were circulating assets for the purposes
of these provisions.74
The first question to be determined by the Court was the date on which a court should
determine whether an asset is circulating, described as the ‘snapshot date’. Given that assets
typically change their nature over the course of an insolvency process (for example, assets
being realised and converted to cash), this timing question is critical. The Court decided that
the appropriate point to determine the nature of the assets is the ‘relevant date’ as defined
68 Re RCR Tomlinson Ltd (admin apptd) [2020] NSWSC 735, [7] (RCR Tomlinson).
69 ibid, [84]–[98].
70 ibid, [64]–[83].
71 ibid, [99]–[110].
72 Explanatory Memoranda, Personal Property Securities Bill 2009 (Cth), [9.55]–[9.67].
73 Personal Property Securities Act 2009 (Cth), section 340.
74 RCR Tomlinson (n 68), [7].
21
in the Corporations Act. Where the liquidation is preceded by an administration (as was the
case in the RCR Tomlinson case), the relevant date is the date the administrators are appointed
(otherwise it is at the commencement of the liquidation).75
The Court held that the surplus proceeds and subcontractor proceeds were not circu-
lating assets, and therefore that the secured creditors had priority to these amounts.76
The Court held that WIP was a circulating asset if it had (as at the appointment date)
reached a point where all that was required for payment to be owing was for an invoice to be
raised or certification to be completed. WIP that had not reached this point as at the appoint-
ment date (for example, WIP where not all the work had been completed to reach a progress
payment milestone) was not a circulating asset. Therefore, there was split priority entitle-
ment to the WIP between the secured creditors and the employees.77
The RCR case provides important guidance on the priority treatment of various catego-
ries of intangible assets in an insolvency – a matter that has previously given rise to signifi-
cant debate in Australia.
Final remarks
It is difficult to forecast what will come of the present entanglement of health and economic
policy. Government relief measures, temporary moratoriums from insolvency laws and
support extended by Australia’s major banks by way of repayment deferrals has obscured the
true toll of the pandemic.
Current market expectation is that this support will roll off, and as a result, we will likely
see an increase in financial distress (and related restructuring and insolvency activity), in the
first quarter of 2021. Should there be a significant increase in distressed situations, it will be
interesting to see whether Australia’s recent shift towards debtor-led turnaround and restruc-
turing will reverse as the downturn puts pressure on the balance sheets of major banks.
Another secondary effect of the pandemic could be further legislative changes to
Australia’s insolvency and restructuring law. The ‘restructuring plan’ (essentially a modi-
fied scheme of arrangement) introduced in the United Kingdom may provide a template for
similar reforms in Australia. However, there is likely to be greater focus on what measures can
be taken to improve turnaround prospects for small and medium-sized enterprises. Reforms
targeted at this sector will likely take priority over reforms targeted at creditor schemes of
arrangement, which in Australia tend to be utilised by larger companies. Whatever direction
the government ultimately takes, reforms capable of producing better outcomes for both
debtors and creditors will be welcome, as both groups will be facing difficult decisions in the
year to come.
75 ibid, [25]; Corporations Act (n 3), section 513C.

76 ibid, [80] and [110].
77 ibid, [84]–[98].
22
Paul Apáthy
Paul Apáthy is a partner in Herbert Smith Freehills’ restructuring and insolvency team.
Paul is a highly experienced practitioner specialising in restructuring, insolvency and
distressed debt investments. He has extensive regional, international and cross-border
experience advising creditors, companies, private equity and hedge funds in respect of
restructurings and distressed situations.
Paul is an extensive legal author and conference speaker, a member of the editorial
panel of the Insolvency Law Bulletin, and the chief editor of the Herbert Smith Freehills’
Guide to Restructuring, Turnaround and Insolvency in Asia Pacific.
Before joining Herbert Smith Freehills, he practised for a number of years at several
leading international firms in London where he advised on major European restructur-
ings and insolvencies.
Angus Dick
Angus Dick is a member of Herbert Smith Freehills’ restructuring and insolvency
team. Angus has a bachelor of commerce (finance) and a bachelor of law with first-class
honours from the University of Queensland.
23
Herbert Smith Freehills is a leading global law firm with over 4,000 people, including 450 partners, in
27 offices across Africa, Asia, Australia, Europe, the Middle East and the United States.
As one of the world’s leading law firms, we advise many of the biggest and most ambitious organisations
across all major regions of the globe. Our clients trust us with their most important transactions, disputes and
projects because of our ability to cut through complexity and mitigate risk. We offer local insight and seamless
cross-border service in all major regions. Positioned to support the major trade flows, we help the world’s top
companies thrive in the global economy.
Herbert Smith Freehills is the largest fully integrated law firm in the Asia-Pacific and is one of the world’s
top-ranked and most experienced energy and resources firms; a globally pre-eminent and recognised firm
in litigation, arbitration and contentious regulatory work; and an international leader in M&A, private equity,
capital markets, infrastructure and banking and finance. Herbert Smith Freehills is known for our global depth
and expertise in restructuring, turnaround and insolvency (RTI) and capacity to handle complex corporate
restructures and turnarounds. In Australia, the firm has the powerful combination of:
• an RTI team of specialists providing seamless, cross-border support for our clients;
• experience across all industries that have recently gone through financial distress (eg, real estate, retail,
manufacturing, resources, agribusiness and tourism);
• panel appointments to each of Australia’s major trading banks; and
• the lion’s share of work in debt trading and distressed debt markets, consistently for the past decade.
Our team has received the following accolades: Winner of the Insolvency and Restructuring Deal of the Year
at the Australasian Law Awards for each of the years listed below; Arrium Group Insolvency 2017; Mirabela
Restructure and Recapitalisation 2015; Nine Entertainment Group Restructure 2013; Centro Restructure
2012; and Alinta Energy Restructure 2011.
ANZ Tower Paul Apáthy

161 Castlereagh Street paul.apathy@hsf.com
Sydney NSW 2000
Australia Angus Dick
Tel: +61 2 9225 5000 angus.dick@hsf.com
Fax: +61 2 9322 4000
www.herbertsmithfreehills.com
24
What’s New in China’s
Bankruptcy and Restructuring?
Nuo Ji, Lingqi Wang and Jessica Li
Fangda Partners
In summary
This article captures China’s latest developments in the legal practice of
bankruptcy and restructuring. Several judicial documents were released recently
by the Supreme People’s Court that held much sway in the practice area. There
are also notable developments on cross-border bankruptcy, active reforms in
exploring the personal bankruptcy regime and the introduction of rules targeted
at safeguarding bondholders’ rights and remedies in bankruptcy proceedings.
Discussion points
• Key judicial documents released recently in relation to bankruptcy
• Recent developments on cross-border bankruptcy in China
• Recent pilot projects on personal bankruptcy regime in China
• Recent rules and development on rights and remedies of bondholders

• The Notice of the Supreme People’s Court on Issuing the Minutes of the
National Court Work Conference on Bankruptcy Trials
• The Interpretation on Several Issues Concerning the Application of the
People’s Republic of China Enterprise Bankruptcy Law (III)
• The Minutes of the National Working Conference on the Trial of Civil and
Commercial Cases by Courts
• The Minutes of Symposium on the Trial of Bond Dispute Cases by Courts
Nationwide
• In re Reward Science and Technology Industry Group Co Ltd
• In the matter of CEFC Shanghai International Group Limited (in Liquidation
in the Mainland of the People’s Republic of China) and in the matter of the
inherent jurisdiction of the Court
25
What’s New in China’s Bankruptcy and Restructuring? | Fangda Partners
Introduction
Since its first promulgation in 2006, the Enterprise Bankruptcy Law (the Bankruptcy Law)
has been playing an increasingly important role in the business environment in China. To
facilitate the implementation of the Bankruptcy Law and to guide courts of all levels to deal
with bankruptcy cases in a more efficient way, the Supreme People’s Court (SPC) issued three
judicial interpretations and meeting minutes. Another document of SPC meeting minutes
on civil and commercial cases contains one chapter regarding bankruptcy. Companies in
financial distress, creditors and potential investors now have a clearer understanding of the
bankruptcy procedures.
Key judicial documents released recently in relation to bankruptcy

Overview
The most important updates in the legal practices of bankruptcy law in recent years are
reflected in:
• the Notice of the Supreme People’s Court on Issuing the Minutes of the National Court
Work Conference on Bankruptcy Trials (the 2018 SPC Meeting Minutes), published on
4 March 2018;
• the Interpretation on Several Issues Concerning the Application of the People’s
Republic of China Enterprise Bankruptcy Law (III) (the Interpretation III), published on
27 March 2019; and
• the bankruptcy chapter in the Minutes of the National Working Conference on the Trial
of Civil and Commercial Cases by Courts (the 2019 SPC Meeting Minutes), published on
8 November 2019.
In general, these judicial documents released by the SPC were issued to facilitate the supply-
side structural reforms to get rid of ‘zombie companies’, to optimise the business environ-
ment, to promote high-quality development and to disperse market risks. These judicial
documents have provided guidelines on various disputed issues regarding bankruptcy, and
this article will address four major aspects: substantive consolidation; selection of bankruptcy
administrators; automatic stay and restrictions on creditors; and reorganisation.
Substantive consolidation
Substantive consolidation among affiliated debtor entities is a double-edged sword: on the
one hand, it is helpful to prevent the debtor’s fraudulent conduct and asset manipulations
that jeopardise the creditors’ interest; on the other hand, the abuse or overuse of substantive
consolidation may unfairly reduce the recovery rate of some creditors.
In light of a number of controversial consolidation cases encountered by local courts,
the 2018 SPC Meeting Minutes stress that substantive consolidation should only be used in
exceptional circumstances, and they also lay down strict criteria and remedial procedures.
26
Fangda Partners | What’s New in China’s Bankruptcy and Restructuring?
Criteria for consolidation

As an exception to the general rule of respecting the company’s independent legal personality,
substantive consolidation can only be invoked when the legal personality of each affiliate is
highly mingled; the differentiation of each affiliate’s assets is excessively costly; and the sepa-
ration of bankruptcy proceedings will result in unfair treatment of the creditors.
Special procedures for consolidation

These are as follows.
• Hearings: upon the court’s receiving of a petition for consolidation, it notifies the inter-
ested parties and convenes a hearing among them. It also makes the consolidation deci-
sion, taking into consideration various factors, including the extent and duration the
affiliates’ assets have been mingled, inter-party debts and claims among the affiliates, the
impact of consolidation on the overall interests of creditors and the impact of consolida-
tion on the likelihood of successful reorganisation.
• Remedies: should any interested party oppose the consolidation decision, it may petition
a higher level court for a review of the consolidation decision.
Legal consequences
The assets of the consolidated affiliates are deemed as a single estate, the debts and claims
between the consolidated affiliates are extinguished, and creditors of the consolidated affili-
ates will participate and receive payments through one bankruptcy proceeding. In case of
reorganisation, only one reorganisation plan will be made to cover all consolidated affiliates,
and one affiliate remains after the reorganisation.
Selection of bankruptcy administrators

A bankruptcy administrator is the main facilitator and executor in bankruptcy cases; thus,
their capabilities are crucial in the effective handling of bankruptcy cases. The SPC issued
the Provisions on Designating the Administrator during the Trial of Enterprise Bankruptcy
Cases (the Administrator Designation Provisions) in 2007, soon after the Bankruptcy Law
came into effect, to set out rules on how bankruptcy administrators should be selected and
appointed in bankruptcy cases.
According to the Administrator Designation Provisions, higher courts at the provincial
level should prepare their roster of qualified bankruptcy administrators, and only institutions,
including law firms, accounting firms and liquidation firms, that have offices or branches in
that particular province are eligible for the roster. For normal bankruptcy cases, the bank-
ruptcy administrator will be selected from the roster by lottery, and for more complex cases,
the courts may sometimes select the bankruptcy administrator through a bidding process.
With the increasingly frequent emergence of large-scale and complex bankruptcy cases
in recent years, the SPC felt that the Administrator Designation Provisions no longer met
the practical needs in selecting competent and appropriate bankruptcy administrators.
Consequently, the SPC proposed three improvements in the 2018 SPC Meeting Minutes to:
27
• encourage a competition mechanism to select bankruptcy administrators, especially in

high-profile cases, such as the bankruptcy of a listed company, to guarantee the compe-
tency of the selected administrator;
• expand the roster pool of certified bankruptcy administrators by introducing profes-
sionals in bankruptcy and enterprise management experts, and reaching out to external
bankruptcy administrators from other provinces when needed; and
• facilitate the establishment of bankruptcy administrators associations and the setting up
administrators’ compensation funds.
Automatic stay and restrictions on creditors

Removal of asset preservation measures
The Bankruptcy Law imposes an automatic stay on any legal proceedings against the debtor
upon the acceptance of bankruptcy by the court. In particular, after the court accepts the
bankruptcy application, any asset preservation measures (eg, attachment, seizure and
freezing) against the debtor’s assets must be removed. In practice, there were controversies
regarding, among other things, whether the asset preservation measures referred only to
those in civil legal proceedings and whether the asset preservation measures were automati-
cally ineffective or needed to be separately removed by the relevant authority.
The 2018 SPC Meeting Minutes clarify that, after receiving the court order on acceptance
of the bankruptcy application, the enforcement court should remove the asset preservation
measures against the debtor’s assets or issue letters handing over the disposal right of the
assets preserved to the court accepting the bankruptcy application. If the enforcement court
refuses to remove the asset preservation measures, the court accepting the bankruptcy appli-
cation can apply to the upper-level court of the enforcement court for correction.
The 2019 SPC Meeting Minutes reiterate the above contents and further makes it clear
that authorities other than the courts, such as the tax authorities, public security bureaus
and customs, should also refer to the above procedures and remove the asset preservation
measures accordingly.
Enforcement of security
In accordance with the Bankruptcy Law, enforcement of any security against the debtor’s
assets is suspended during the reorganisation period, provided that the secured creditor
may apply to the court to resume enforcement, if the collateral is likely to suffer damage
or substantial depreciation in value, which will impair the interest of the secured credi-
tors. There were disputes on under what circumstances the secured creditors may apply for
resuming the enforcement.
The 2019 Meeting Minutes clarify that the administrator or the debtor in possession
should confirm in a timely manner whether the collateral is necessary for reorganisation,
and if the collateral is not necessary for reorganisation, the administrator or the debtor in
possession should, in a timely manner, dispose of the collateral and use the proceeds to repay
the secured creditors.
28
The 2019 Meeting Minutes further provide that where the secured creditor applies to the
court for resuming enforcement, if the condition mentioned in the first paragraph is not satis-
fied, or if it is satisfied but the administrator or the debtor in possession has evidence showing
that the collateral is necessary for the reorganisation and provides security of compensation
corresponding to the damage or depreciation, the court should disapprove the creditor’s
application.
Acknowledgement of arbitration
The Bankruptcy Law provides that after a court accepts an application for a debtor’s bank-
ruptcy, any civil lawsuit regarding the debtor can only be brought before the court accepting
the bankruptcy application. It is widely considered that this provision requires the court to
exercise jurisdiction over litigations only, but does not challenge the validity of an arbitration
clause between a creditor and the debtor.
The Interpretation III confirms that if an arbitration clause is entered into before a bank-
ruptcy application is accepted, the party should apply to the selected arbitration institution to
confirm the claims and debts. It is generally considered that this provision further confirms
the validity of an arbitration clause in bankruptcy cases.
Reorganisation
Pre-packaged reorganisation
The Bankruptcy Law does not contain the concept of pre-packaged reorganisation, which
allows the debtor and its major creditors, investors and other key stakeholders to formu-
late and agree on a reorganisation plan, and then have the court approve the agreed plan
expeditiously. In practice, there have been pilot experiments of pre-packaged reorganisation
in some provinces. For instance, debtors in Zhejiang province can pre-register with local
courts before commencing formal bankruptcy proceedings; thus, relevant parties are able to
start negotiations at a relatively early stage to prevent a further deterioration of the debtors’
financial conditions.
The SPC also recognises the value and importance of pre-packaged reorganisation. The
2018 SPC Meeting Minutes encourage the courts to explore different approaches to pre-
packaged reorganisation and confirm that the reorganisation plans can be prepared by out-
of-court agreements reached by the debtors, creditors and other stakeholders.
The 2019 SPC Meeting Minutes further emphasise the transition from pre-packaged
reorganisation to reorganisation proceedings: if the out-of-court agreement reached by the
debtor and some of the creditors before the court accepts that the reorganisation applica-
tion is consistent with the reorganisation plan formulated in the reorganisation proceed-
ings, the consent of the creditors on the out-of-court agreements should be deemed as their
consent on voting for the reorganisation plan. However, if the reorganisation plan revises the
out-of-court agreement and has adverse impacts on the relevant creditors, or is related to
the relevant creditors’ major interests, the affected creditors may have another vote on the
reorganisation plan.
29
Debtor in possession
In accordance with the Bankruptcy Law, a debtor can, under the administrator’s supervision,
manage its assets and business itself in reorganisation upon the court’s approval of its appli-
cation. It is not clear under what circumstances the court will approve the debtor’s application
for such debtor-in-possession (DIP).
The 2019 SPC Meeting Minutes have shed some light on this issue. The Minutes clarify
that the court may approve the debtor’s DIP application if the following conditions are all met:
• the debtor’s internal governance mechanism still works normally;
• the debtor’s DIP is favourable for its continuance of operation;
• the debtor has not hidden or transferred its assets; and
• the debtor has not acted seriously against the interests of the creditors.
Different from the DIP system in the United States, a DIP in China can exercise the adminis-
trator’s powers only in respect of asset management and business operation, rather than all
the administrator’s powers. The other powers to investigate assets, to review the creditors’
claims, to claw back certain transactions, to represent the debtor in litigations, etc, should
still be exercised by the administrator.
The 2019 SPC Meeting Minutes further confirm that the administrator should supervise
the DIP process. If the DIP is found to act seriously against the creditors’ interests or to have
other aspects that are not suitable for DIP, the administrator can apply to the court for termi-
nation of DIP. If the administrator fails to apply to the court, the interested parties, such as
the creditors, may also apply to the court.
Further guidance on cramdown

The 2018 SPC Meeting Minutes require the courts to exercise extra caution when cramming
down a reorganisation plan that is not approved by any voting class. Specifically, the SPC
imposes two additional conditions for the use of cramdown:
• if there are multiple classes of creditors, at least one class has approved the reorganisa-
tion plan; and
• the dissenting votes in each class are entitled to no less than what they could have received
had the debtor been liquidated.
Amendment of reorganisation plans

The 2018 SPC Meeting Minutes allow the debtor or the administrator to amend the approved
reorganisation plan once, given that the original plan becomes infeasible owing to changes
to national policies, laws and regulations. Debtors or the bankruptcy administrators may
petition to amend the reorganisation plan, and the amendment must go through the voting
procedure again. If the proposed amendment is not approved, the court will convert the
reorganisation proceedings into liquidation proceedings.
30
Recent developments on cross-border bankruptcy in China

Article 5 as the basis for recognition and enforcement
Article 5 of the Bankruptcy Law provides the basis and criteria for recognising foreign bank-
ruptcy proceedings. First, recognition must be based on treaty or reciprocity. Second, recogni-
tion cannot be contrary to the basic principles of Chinese law, jeopardise China’s sovereignty,
security or public interest, or impair the legitimate rights and interests of domestic creditors.
To our knowledge, despite it being effective for over a decade, article 5 has never been
invoked. This is mainly because there are few, if any, treaties or conventions to which China
is a signatory that provide for a basis for recognition of foreign bankruptcy proceedings, and
the Chinese courts have long adopted a narrow theory of factual reciprocity, which means
reciprocity cannot be established unless a Chinese bankruptcy proceeding has first been
recognised in the relevant foreign jurisdiction.
Recent developments on reciprocity

In the past five years, there has been a slight but discernible change in the courts’ attitude
regarding reciprocity. In Several Opinions of the Supreme People’s Court on Providing Judicial
Services and Safeguards for the Construction of the ‘Belt and Road’ by the People’s Courts (the
2015 SPC Opinion), the SPC opens the door for lower courts to adopt a more flexible theory of
reciprocity, allowing Chinese courts to take the first step in recognising judgments of another
jurisdiction after considering factors such as past communications with the other jurisdiction
on the intention to build international judicial cooperation, and its commitment of providing
judicial reciprocal treatment.
Despite the more liberal reciprocity theory, questions remain on whether the 2015 SPC
Opinion extends to foreign bankruptcy proceedings or merely applies to civil and commercial
judgments outside the bankruptcy scenario, as well as whether the Opinion should be limited
to cases or jurisdictions in relation to the Belt and Road Initiative or reflects a broader change
of position.
Aside from the development of the reciprocity theory, in 2015 the US Bankruptcy Court
for the District of New Jersey recognised a Chinese bankruptcy proceeding in relation to
Zhejiang Topoint Photovoltaic Co Ltd, where an order was issued approving the debtor’s peti-
tions of the bankruptcy proceeding commenced in China to be recognised as a ‘foreign main
proceeding’ under Chapter 15 of Title 11 of the US Code, and of relevant judicial assistance to
be taken in the United States, including the automatic stays, etc.1
Four years later in 2019, the US Bankruptcy Court for the Southern District of New
York recognised a Chinese reorganisation proceeding in relation to Reward Science and
Technology Industry Group. The judge, upon considering the creditors’ objections, issued an
order to recognise the Chinese proceeding as a foreign main proceeding; give the Chinese
1 In re Zhejiang Topoint Photovoltaic Co Ltd, No. 14-24549 (Bankr DNJ).
31
administrator full authority to administer the debtor’s assets and affairs in the United States;
and stay on any action concerning the debtor’s assets in the United States, including two sets
of litigation launched by the dissented creditors, etc.2
More recently, the High Court of Hong Kong successively recognised the appointment of
bankruptcy administrators of two Chinese companies, CEFC Shanghai International Group
Limited and Shenzhen Everich Supply Chain Co Ltd, in January and May 2020.3 In the CEFC
case, Mr Justice Harris commented that ‘[t]he extent to which greater assistance should be
provided to mainland administrators in future will have to be decided on a case by case basis
and the development of recognition is likely to be influenced by the extent to which the court
is satisfied that the mainland, like Hong Kong, promotes a unitary approach to transnational
insolvencies.’
The above precedents appear sufficient to fulfil even the strictest factual reciprocity
requirement. Chinese courts are more likely to recognise the bankruptcy proceedings of
jurisdictions that have already recognised Chinese bankruptcy proceedings. In addition,
given that Mr Justice Harris hinted at the potential implications of Chinese courts’ attitudes
towards cross-border bankruptcy, it would be interesting to see how the Chinese courts will
respond to the CEFC case.
Improvements to the 2018 SPC Meeting Minutes and the future outlook
The 2018 SPC Meeting Minutes have two general provisions on cross-border bankruptcy. They
stress the importance of balancing different interests in cross-border cases and encourage
lower courts to explore ‘new methods’ of applying reciprocity (which may be read to echo the
2015 SPC Opinion). They further state that, if recognition is granted pursuant to article 5, the
foreign debtor’s assets in China should first be used to pay off domestic priority creditors (ie,
secured creditors, employment-related and tax creditors, etc), and the remaining assets can
be distributed according to the rules of the foreign court.
Recognising the urgent need for detailed rules on handling cross-border bankruptcy, the
SPC is said to be working on further guidelines in respect of recognition of foreign bankruptcy
proceedings.
Recent pilot projects on personal bankruptcy regime in China

Currently in China, bankruptcy proceedings apply to legal persons only, and there is no
personal bankruptcy system under the Bankruptcy Law. However, China is exploring personal
bankruptcy in certain places and intends to promote legislation of personal bankruptcy.
2 In re Reward Science and Technology Industry Group Co Ltd, No. 19-12908 (Bankr SDNY).
3 In the matter of CEFC Shanghai International Group Limited (in Liquidation in the Mainland of the People’s
Republic of China) and in the matter of the inherent jurisdiction of the Court, [2020] HKCFI 167. In the
matter of Shenzhen Everich Supply Chain Co Ltd (in Liquidation in the Mainland of the People’s Republic of
China) and in the matter of the inherent jurisdiction of the Court, [2020] HKCFI 965.
32
In 2019, courts in Wenzhou and Taizhou, Zhejiang province, successively published rules
on trials in respect of the personal debt clean-up procedure, which is similar to the bank-
ruptcy procedure.
In late 2019, a court in Wenzhou concluded the first case of the personal debt clean-up
procedure. According to the bulletin published by the Intermediate People’s Court of Wenzhou,
the creditors agreed on the repayment plan proposed by the debtor (repayment of 1.5 per cent
of the total claims within 18 months). The debtor promised that, within six years of the time
that he will have completed performance of the repayment plan, if his family’s annual income
exceeds 120,000 yuan, he will use 50 per cent of the surplus to repay the unpaid claims of the
creditors. The court then issued an order on the debtor, restricting certain behaviours, such
as high consumption. Those restrictions would be removed upon his application, provided
that the repayment plan has been completely performed and that certain conditions on the
repayment rate and the performance period are satisfied.
In June 2020, the Personal Bankruptcy Regulation of the Shenzhen Special Economic Zone
(Draft for Comments) was published, seeking comments from the public. The Regulation has
recently been approved by the local legislature. The final official text is yet to be published.
The practice of this regulation may help promote the national legislation regarding personal
bankruptcy.
Recent rules and the development on rights and remedies of bondholders

In July 2020, the SPC issued the first guidelines on trials of bond disputes, the Minutes of
Symposium on the Trial of Bond Dispute Cases by Courts Nationwide (the Bond Minutes). The
Bond Minutes cover contractual, tortious and bankruptcy issues related to bonds.
Bankruptcy petition against the issuer

The persons that can file bankruptcy petitions against the bond issuer as the debtor used to
be unclear and disputed. In accordance with the Bond Minutes, the following parties may file
a bankruptcy petition against the bond issuer.
• the bond trustee can file a bankruptcy petition in its own name, representing the bond-
holders based on the documents regarding bond raising, the agreement on bond trustee-
ship or the authorisation by resolution of bondholders’ meeting;
• the other bondholders can file a bankruptcy petition individually or in concert where the
bondholders’ meeting resolves to authorise the bond trustee or a representative to claim
rights; and
• the bondholders can file a bankruptcy petition individually or in concert based on this
resolution where the bondholders’ meeting resolves that the bondholders may claim
rights themselves since the bond trustee is negligent in claiming rights.
Responsibilities and liabilities of the bankruptcy administrator

Apart from those provided in the Bankruptcy Law, the Bond Minutes specify some of the
particular responsibilities and liabilities of a bankruptcy administrator of a bond issuer:
33
• After a bond issuer enters into bankruptcy proceedings, the bankruptcy administrator
is responsible for information disclosure in respect of the relevant bonds issued, unless
the bond issuer is approved to act as a DIP. In this regard, the administrator ensures the
authenticity, accuracy and completeness of the disclosed information. The bankruptcy
administrator is liable for any misrepresentation, misleading statement or major omis-
sion in the information disclosed by it after taking over the bond issuer, which may affect
the investors’ judgement on the issuer’s solvency.
• The bankruptcy administrator must confirm in a timely manner the claims registered
by the trustee on behalf of the bondholders according to the position registration docu-
ments issued by the bond registration authority. If the bankruptcy administrator fails to
confirm the claims without justifiable reason, it is liable for compensation of reasonable
expenditure of the trustee, such as the litigation costs, attorneys’ fees and business trip
expenses, as well as the interest losses arising from the delay.
34
Nuo Ji
Fangda Partners
Nuo Ji is a partner based in the Shanghai office of Fangda Partners. He has over 20
years of experience, and his areas of expertise include bankruptcy and restructuring,
commercial dispute resolution, real estate and construction, and regulatory investiga-
tion and crisis management. He has been widely recognised as a prominent practitioner
in China in those areas.
Lingqi Wang
Fangda Partners
Lingqi Wang is a partner in the Shanghai office of Fangda Partners. He is an experi-
enced practitioner in bankruptcy and restructuring and commercial dispute resolution,
especially on China-related cross-border matters. He regularly advises global corpora-
tions, private equity firms, hedge funds, insolvency appointment holders and financial
institutions in those areas.
Jessica Li
Fangda Partners
Jessica Li is a counsel based in the Shanghai office of Fangda Partners. She specialises
in commercial litigation and arbitration (including financial disputes and corporate
disputes) and cross-border bankruptcy and restructuring.
35
Founded in 1993, Fangda Partners is a full-service law firm advising on mainland China and Hong Kong laws.
We are one of the first truly private partnership Chinese law firms. In response to the economic growth in
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our mission is to provide a high-quality, professional service to meet the needs of our clients.
We are the firm of choice for businesses requiring solutions to their most difficult and complex legal
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firm in the commercial field, we serve both Chinese and international clients successfully in various industries
and are continuously involved in, advising on, and creating innovative legal structures for transactions in
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The firm is dedicated to meeting the specific needs of each client. In the wide range of fields in which
we are involved, we place great emphasis on excellence of services, a commercial attitude to transactions,
efficiency of costs and speed of response.
24/F, HKRI Centre Two Nuo Ji

HKRI Taikoo Hui nji@fangdalaw.com
288 Shi Men Yi Road
Shanghai 200041 Lingqi Wang
China lingqi.wang@fangdalaw.com
Tel: +86 21 2208 1166
Jessica Li
www.fangdalaw.com yiran.li@fangdalaw.com
36
Latest Developments in Hong
Kong Restructuring Law
Heidi Chui
In summary
This article introduces the possible features of the new corporate rescue bill and
the courts’ rulings in respect of interactions between winding-up petitions and
arbitration agreements, and the general principles in recognising and assisting
foreign insolvency proceedings in Hong Kong.
Discussion points
• Development of the corporate rescue legal framework in Hong Kong
• Interactions between winding-up petitions and arbitration agreements
• Recognition of foreign insolvency proceedings
• No approval for an examination that constitutes a fishing expedition
• Recognition of foreign provisional liquidators appointed on a soft-touch basis
• Recent developments on sanctioning schemes of arrangement

• Legislative Council Panel on Financial Affairs, Consultation Conclusions on
Corporate Insolvency Law Improvement Exercise and Detailed proposals on a
new Statutory Corporate Rescue Procedure, 7 July 2014
• Re Southwest Pacific Bauxite (HK) Ltd
• But Ka Chon v Interactive Brokers LLC
• Dayang (HK) Marine Shipping Co, Ltd v Asia Master Logistics Ltd
• Re CEFC Shanghai International Group Ltd
• Re Joint Liquidators of Supreme Tycoon Ltd
• Re A Civil Matter Now Pending in United States District Court for the Western
District of Washington
• Re Joint Provisional Liquidators of Moody Technology Holdings Ltd
• Re the Joint and Several Provisional Liquidators of China Oil Gangran Energy
Group Holdings Limited
• Re China Singyes Solar Technologies Holdings Ltd
37
Latest Developments in Hong Kong Restructuring Law | Stevenson, Wong & Co
Introduction
As a special administrative region of the People’s Republic of China under the ‘one country,
two systems’ principle, Hong Kong retains a common law legal system that is different from
the system of law in mainland China.
As one of the world’s leading international financial centres, Hong Kong is a prime loca-
tion for financial services and home to many financial institutions. With minimal government
intervention, Hong Kong’s financial markets operate under effective and transparent regula-
tions that are in line with international standards and have attracted foreign investments
from investors around the world.
In the meantime, Hong Kong also plays a vital role in offshore fundraising for Chinese
enterprises. As at the end of 2019, a total of 1,231 mainland companies were listed in Hong
Kong, comprising H-share, red-chip and private companies, with total market capitalisation
of around US$3.4 trillion, or 73 per cent of the market total.1
The promulgation of the Outline Development Plan for the Guangdong-Hong Kong-
Macao Greater Bay Area on 18 February 2019 further signified Hong Kong’s role as the ‘super
connector’ in the development of the Greater Bay Area. It is expected that Hong Kong, with
the full support of the central government, will proactively integrate itself into the overall
national development, thereby generating new impetus for growth to bring new development
opportunities to different sectors of the community.2
Development of the corporate rescue legal framework in Hong Kong

In Hong Kong, corporate insolvency is primarily governed by the remaining provisions of
the old Companies Ordinance, renamed as the Companies (Winding Up and Miscellaneous
Provisions) Ordinance (Cap 32), as amended by the Companies (Winding Up and Miscellaneous
Provisions) Amendment Ordinance, which came into effect on 13 February 2017 (the
Amendment Ordinance). At present, there is no statutory restructuring procedure available
under Hong Kong law, but it is possible for creditors of a Hong Kong company to negotiate
an informal contractual restructuring agreement with the company, which will in general
require the cooperation of all creditors of the company as any one creditor may still exer-
cise its right to wind up the company. It is only possible to achieve a corporate rescue of a
financially distressed company in Hong Kong through an out-of-court workout, a scheme
of arrangement or following the appointment of provisional liquidators, which leaves the
company’s creditors with limited options to rescue the company in times of financial difficulty.
With the impact brought about by the covid-19 pandemic, the number of corporate fail-
ures is expected to increase. In March 2020, the Hong Kong government announced that the
drafting of the new corporate rescue bill has reached an advanced stage, and it intends to
hold a fresh round of consultations on specific areas in the draft bill, with the aim of finalising
1 ‘Economic and Trade Information on Hong Kong’, research from the Hong Kong Trade Development
Council: https://research.hktdc.com/en/article/MzIwNjkzNTY5.
2 ‘Overview of Greater Bay Area’: https://www.bayarea.gov.hk/en/about/overview.html.
38
Stevenson, Wong & Co | Latest Developments in Hong Kong Restructuring Law
the bill for introduction to the Legislative Council in the first half of the 2020/2021 legislative
session.3 In light of this, it is worth revisiting past developments of the corporate rescue legal
framework in Hong Kong.
In October 1996, the Law Reform Commission of Hong Kong published the Report on
Corporate Rescue and Insolvent Trading, and the Companies (Corporate Rescue) Bill (the Bill)
was proposed as a new part of the then Companies Ordinance in 2001. However, owing to the
complexity of the legislative proposals and non-consensus among various stakeholders, the
Bill was not enacted and lapsed in 2004.
In 2009, after the global financial crisis, the Hong Kong government decided to take action
to reform the corporate rescue law. In October 2009, the Financial Services and Treasury
Bureau issued a new consultation paper on the conceptual framework and key issues relating
to the introduction of provisional supervision as a corporate rescue procedure in Hong Kong.
Despite the general support from a majority of responses submitted during the consultation,
there were a few proposals that drew disparate views from stakeholder groups.
In July 2014, the Hong Kong government published detailed legislative proposals on the
introduction of a new statutory corporate rescue procedure and insolvent trading provisions
(the 2014 Proposal).4
In February 2017, the Amendment Ordinance came into effect, which provided greater
protection for creditors in the course of a winding-up by, among other things, introducing
stand-alone provisions on setting aside transactions at an undervalue or unfair preference
and extending the relevant period for invalidating a floating charge created in favour of a
connected person.
In regard to the Hong Kong government’s announcement on the proposed introduction
of a new corporate rescue bill, the details are yet to be released. It is possible that the new
bill may resemble the 2014 Proposal. As such, it may be useful to recap the key features of
the 2014 Proposal.
Initiation of process
The 2014 Proposal suggested that the corporate rescue process may be initiated by the
company (either by resolution of its members or directors) or by the provisional liquidator
where the company has already entered the winding-up process through the appointment of
a provisional supervisor if it is of the opinion that the company is insolvent or likely to become
insolvent. It also proposed that if a company seeks to commence the process by appointment
of a provisional supervisor, it must obtain the prior written consent of its major secured credi-
tors, or if it does not have any major secured creditors, consent from all its secured creditors.
3 https://www.hkreform.gov.hk/en/implementation/index.htm.
4 Legislative Council Panel on Financial Affairs, ‘Consultation Conclusions on Corporate Insolvency
Law Improvement Exercise and Detailed proposals on a new Statutory Corporate Rescue Procedure’,
7 July 2014: https://www.fstb.gov.hk/fsb/ppr/consult/doc/details_proposals_scrp_itp_e.pdf.
39
Moratorium
Under the 2014 Proposal, the moratorium on legal actions and proceedings against the
company lasts for 45 days, starting from the date that the provisional supervisor is appointed,
thereby allowing the provisional supervisor to formulate a voluntary arrangement proposal
to creditors and to restructure the company’s finances. The creditors may vote to extend the
moratorium for up to six months. The exemptions from the restrictions against a new claim
or winding-up petition include those for employees’ outstanding entitlements and unfairly
prejudicial claims by minority shareholders. The moratorium does not prohibit set-off against
the company and allows the enforcement of contractual terms that provide for the termina-
tion of contract upon specific events.
Employees’ outstanding entitlements

The 2014 Proposal suggested a phased payment schedule for outstanding employees’ enti-
tlements to ensure that employees would be no worse off than in the situation where the
company goes into immediate insolvent winding-up. However, there were concerns that
those provisions would overly favour the employees and would diminish the chances of
rescuing the company’s business, or that the corporate rescue process would delay repay-
ment to employees when compared to payments under the Protection of Wages on Insolvency
Fund5 in the event of winding up.
Appointment, duties and powers of the provisional supervisor

It was proposed that certified public accountants and solicitors with practising certificates
would be qualified to be appointed as provisional supervisors, and any complaint against
the provisional supervisor’s conduct in the corporate rescue process would be addressed to
the Hong Kong Institute of Certified Public Accountants or the Law Society of Hong Kong as
appropriate. The provisional supervisor would be required to provide a declaration of relevant
relationship and a declaration of indemnity to enable the creditors to make an informed deci-
sion on whether his or her appointment is appropriate.
During the period of provisional supervision, the provisional supervisor would become
an agent of the company and assume control of its business affairs and property. He or
she would also be empowered to, among other things, appoint and remove directors of the
company, request for a statement of affairs of the company, execute documents, bring or
defend proceedings and seek directions from the court in the company’s name and on its
behalf. As a check-and-balance measure, the 2014 Proposal also suggested that the court
may, on application by an eligible party, examine the conduct of the provisional supervisor
for misfeasance or breach of duty and, where appropriate, make an order against him or her
as it sees fit.
5 https://www.labour.gov.hk/eng/erb/content4.htm.
40
Treatment of secured creditors

Under the 2014 Proposal, secured creditors were divided into ‘major secured creditors’ and
‘other secured creditors’. The prior written consent from a major secured creditor, which was
defined as the holder of one or more charges, whether fixed or otherwise, over the whole or
substantially the whole of the company’s property, is required for the commencement of the
corporate rescue procedure. In the absence of a major secured creditor, a company would have
to obtain consent from all its secured creditors to initiate the process.
Insolvent trading provisions

Another legislative addition under the 2014 Proposal was the introduction of insolvent trading
provisions, under which a director or shadow director may be held personally liable to certain
debts of the company in liquidation that continued to trade and further incurred debts while
insolvent if the director knew or reasonably ought to have known that the company would
not be able to repay those debts.
In determining whether the director concerned had knowledge on whether the company
was insolvent at the time, the director will be judged based on the general knowledge, skills
and experience that can reasonably be expected of a person carrying out the same functions
as are carried out by that director in relation to the company and that the director actually
has. A possible defence would be that the director had taken all reasonable steps to prevent
the company from incurring the debt, or that the incurring of the debt is part and parcel of
the steps taken by the director concerned to initiate the corporate rescue procedure.
It remains to be seen the extent to which the above-mentioned key features of the 2014
Proposal would be included in the upcoming new bill, and how the government would address
the concerns by various stakeholders in the previous legislative exercise. If the legislation is
enacted as envisaged under the 2014 Proposal, a financially distressed company would be
given the option to initiate the corporate rescue procedure with a view to turning around its
business as much as possible instead of pursuing winding-up immediately. The directors of
those companies would also have to consider the financial position of those companies care-
fully before allowing them to continue to trade.
Recent developments on the interaction between winding-up petitions

and arbitration agreements
As an international arbitration hub, and with growing policy emphasis on the use of arbitra-
tion, the Hong Kong Court has seen a growing number of winding-up cases where the parties’
underlying agreement contains an arbitration agreement. The impact of such an arbitra-
tion agreement on the Court’s discretion to grant a winding-up order has been reviewed by
the Court.
Traditional approach
Traditionally, the courts will only dismiss a winding-up petition in favour of arbitration if
the opposing debtor is able to prove that it has a bona fide defence on substantial grounds to
the underlying debt. This is because winding-up petitions are considered as a class remedy
41
available to all creditors and do not involve the enforcement of a creditor’s rights against the
debtor. In practice, the courts will grant the creditor’s application to wind up the debtor if
the debtor has failed to pay a debt without a credible defence, without requiring the parties
to commence arbitration (the traditional approach).
Re Southwest Pacific Bauxite (HK) Ltd

In 2018, Mr Justice Jonathan Harris, being the judge in charge of the Companies Court, in Re
Southwest Pacific Bauxite (HK) Ltd,6 broadly followed the English Court of Appeal’s approach in
Salford Estates (No 2) Ltd v Altomart Ltd (No 2),7 giving substantial weight to the policy consid-
eration underlying the Arbitration Ordinance (Cap 609), which encourages and supports
party autonomy in determining the means by which a dispute arising between them should be
resolved. Citing the related authorities, Harris J held that the courts should generally dismiss
an insolvency petition in favour of arbitration when the following three requirements are met:
• the opposing debtor disputes the petitioning debt (it is sufficient for the debtor to show
that the debt is not admitted);
• the contract under which the petitioning debt is alleged to arise contains an arbitration
clause that covers any dispute relating to the debt; and
• the opposing debtor takes steps required under the arbitration clause to commence the
contractually mandated dispute resolution process (the Lasmos approach).
Under the Lasmos approach, the debtor is able to stay insolvency proceedings in Hong Kong
simply by not admitting the underlying debt, and force the creditor to arbitrate, even though
there is no ‘real’ dispute about the debt. The ruling in the Lasmos case establishes a substantial
obstacle to winding-up petitioners where the underlying agreements contain an arbitra-
tion clause.
But Ka Chon v Interactive Brokers LLC

In mid-2019, the Lasmos approach was further considered in But Ka Chon v Interactive Brokers
LLC 8 by the Court of Appeal on an obiter basis. In light of the statutory right conferred on
creditors to petition for the winding up or bankruptcy of an insolvent debtor, the Court of
Appeal took the view that such right is part of Hong Kong law, and absent any evidence
of the legislative intent of the Arbitration Ordinance to change the insolvency legislation,
the Lasmos approach represents ‘a substantial curtailment’ of creditors’ statutory rights by
requiring the courts to exercise the discretion only in favour of arbitration except in wholly
exceptional circumstances if the three requirements are met. Although it remains to be seen
6 [2018] 2 HKLRD 449.

7 [2015] Ch 589.
8 [2019] HKCA 873.
42
how the Court of Appeal will rule in the future, and each case would be decided based on
its facts, these obiter remarks indicate that there is a possibility that it may not follow the
Lasmos approach.
Dayang (HK) Marine Shipping Co, Ltd v Asia Master Logistics Ltd
Recent developments in respect of the issue of winding-up petitions with the existence of an
arbitration agreement in the underlying contract have shown that the court has shifted from
the traditional approach to the Lasmos approach and then back to a more moderate approach
in the But Ka Chon case. In a recent judgment in Dayang (HK) Marine Shipping Co, Ltd v Asia
Master Logistics Ltd 9 on 12 March 2020, Deputy High Court Judge William Wong SC deviated
from the Lasmos approach and held that to dispute the existence of a debt, a debtor must
show there is a bona fide dispute on substantial grounds, and a bare denial or non-admission
of the debt is not enough regardless of whether the debt has arisen from a contract incor-
porating an arbitration clause. Further, the court must exercise discretion irrespective of
whether there is an arbitration agreement, and commencing arbitration proceedings itself
is not sufficient proof of the existence of a bona fide dispute on substantial grounds, but may
constitute relevant evidence of such a dispute.
The court in the Dayang case relied primarily on the traditional approach in deciding in
favour of the creditor. The court spent over three-quarters of the judgment reviewing the
recent developments in this area. Although it did not come to a conclusion on the matter in
the judgment, in spending much time analysing it, the court demonstrated a clear intention
to resolve this issue. Therefore, we envisage that further developments in this area will be
forthcoming.
Recognition of foreign insolvency proceedings

In recent years, the Hong Kong Court has extensively granted recognition and assistance
orders, most commonly to facilitate debt restructuring of Hong Kong listed companies incor-
porated in an offshore jurisdiction.10
However, in Re CEFC Shanghai International Group Ltd,11 it was for the first time that the
Court granted an order for recognition and assistance to mainland liquidators of a mainland
China-incorporated company.
It was held that two criteria must be satisfied before recognition and assistance is granted
to insolvency proceedings opened in a civil law jurisdiction. First, the foreign insolvency
proceedings are collective insolvency proceedings. Second, the foreign insolvency proceed-
ings are opened in the company’s country of incorporation.12
Further, the Court noted that there are principles that circumscribe the common law
power of assistance that could be exercised:
9 [2020] HKCFI 311.

10 See, for example, Re Z-Obee Holdings Ltd [2018] 1 HKLRD 165.
11 [2020] 1 HKLRD 676.
12 Para 8, supra.
43
(a) The power of assistance exists for the purpose of enabling foreign courts to surmount
the problems posed for a world-wide winding up of the company’s affairs by the territorial
limits of each court’s powers. Therefore, the power of assistance is not available to enable
foreign office holders to do something which they could not do even under the law by which
they were appointed.
(b) The power of assistance is available only when it is necessary for the performance of the
foreign officeholder’s functions.
(c) An order granting assistance must be consistent with the substantive law and public
policy of the assisting court.13
The Court refused to follow the decision in Galbraith v Grimshaw,14 where the House of Lords
chose not to stay a garnishee order application despite there being an appointment of trustee
in bankruptcy. Had this case been followed, the effect would have been that no assistance
would have been granted to the liquidators. It was explained by the Court that the decision
in Galbraith is inconsistent with contemporary cross-border insolvency law, given that it
was made well before the development on common law cross-border insolvency assistance.
Recognition of foreign voluntary liquidation

Contrary to the Privy Council’s obiter objection to recognising foreign voluntary winding
up in Singularis Holdings Ltd v PricewaterhouseCoopers,15 the court in Re Joint Liquidators of
Supreme Tycoon Ltd 16 held that the mere fact of a foreign liquidation being a voluntary liqui-
dation does not prevent the court from recognising and assisting that liquidation under the
principle of modified universalism.
In considering whether a foreign insolvent liquidation commenced by a shareholders’
resolution is eligible for common law recognition and assistance, the key issue for cross-
border insolvency assistance is not whether the foreign insolvency office holder is or is not an
officer of the foreign court. Rather what matters is whether the foreign insolvency proceeding
is collective in nature in the sense that it is ‘a process of collective enforcement of debts for
the benefit of the general body of creditors’.17
Even though the company’s liquidation was commenced by a shareholders’ resolu-
tion, it was observed by the court that the company’s liquidation was a collective insolvent
proceeding. Therefore, the court granted the recognition order sought to allow the liquidators
appointed to investigate the affairs of the company.
13 Para 11, supra.

14 [1910] AC 508.
15 [2015] AC 1675.
16 [2018] HKCFI 277.
17 Para 15, supra.
44
However, where the foreign liquidation is a solvent liquidation that is more akin to a
‘private arrangement’ as referred to by the Privy Council in Singularis Holdings Ltd, it would
not fall within the principle of modified universalism and, hence, would not be recognised or
assisted by the court.
A similar approach was adopted in the recent English case of Re Sturgeon Central Asia
Balanced Fund Ltd (No 2),18 where the court terminated the recognition order concerning a
Bermuda solvent liquidation because the solvency liquidation falls outside the scope of the
UNCITRAL Model Law on Cross-Border Insolvency in Great Britain.
No approval for an examination that constitutes a fishing expedition

In Re A Civil Matter Now Pending in United States District Court for the Western District of
Washington,19 the court rejected two letters of request issued by the United States District
Court, Western District of Washington at Seattle (the Washington Federal Court) seeking to
compel two distressed debt investors in Hong Kong to appear and provide oral testimony
regarding certain alleged receivables owing to a foreign company.
In arriving at the decision, the court pinpointed that the requirements under section 75 of
the Evidence Ordinance (Cap 8) (EO) must be met before an order for the taking of evidence
in Hong Kong is to be granted. The court must be satisfied:20
(a) that the application is made in pursuance of a request issued by or on behalf of a court
or tribunal (the requesting court) exercising jurisdiction in a country or territory outside
Hong Kong; and
(b) that the evidence to which the application relates is to be obtained for the purposes of
civil proceedings which either have been instituted before the requesting court or whose
institution before that court is contemplated.
Considering the above, the court stressed that the discovery was sought against persons
who were not party to the judgments made by the Washington Federal Court and was for
the purpose of ‘plotting the course’ of unspecified, possible future proceedings. Hence, the
proposed examination was found to be a pretrial discovery, which was essentially a fishing
expedition that ought to be prohibited under section 76(3) of the EO.
The significance of this case in the context of insolvency and restructuring is that if liqui-
dators wish to seek an order from the Hong Kong Court for the taking of evidence pursuant to
a foreign court’s request, they should be careful in respect of whether the Court will construe
their application as a fishing expedition that may jeopardise the chance of success of their
application.
18 [2020] EWHC 123 (Ch).

19 [2019] HKCFI 1738.
20 Para 22, supra.
45
Recognition of foreign provisional liquidator appointed on soft-touch basis

In recent cases, the Hong Kong courts have held that their lack of power to appoint provisional
liquidators only for facilitating restructuring and corporate rescue (ie, on a soft-touch basis)
does not prevent the courts from recognising and assisting foreign liquidators appointed for
this purpose.
Re Joint Provisional Liquidators of Moody Technology Holdings Ltd

In Re Joint Provisional Liquidators of Moody Technology Holdings Ltd,21 the Hong Kong Court
of First Instance granted a recognition order to foreign provisional liquidators, who were
appointed on a soft-touch basis, to explore and facilitate the restructuring of a company. This
order was made despite soft-touch provisional liquidation being impermissible in Hong Kong.
The joint and several liquidators (JPLs) of Moody Technology Holdings Limited (Moody), a
company incorporated in Bermuda, were appointed by an order made by the Supreme Court
of Bermuda (Bermuda Court). Moody’s JPLs applied to the Hong Kong court for recognising
their appointment and powers as set out in the letter of request issued by the Bermuda Court.
Moody’s JPLs were appointed on a soft-touch basis to restructure Moody and its debts in
Bermuda. The key question before the Hong Kong court is whether it should give recognition
to Moody’s JPLs while under current Hong Kong law, according to the Court of Appeal decision
in Re Legend International Resorts Ltd,22 soft-touch provisional liquidation is impermissible.
In this case, the court held that where circumstances warrant appointment of provisional
liquidators, the provisional liquidators may be granted powers to explore and facilitate a
restructuring of the company. The court discussed the rationale of granting those powers
as follows.
First, it held that the purpose of recognising foreign proceedings is to enable the foreign
office holders or the creditors to avoid starting parallel insolvency proceedings and to give
them the remedies to which they would have been entitled if the equivalent proceedings had
taken place in the domestic forum. It also emphasised that despite obtaining recognition
and assistance from the Hong Kong court, the foreign office holders will not be acting as or
acting in the capacity of, or have the status of, office holders appointed by the Hong Kong
court. The fact that the Hong Kong court may not appoint domestic soft-touch provisional
liquidators cannot constitute a bar to recognising and assisting foreign soft-touch provisional
liquidators.
Second, the court held that cross-border recognition premised on universalism does not
require foreign insolvency law and local insolvency law to be identical. In this case, failing to
recognise foreign soft-touch provisional liquidation just because Hong Kong domestic law
contains no such regime would be to fail to appreciate and apply the universalism rationale.
21 [2020] HKCFI 416.

22 [2006] 2 HKLRD 192.
46
Lastly, the court held that recognising and assisting foreign soft-touch provisional liqui-
dators is fully consistent with Hong Kong private international law principles and cross-
border insolvency policy. Failing to do so would create a discriminatory environment that
would be unjust, unprincipled and unsupported by authorities. Therefore, it held that regard-
less of whether a technical recognition order in Hong Kong is obtained, foreign provisional
liquidators may promulgate a restructuring scheme of arrangement in Hong Kong.
Consequently, the court granted the recognition order.
Re the Joint and Several Provisional Liquidators of China Oil Gangran Energy
Group Holdings Limited
In Re the Joint and Several Provisional Liquidators of China Oil Gangran Energy Group Holdings
Limited,23 the Hong Kong court continued a trend of recognising foreign soft-touch provi-
sional liquidators.
Joint and several provisional liquidators were appointed over China Oil Gangran Energy
Group Holdings Limited (China Oil’s JPLs) by the Cayman court, with a view to pursuing a
debt restructuring. China Oil’s JPLs applied to the Hong Kong court for recognition of their
appointment.
The court considered the general principles of recognising foreign insolvency proceed-
ings in Re CEFC Shanghai International Group Ltd, and its past practice of recognising foreign
soft-touch provisional liquidation,24 and accordingly granted the recognition order.
These two recent decisions reflect the Hong Kong courts’ commitment to universalism
and its position to facilitate cross-border restructurings. Although the Hong Kong courts may
not appoint domestic soft-touch provisional liquidators, the same cannot constitute a bar to
recognising and assisting foreign soft-touch provisional liquidators.
Scheme of arrangement
A scheme of arrangement in Hong Kong is an effective tool to compromise debts, even those
governed by non-Hong Kong law despite the old common law Gibbs rule.25
In Re China Singyes Solar Technologies Holdings Ltd,26 the Hong Kong court considered an
exception to the Gibbs Rule and more generally the principles of sanctioning a scheme.
China Singyes Solar Technologies Holdings Limited (Singyes) is incorporated in Bermuda
and listed in Hong Kong. In 2018, as Singyes and its subsidiaries’ financial condition seriously
deteriorated, Singyes defaulted in its mainland China and offshore obligations, comprising
convertible bonds and notes.
23 [2020] HKCFI 825.

24 For example, see footnote 19.
25 According to this well-established English principle laid down in Antony Gibbs & Sons v La Societe
Industrielle et Commerciale des Metaux [1890] 25 QBD 399, a foreign composition does not discharge a
debt unless it is discharged under the law governing the debt.
26 [2020] HKCFI 467.
47
Singyes proposed a Hong Kong scheme, compromising convertible bonds governed by

English law and notes governed by New York law (the Scheme). In considering whether to
sanction the Scheme, the court considered whether the Scheme would be effective in the
relevant jurisdictions.
The court concluded that the Scheme would be substantially effective in these jurisdic-
tions even though there was no application to the English and US courts for recognition of the
Hong Kong scheme. The court reasoned that the Scheme was effective in its place of incor-
poration because there was a parallel scheme in Bermuda. It also reasoned that although the
convertible bonds were governed by English law, there was no need to seek recognition of the
Scheme in England. This is because 100 per cent of the holders of the convertible bonds voted
in favour of the Scheme, which constituted an exception to the Gibbs rule. In reaching this
decision, the court considered the observation in Re OJSC International Bank of Azerbaijan:27
[T]here is an exception to the rule if the relevant creditor submits to the foreign insolvency
preceding. In that situation, the creditor is taken to have accepted that his contractual
rights will be governed by the law of the foreign insolvency proceeding.
Therefore, the Scheme would be effective in England.

The court also accepted that there was no need to seek recognition of the Scheme under
US law as more than 99 per cent of the noteholders had acceded to the restructuring support
agreement and voted in favour of the Scheme. The remaining creditors had not come forward,
and there was no reason to believe that any of them would try to enforce their pre-scheme
claims in the United States. The court accepted that the risk of adverse enforcement by a
dissenting scheme creditor in the United States was de minimis.
Ultimately, the court held that the guiding principle is that the court should not act in vain
or make an order that has no substantive effect or will not achieve its purpose. The principle
does not require worldwide effectiveness nor worldwide certainty. The court will sanction a
scheme provided it is satisfied that the scheme would achieve a substantial effect. Although
the Gibbs rule will continue to be valid in Hong Kong, this recent case shows that the rule is
not a bar for parties to the success of cross-border restructuring.
27 [2018] EWCA Civ 2802; [2019] Bus LR 1130 at [28] (Henderson LJ).
48
Heidi Chui
Heidi Chui is a partner in Stevenson, Wong & Co who heads the litigation and dispute
resolution department and the banking and finance department. She had served as the
internal legal adviser of several Chinese banks.
Heidi specialises in litigation, arbitration, insolvency, restructuring, banking and
finance, employment law and regulatory enforcement. She has extensive international
and cross-border experience advising liquidators, receivers, creditors and other profes-
sionals in charge of insolvency and bankruptcy matters in relation to debt restructuring
and cross-border asset tracing.
She also specialises in commercial litigation, arbitration and dispute resolution
and frequently acts for banks, borrowers, insurance companies, property management
companies, funds, listed companies and financial institutions.
Heidi is an extensive legal author and conference speaker. She is frequently invited
to attend legal subject talks and seminars to share her experience and views on legal
practice. She is a co-author of The Hong Kong Encyclopaedia of Forms and Precedents
– Insurance Volume and the Hong Kong chapter of International Insurance Law and
Regulation – Thomson Reuters.
Heidi is admitted as a solicitor in Hong Kong. She is an arbitrator (FCIArb), medi-
ator, China-appointed attesting officer and civil celebrant of marriages.
She has recently been recognised as a distinguished practitioner, recommended for
dispute resolution in Hong Kong by Asialaw Leading Lawyers 2020.
49
As a forward-looking, dynamic law firm with offices in Hong Kong and China, Stevenson, Wong & Co has
been providing clients with effective legal services and solutions since 1978.
Drawing on a mix of local and international expertise, our lawyers and support staff help clients resolve
complex issues across a broad spectrum of business sectors. By staying abreast of regulatory developments
in Hong Kong and China, we continue to look ahead, anticipating obstacles and identifying opportunities to
help clients achieve professional or personal success.
In 2014, we established a strategic association with AllBright Law Offices, one of the largest law firms in
mainland China with over 20 branches throughout the region, to expand our footprints in China and provide
a wider range of services to our clients. Whatever the issue, we act as a bridge between companies and
businesses throughout mainland China, Hong Kong, Asia and the rest of the world.
As a founding member of INTERLAW, we have the privilege of accessing the professional knowledge and
international resources offered by over 7,000 lawyers from over 150 cities in 80 countries around the globe.
We are experienced in assisting clients to ‘expand outwards’ and go into international markets to establish a
commercial presence.
As an efficient and reliable customer-focused law firm, and being proactive and liberal, we wholly
understand the business needs of each individual client, which we invariably put as our first priority. Our spirit
to pursue excellence makes us a long-term business partner of countless clients.
39/F, Gloucester Tower Heidi Chui

The Landmark heidi.chui@sw-hk.com
15 Queen’s Road Central
Hong Kong
Tel: +852 2526 6311
www.sw-hk.com
50
India’s Insolvency and
Bankruptcy Code: An Overview
Abhishek Tripathi and Mani Gupta
In summary
This overview contains a summary of the most significant developments in Indian
insolvency and bankruptcy law between July 2019 and August 2020, which have had
an impact on the design of law and its implementation. Where possible, the legislative
changes and the case law surrounding this have been discussed simultaneously to
give the reader an understanding of the letter of the law and its interpretation. Some
of the trend-setting judgments have been dealt with subsequently, and there is also
a small overview of the changes brought about as a result of the covid-19 pandemic.
The overview also provides a brief summary of legislative changes in the pipeline,
such as group insolvency and cross-border insolvency.
Discussion points
• Amendments to the Insolvency and Bankruptcy Code
• Changes related to covid-19
• Is the commercial wisdom of the committee of creditors unassailable in India?
• What steps have been taken to ensure that the corporate debtor has a clean
slate?
• What other changes to Indian insolvency law can be expected in the coming
year?

• Committee of Creditors of Essar Steel India ltd v Satish Kumar Gupta [2020]
219 COMP CASE 97 (Supreme Court)
• Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v Axis
Bank Limited 2019 SCC OnLine SC 1775
• Jet Airways (India) Limited v State Bank of India and Another, Company
Appeal (AT) (Insolvency) No. 707/2019
• Insolvency and Bankruptcy Code 2016
51
India’s Insolvency and Bankruptcy Code: An Overview | Sarthak Advocates & Solicitors
Introduction
The Insolvency and Bankruptcy Code 2016 (IBC or the Code) was intended to be a trans-
formative piece of legislation. It sought revolutionary and cultural transformation in the
insolvency and bankruptcy landscape, by (i) creating a comprehensive code for insolvency and
bankruptcy for corporates and individuals, (ii) establishing a new architecture, consisting of
a committee of creditors (COC) and dedicated adjudicating authorities (AA) for insolvency
resolution and liquidation, and (iii) bringing judicial discipline in the process.
Each of the three elements was intended to address the problems that affected the
bankruptcy regime in India. Although the Companies Act 1956 and the Companies Act
2013 contained provisions for winding up companies, they were found inadequate. The Sick
Industrial Companies (Special Provisions) Act 1985 (SICA), which provided an insolvency
resolution framework for sick industrial undertakings, had failed to deliver. The insolvency
and bankruptcy regime for individuals was based on colonial legislation and needed to be
revamped to be in sync with the 21st century. In this context, the IBC was path-breaking.
Besides prescribing a legislative framework for insolvency resolution and bankruptcy, the
Code established the Insolvency and Bankruptcy Board of India (IBBI) as the regulator, which
can proactively respond to the changing realities through its regulatory powers. The IBC has
succeeded in establishing a distinct jurisprudence for insolvency resolution. The government
and the IBBI have also been proactive in clarifying and resolving issues as and when they
appear through the implementation of the legislation. This explains frequent amendments to
both the IBC and various regulations issued under it. However, the fact that the IBC is not yet
fully operational despite four years of its enactment raises a few red flags on its report card.
The National Companies Law Tribunal (NCLT), which existed as a forum for adjudication
of disputes for companies, became the AA for corporate insolvency resolution and liquidation.
Since the IBC has come into force, the NCLT has become pre-eminently a forum for insolvency
resolution and liquidation, with its caseload predominantly consisting of insolvency cases. As
per the annual report of the Ministry of Corporate Affairs for the financial year 2019–2020,1 a
total of 19,733 fresh cases were filed at various benches of the NCLT, of which 12,089 were filed
under the IBC. Similarly, of the total 13,884 cases disposed off by various NCLT benches, 7,365
were under the IBC. A large caseload, particularly at the NCLT benches in Delhi and Mumbai,
has often led to delays in adjudication of disputes. However, with new NCLT benches set up
across various states and an increase in bench strength at the Delhi and Mumbai benches,
the situation is likely to improve.
Enforcing judicial discipline in insolvency resolution was one of the principle objectives of
the IBC. In this respect, the Code has certainly fared much better than its predecessor, SICA;
however, many argue that its record is far from satisfactory. The IBC imposed a strict timeline
of 180 days for the corporate insolvency resolution process (CIRP), which is extendable by
another 90 days, at the discretion of the AA. This was further extended to 330 days through
1 Available at http://www.mca.gov.in/Ministry/pdf/AnnualReport2019_20_17042020.pdf (last accessed on

31 August 2020).
52
Sarthak Advocates & Solicitors | India’s Insolvency and Bankruptcy Code: An Overview
an amendment to the IBC in 2019. However, depending on the data one relies upon,2 the
average time taken for resolution under the IBC is 340 to 394 days. In either case, the average
time taken is in excess of the maximum 330-day timeline prescribed under the Code. Many
cases take much longer (Essar Steel’s CIRP took as many as 866 days to complete).3 Further,
as per the data released by the IBBI, since the provisions regarding the CIRP came into effect
on 1 December 2016, only 5.85 per cent of cases have resulted in approval of resolution plans,
while approximately 24 per cent have resulted in liquidation.4 In most cases the disruption of
timelines is attributable to judicial interventions. The courts have been liberal in interpreting
the boundaries set by the timelines, which has led to such timelines being construed as merely
advisory in nature. The government and Parliament’s attempt to fix the timelines have been
repeatedly thwarted by the courts.
The government has largely played a constructive role in facilitating the implementation
of the IBC. It has successfully aligned the banking regulator, the Reserve Bank of India (RBI),
to push the banking system into using the IBC as the principal mechanism for resolving debt.
This approach has predictably received certain setbacks with the onset of covid-19. Where
challenges have been faced in IBC implementation, the government and the IBBI have stepped
in to amend the legislation and the regulations. While, by and large, the amendments have
made the implementation smoother, there have been instances where frequent amendments
have caused some confusion.
Recent legislative amendments

The IBC is perhaps the most frequently amended legislation in recent years, and some of
the changes were necessary to avoid unintended consequences. In addition to the legislative
changes regarding the covid-19 situation, between July 2019 and August 2020 there were
two broad sets of amendments to the IBC, as well as various amendments to the underlying
regulations.
The 2019 Amendment

The Insolvency and Bankruptcy Code (Amendment) Act 2019 (the 2019 Amendment) came in
the context of the following problems that were being faced in the implementation of the IBC:
2 As per the Report of the Parliamentary Standing Committee on Finance on the Insolvency and Bankruptcy
(Second Amendment) Bill, 2019 (released in March 2020) available at https://ibbi.gov.in/uploads/
resources/20ef77b3a1200f12ad19cee1c2c3dba9.pdf (last accessed on 31 August 2020), the average time
taken is 394 days. As per the Economic Survey of the Government of India for Financial Year 2019-20,
available at https://ibbi.gov.in/uploads/resources/1abc8cd7653dbc0024ed9da385e8b710.pdf (last accessed
on 31 August 2020), the average time taken for resolution under the IBC is 340 days, including time spent
in litigation.
3 https://indianexpress.com/article/india/covid-19-pandemic-nclat-exit-resolution-process-bankruptcy-
code-6512630/ (last accessed on 31 August 2020).
4 Insolvency and Bankruptcy News, January – March, 2020 (Vol. 14), available at: https://www.ibbi.gov.in/
uploads/whatsnew/92565ddf81a88161193ec62d99dd7d1c.pdf (last accessed on 31 August 2020).
53
• The IBC provided for completion of the CIRP within 270 days5 of the insolvency commence-
ment date. This period of 270 days included 90 days6 of discretionary extension that the
AA could grant. Further, AAs7 are required to ascertain the existence of debt within 14
days of receipt of application by a financial creditor. However, intervening legal proceed-
ings initiated against the corporate debtor, insolvency resolution professionals (IRPs) and
the COC made it difficult to adhere to the timelines. Time lost because of intervening
legal proceedings was allowed to be excluded from the timeline of 270 days, which led to
unbridled extension of the CIRP.8 Moreover, it had been held by Supreme Court that the
14-day time period set out in the IBC for determining the existence of default by the NCLT
is advisory and not a mandatory provision.9
• Owing to certain judicial pronouncements,10 the role of the COC in approving resolutions
plans was significantly curtailed, in as much as (i) financial and operational creditors
were expected to be given similar treatment, which was further interpreted to mean that
both the operational and financial creditors must take a similar haircut, and (ii) financial
creditors were not permitted to differentiate between financial creditors in the resolution
plan on the basis of priorities of debt or security interests.
• Homebuyers in real estate projects were given the status of financial creditors through
an amendment to the IBC. Owing to a large number of homebuyers, the decision-making
in the COC meetings was disrupted because creditors, particularly the homebuyers, were
not voting.
• Despite approval of resolution plans by the NCLT, resolution applicants of successful reso-
lution plans were often saddled with a large number of tax recovery cases for pre-CIRP
dues and other legal proceedings.
These concerns were addressed by the 2019 Amendment as follows:

• A proviso was introduced in section 7(4) to require the AA (the NCLT) to record reasons
where it fails to determine the existence of default within 14 days.
• A maximum time limit of 330 days was prescribed to mandatorily complete the CIRP,
which includes any time lost because of legal proceedings. The use of the words ‘shall
5 Section 12, IBC.

6 Section 12(3), IBC.
8 The principle of excluding certain days from the CIRP period were enunciated in detail by the National
Company Law Appellate Tribunal (NCLAT) in Quinn Logistics India (P) Ltd v Mack Soft Tech (P) Ltd Hyd
[2018] 208 COMP CASE 432 (NCLAT). In some cases, the Supreme Court, exercising its extraordinary
powers under article 142 of the Constitution of India, also extended the timeline for the CIRP. In the case
of Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta [2020] 219 COMP CASE 97 (SC),
the Supreme Court again affirmed the possibility of extending the CIRP even beyond the 330-day period
set out in the 2019 Amendment.
9 Surendra Trading Company v Juggilal Kamlapat Jute Mills Company Limited (2017) 16 SCC 143.
10 In Standard Chartered Bank v Satish Kumar Gupta, RP of Essar Steel Ltd and Others, Company Appeal (AT)
(Ins.) No. 242 of 2019, the NCLAT modified the resolution plan approved by the NCLT to provide for an
identical haircut to both financial and operational creditors.
54
mandatorily’ in a proviso to section 12(3) of the IBC, introduced through the amendment,
was expected to convey that the time period shall not be extended beyond 330 days, even
where intervening litigation may have resulted in loss of time. However, the Supreme
Court, in the case of Committee of Creditors of Essar Steel India Ltd v Satish Kumar
Gupta,11 has held the newly inserted timeline of 330 days to be advisory and not manda-
tory, holding that the word ‘mandatorily’ is unconstitutional.
• The COC has been empowered to consider the manner of distribution proposed in the
resolution plan while deciding its feasibility and viability. The COC can evaluate the
manner of distribution by taking into account the order of priority among creditors as per
the liquidation waterfall in section 53 of the Code, or by taking into account the priority
and value of the security interest of a secured creditor. In addition, the amendment intro-
duced the concept of dissenting financial creditors12 to address the lacuna highlighted
by the National Company Law Appellate Tribunal (NCLAT) in Central Bank of India v
Resolution Professional of the Sirpur Paper Mills Ltd & Ors.13 Resolution plans are now
required to provide for payment of liquidation value to dissenting financial creditors. With
respect to operational creditors, the amendment entitles the operational creditors to the
higher of (i) their liquidation value or (ii) the amount that would have been paid to them
if amounts being distributed under the resolution plan were distributed in accordance
with liquidation waterfall set out in section 53 of the IBC.
• The authorised representatives of a class of financial creditors shall be able to repre-
sent 100 per cent of the class they are representing based on the decision of more than
50 per cent of the voting share of the financial creditor they represent. This applies not
only to homebuyers in real estate projects, but also to beneficiaries of securities and
deposits held with trusts, who, as financial creditors, are collectively represented through
an authorised representative. However, this modified voting procedure shall not apply
to cases where the authorised representative is voting on withdrawal of the resolution
application. In such cases, each financial creditor shall be able to vote individually. The
amendment was expected to make the voting process in the CIRP smoother.
• Section 31 of the IBC was amended to provide that the resolution plan approved by order
of the AA shall be binding on the corporate debtor and its employees, members and cred-
itors, including the central government, any state government or any local authority
to whom a debt in respect of the payment of dues arising under any law currently in
11 [2020] 219 COMP CASE 97 (SC).

12 Regulation 38(1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations 2016 prior to its amendment in 2018 specifically provided that liquidation
value due to dissenting financial creditors shall be paid to them before any recovery is made by financial
creditors who voted in favour of the resolution plan. This provision was held to be ultra vires by the
NCLAT, in Central Bank of India v Resolution Professional of the Sirpur Paper Mills Ltd & Ors, 2018 SCC
OnLine NCLAT 1034. Following the judgment, the CIRP Regulations were amended.
13 2018 SCC OnLine NCLAT 1034.
55
force, such as authorities to whom statutory dues are owed.14 Further, a clarification was
inserted in section 33 to provide that the COC is empowered to make a decision regarding
liquidation of the corporate debtor at any stage before approval of the resolution plan,
including before issuance of information memorandum.
• The definition of the ‘resolution plan’15 has been amended to include provisions for restruc-
turing of the corporate debtor, including by way of merger, amalgamation and demerger.
The First 2020 Amendment

The Insolvency and Bankruptcy Code (Amendment) Act 2020 (the First 2020 Amendment)
followed the Insolvency and Bankruptcy Code (Amendment) Ordinance 2019. The key
constraints that the First 2020 Amendment removed are as follows:
• Under the IBC, all debts received by a corporate debtor prior to commencement of insol-
vency are treated on par. This had the effect of discouraging restructuring of debt or
additional funding to the corporate debtor under distress. To address this issue, the defi-
nition of ‘interim finance’ was amended to enable the government to notify other classes
of debt as ‘interim finance’. As evident from the statement of objects and reasons of the
First 2020 Amendment, the amendment is intended to include last-mile funding as part
of interim finance. Once the details of such last-mile funding are outlined by the govern-
ment, it may help companies in distress to raise additional debt, which in the event of
insolvency of the corporate debtor may get treated as interim finance, and will thus have
superiority over other debt.
• The inclusion of homebuyers as financial creditors had the effect of a large number of
individual homebuyers approaching the NCLT against developers who failed to deliver
projects or refund money. From June 2018 (when the amendment was made to the IBC
to include homebuyers as financial creditors) until 30 September 2019, a total of 1,821
cases were filed under the IBC by homebuyers.16 Admission of insolvency proceedings on
an application of a single homebuyer had the effect of stalling the completion of various
14 Rajasthan High Court in Ultra Tech Nathdwara Limited v Union of India, 2020 SCC OnLine Raj 1097, struck
down various notices and demands raised by the goods and services tax department against a corporate
debtor (whose resolution plan had been approved).
16 This is as per the statement made by Shri Anurag Thakur, Minister of State for Finance and Corporate
Affairs in Lok Sabha. The statement is available at http://164.100.24.220/loksabhaquestions/qhindi/172/
AU32.pdf (last accessed on 31 August 2020).
56
projects.17 To prevent this situation, the First 2020 Amendment prescribed that an insol-
vency application in relation to a real estate project can be initiated only by a minimum
of 100 allottees or at 10 per cent allottees in a project, whichever is less. This amendment
has been challenged before the Supreme Court and is currently pending adjudication.18
• Section 11 of the IBC has been amended to enable corporate debtors under insolvency to
initiate the CIRP against other corporate debtors.
• To maintain the going-concern status of a corporate debtor undergoing the CIRP, the
scope of the moratorium under section 14 of the IBC has been extended to provide that
licences, permits, concessions, clearances, etc, issued by a government authority shall not
be suspended or terminated on the ground of insolvency during the moratorium period
if current dues are being paid. Furthermore, the supply of goods or services critical to
maintaining the corporate debtor’s going-concern status shall not be suspended if the
current dues are being paid during the moratorium period. The provision offers flexibility
to the IRP to determine what he or she considers critical to protect or preserve the value
of the corporate debtor. The amendment has been necessitated to ensure that certain
critical suppliers of goods and services do not twist the arm of the IRP to make payments
of past dues as a priority over other creditors.
• Attachment of assets of a company even after a successful resolution under the IBC for
offences of the erstwhile management has caused much consternation in India. It has
thwarted successful resolution in many cases where such fears existed. To prevent this
and to ensure that the corporate debtor and successful resolution applicant get a fresh
start and a clean slate, section 32-A has been amended to provide that: (i) the corporate
debtor shall not be liable for offences committed prior to commencement of the CIRP
after the date of approval of the resolution plan by the AA; and (ii) no action shall be taken
against the property of the corporate debtor in relation to an offence committed prior to
the insolvency commencement date, where such property is covered under a resolution
plan approved by the AA, or where such property forms part of sale of liquidation assets.
The above exemption from prosecution or attachment is available only when the acquirer
is not the promoter of, or part of, the erstwhile management or a related party to it, and
is otherwise not involved in the commission of the offence, as an abettor or conspirator.
The interpretation of this provision by the courts is also that the prosecution of erstwhile
17 In fact, the problem created for the real estate sector perhaps led to the decisions in Flat Buyers
Association Winter Hills-77 Gurgaon v Umang Realtech Private Limited through IRP, Company
Appeal (AT) (Insolvency) No. 926 of 2019 (available at: https://ibbi.gov.in//uploads/order/
d70efb8cb431050862f08d0957ddc9e9.pdf) (last accessed on 31 August 2020). In this case, the NCLAT
held that the corporate insolvency resolution process initiated by a homebuyer or a financial institution
would be limited to the project concerned and not impact other developers’ projects. It observed that
‘reverse corporate insolvency resolution process’ can be followed in the cases of real infrastructure
companies in the interest of the allottees and survival of the real estate companies. Clearly, such an
interpretation is not in accordance with the provisions of the Code.
18 Association of Karvy Investors v Union of India and Others, Writ Petition (Civil) Diary No. 10047/ 2020,
available at: https://www.livelaw.in/pdf_upload/pdf_upload-376580.pdf.
57
management and promoters would remain unaffected by the outcome of the proceedings
under the Code.19
• Certain clarificatory amendments in the First 2020 Amendment include the requirement
of appointing an IRP on the insolvency commencement date,20 an express clarification
under section 23 to provide that the IRP shall continue to manage the affairs of the corpo-
rate debtor after the CIRP until the approval of the resolution plan or an order appointing
a liquidator is passed by the AA. In addition, the proviso to section 21(2) has been amended
to further clarify that a financial creditor regulated by a financial service regulator shall
not be considered a related party of the corporate debtor solely on account of such trans-
actions as may be prescribed by the government. This may enable the government to
prescribe a special class of transactions, such as merger of financial creditors and acqui-
sition of debts, when the financial creditor may continue to remain represented on the
COC. Financial creditors that are related parties are not represented on the COC.
Key regulatory changes

While the IBC contemplates the insolvency and bankruptcy regime for individuals, it has
not been fully notified as yet. The same was notified in a limited manner with effect from
1 December 2019, insofar as it applies to personal guarantors of corporate debtors. To give
effect to the provisions, the Insolvency and Bankruptcy (Application to Adjudicating Authority
for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules 2019
and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy
Process for Personal Guarantors to Corporate Debtors) Regulations 2019 were also notified.
This allowed creditors to initiate and maintain proceedings against both the corporate debtor
and the guarantor of the corporate debtor in the NCLT. However, previously, in the case
of Vishnu Kumar Agarwal v Piramal Enterprises Limited,21 the NCLAT had held that if an
insolvency proceeding under section 7 of the IBC has been admitted against the principal
borrower, then a second application by the same creditor on the same claim cannot be main-
tained against the guarantor. This has caused some confusion as to whether simultaneous
proceedings against the corporate debtor and the personal guarantor can continue for the
same claim.
As per a recent amendment to the CIRP Regulations,22 the COC is now required to simul-
taneously vote on all resolution plans received by the IRP that comply with the require-
ments of the CIRP Regulations and the IBC. If only one plan is received, it shall be considered
approved by the COC if it receives 66 per cent of the votes. If there is more than one plan, the
plan that receives 66 per cent of the votes shall be considered approved, failing which the plan
19 Tata Steel BSL Limited and Another v Union of India and Another, WP (Crl) No. 3037/2019, available at:
https://ibbi.gov.in//uploads/order/9788b8a21170dc9a1a10309895394106.pdf.
20 Amendment to section 16(1), IBC.
22 Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fourth
Amendment) Regulations 2020.
58
that receives the highest votes shall be voted on again. This process gives the COC the ability
to simultaneously examine various plans, as opposed to voting on plans individually, which
may potentially lead to rejection of all plans. This is likely to make the process more efficient.
Changes related to covid-19

Like governments in many other countries, the Indian government has also brought about
changes to mitigate the effects of covid-19 on corporations. On 5 June 2020, the government
promulgated the Insolvency and Bankruptcy (Amendment) Ordinance 2020 (the Suspension
Ordinance).23 The Suspension Ordinance has suspended section 7 (initiation of insolvency
resolution by a financial creditor), section 9 (initiation of insolvency resolution by an opera-
tional creditor) and section 10 (initiation of insolvency resolution by a corporate debtor itself)
of the IBC for six months (extendable to one year) (the Suspension Period) in respect of any
default that occurred after 25 March 2020.
The Suspension Ordinance has had its critics. Some argue that the language leaves much
scope for improvement. The proviso to the newly inserted section 10A of the IBC states that
no application for the initiation of the CIRP shall ever be filed in respect of a default that
occurred during the Suspension Period. The draft indicates that a default occurring after
25 March 2020 would be excused. This may potentially result in worsening the crisis for banks
and other stakeholders that may not be able to pursue the remedy under the IBC for defaults
during the Suspension Period.
Another significant consequence of the Suspension Ordinance is that although the CIRP
cannot be initiated against the corporate debtor, the insolvency resolution process under the
Code can be initiated against personal guarantors of such corporate debtors. It is difficult
to think of any reason why a default arising from the extraordinary situation of the covid-19
pandemic has been excused for corporate debtors but not personal guarantors.
In addition to suspending the IBC for a period of time, the government has also raised the
threshold of debt for initiation of the CIRP to 10 million rupees from the existing threshold
of 100,000 rupees.24 It is relevant to highlight that this change is prospective in nature25 and,
therefore, should not impact those creditors’ petitions that had already been filed before
24 March 2020.
23 Available at: https://ibbi.gov.in/uploads/legalframwork/741059f0d8777f311ec76332ced1e9cf.pdf (last

accessed on 31 August 2020).
24 Notification F No. 20/9/2020-Insolvency dated 24 March 2020 issued by Ministry of Corporate Affairs,
Government of India.
25 Foseco India Limited v Om Boseco Rail Products Limited, CP (IB) No. 1735/ KB/2019, available at:
https://ibbi.gov.in//uploads/order/bb2c24f934fc7d187ad54a82987f16ba.pdf. See also: Arrowline Organic
Products Private Limited v Rockwell Industries Limited, IA/341/2020 in IBA/1031/2019 available at:
https://ibbi.gov.in//uploads/order/29d97fa84cefe57a39fa97d491c061a1.pdf.
59
Lastly, the government is also mulling over a special framework for micro, small and
medium-sized enterprises (MSMEs) that would enable MSMEs to initiate bankruptcy
proceedings while remaining in control, in contrast to the ‘lenders in control’ philosophy of
the IBC.26 At the time of writing, the framework has not been made public.
On 6 August 2020, the RBI issued a circular27 allowing companies a one-time restructuring
(OTR) of loans without classifying them as non-performing assets. This mechanism has been
made applicable for all commercial banks, cooperative banks, All India Financial Institutions
and non-banking financial companies. The accounts that are eligible for an OTR are those that
were classified as ‘standard’ and at the same time were not in default for more than 30 days
as at 1 March 2020. The restructured framework needs to be invoked by 31 December 2020.
For personal loans, it needs to be implemented within 90 days of the invocation date and for
corporate loans, within 180 days of the invocation date. The invocation date will be the date
on which the borrower and the lender agree to proceed on the OTR plan. As an additional
measure, the RBI constituted an expert committee to suggest ways in which the restructuring
can be implemented. The committee made recommendations for sector-specific financial
parameters to be considered for the OTR. The recommendations, which have been broadly
accepted by the RBI, were notified on 7 September 2020 by the RBI as guidelines for OTRs.28
Trendsetting judicial developments

The COC’s control of corporate debtors and their decision-making upon commencement of
the CIRP is the cornerstone of the IBC. The NCLAT’s decision in Essar Steel 29 attempted to
curtail the powers of the COC by circumscribing it with considerations of equity between
different classes of creditors. The NCLAT’s decision was challenged and reversed by the
Supreme Court in Committee of Creditors of Essar Steel Limited v Satish Kumar Gupta.30 The
judgment reinstated the primacy of the COC in approving the resolution plan and reinforced
its position in K Sashidhar 31 that the commercial wisdom of the COC cannot be challenged
by the AA except on very limited grounds set forth under the IBC. In doing so, the Court also
clarified that the COC is not acting in a fiduciary capacity for any class of creditors; it is merely
taking a commercial decision by requisite majority. On the ‘fair and equitable’ distribution
principle introduced through the 2019 Amendment, the Court clarified that it does not give
the AA an additional ground to reject a resolution plan, as long as the interests of all classes
of creditors have been looked into and taken care of.
26 https://indianexpress.com/article/business/companies/msme-promoters-undergoing-insolvency-
proceedings-may-be-able-to-retain-control-of-company-6512555/.
27 Circular No. DOR.No.BP.BC/4/21.04.048/2020-21 dated 6 August 2020 available at: http://www.rbi.org.in.
28 See Circular No. DOR.No.BP.BC/13/21.04.048/2020-21.
29 Standard Chartered Bank v Satish Kumar Gupta, RP of Essar Steel Ltd and Others, Company Appeal (AT)
(Ins.) No. 242 of 2019. Available at: https://nclat.nic.in/Useradmin/upload/9483444955d1dd6f80afab.pdf
(last accessed on 31 August 2020).
30 2019 SCC OnLine SC 1478.
31 K Sashidhar v Indian Overseas Bank, 2019 SCCOnline SC 257.
60
Allowing a resolution applicant a clean slate, the Court allowed an IRP to record disputed
claims on notional value to enable a resolution applicant to take the same into account in
a resolution plan. The creditors of such disputed claims or those who fail to submit claims
should not be able to reagitate their claims against a successful resolution applicant.
Finally, the Court held the 330-day timeline introduced through the 2019 Amendment to
be merely advisory in nature, holding that the word ‘mandatorily’ is unconstitutional.
Another trendsetting judgment was pronounced by the Supreme Court in the case of
Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v Axis Bank Limited.32
The court was called upon to determine: (i) whether mortgages provided by Jaypee Infratech
Limited (JIL) for loans by its parent company, Jayprakash Associates Limited (JAL) were pref-
erential transactions under section 43 of the IBC; and (ii) whether lenders of JAL could be
classified as financial creditors of JIL by virtue of a security interest created by JIL. The Court
held that the mortgages created by JIL for the benefit of JAL were preferential transactions,
on the basis that: (i) while there was no creditor-debtor relationship between JIL and lenders
of JAL, JAL was the ultimate beneficiary of such transactions; (ii) since JAL was the operational
creditor of JIL, the transactions put JAL in an advantageous position, as otherwise it would
have stood much lower in priority; and (iii) the transaction was not in the ordinary course
of business as JIL could not be said to be in the business of offering security for its parent
company. On the issue of whether lenders of JAL could claim to be financial creditors of JIL,
the Court held that since JIL did not owe any sum of money to lenders of JAL, mere mortgages
would not make such lenders financial creditors of JIL.
Throughout 2019, there was a string of orders, in which the NCLT and the NCLAT
directed resolution professionals to allow schemes of arrangement and compromise under
sections 230 to 232 of the Companies Act 2013, where a liquidation order had been passed.33
A number of promoters who were otherwise ineligible to submit a resolution plan in respect
of the corporate debtors under section 29A of the Code saw this as a back-door entry to
regain control. However, the NCLAT has clarified that a person who is ineligible in terms of
section 29A of the Code cannot submit a scheme for compromise and arrangement in such
cases.34 This move is seen as levelling the playing field and ensuring that dishonest promoters
are not able to take control of the companies again. However, a Discussion Paper on Corporate
Liquidation Process along with Draft Regulations dated 27 April 2019 issued by the IBBI had
discussed this issue and concluded that, for the time being, the ineligibility should not be
applied to compromise and arrangements under section 230.35
32 2019 SCC OnLine SC 1775.

33 S C Sekaran v Amit Gupta & Ors, 2019 SCC OnLine NCLAT 517.
34 Jindal Steel & Power Limited v Arun Kumar Jagatramka, 2019 SCC OnLine NCLAT 759. See also: First
Global Finance Private Limited v IVRCL Limited and Another, Company Appeal (AT) (Ins.) No. 918-919 of
2019.
35 Discussion Paper on Corporate Liquidation Process along with Draft Regulations (27 April 2019) available
at: https://ibbi.gov.in/Discussion%20paper%20LIQUIDATION.pdf.
61
Group insolvency
The IBC contemplates insolvency of companies on a standalone basis. Companies, by default,
even if they are part of a larger conglomerate, are viewed as separate legal entities for the
purposes of initiating insolvency proceedings against them. In isolated cases, AAs have
ordered clubbing of insolvency proceedings of group companies for the purposes of hearings;
however, no definite legal framework governing group insolvency exists in India. The IBBI had
constituted a Working Group on Group Insolvency under the chairmanship of Mr U K Sinha
to propose a legal framework within which group insolvency proceedings may be conducted
in India. The Working Group submitted its report on 23 September 2019.36
The Working Group recommended a cautious approach to implementing group insol-
vency regime, in a phased manner. It stressed the enabling and voluntary nature of the
framework, recommending that with the exception of communication, cooperation and infor-
mation sharing (among insolvency professionals, adjudicating authorities and committee of
creditors of various group companies), no other provisions should be made mandatory. In
the first phase, it was suggested that provisions relating to procedural coordination alone
should be implemented. Procedural coordination could be achieved through joint application
by group companies before an AA, the appointment of a single IRP and a common COC, and
coordination between creditors of various group companies.
Meanwhile, various branches of the NCLT took the lead in some matters in consolidating
insolvency proceedings of various group companies. For example, NCLT Mumbai consolidated
insolvency proceedings of various group companies of Lavasa Group in Axis Bank Limited v
Lavasa Corporation Limited,37 on the basis that the insolvency of the subsidiaries depended
on the outcome of the insolvency of the parent company. Similarly, in the case of Edelweiss
Asset Reconstruction Company Limited v Sachet Infrastructure Pvt Ltd,38 insolvencies of
five group companies involved in developing a common township were consolidated by the
NCLAT, in the interest of homebuyers. However, where group companies are self-sustainable
and are not interlinked, courts have also denied consolidation. In the case of Videocon group
companies, while NCLT Mumbai allowed consolidation of the insolvencies of 13 group entities,
it disallowed the consolidation of two other group companies.39
36 The report can be accessed at https://www.ibbi.gov.in/uploads/whatsnew/2019-10-12-004043-ep0vq-

d2b41342411e65d9558a8c0d8bb6c666.pdf (last accessed on 31 August 2020).
37 MA 3664 of 2019, available at http://www.lavasa.com/pdf/Lavasa-Corporation-Limited-MA-3664-2019-in-
CP-1765-1757&574-2018-NCLT-ON-26.02.2020.pdf (last accessed on 31 August 2020).
39 State Bank of India v Venugopal Dhoot, MA 1306 of 2018. Available at: https://nclt.gov.in/sites/default/
files/final-orders-pdf/VIDEOCON%20INDUSTRIES%20LTD.%20MA%201306%20OF%202018%20%20
CP%2002%20-%202018%20NCLT%20ON%2008.08.2019%20FINAL.pdf (last accessed on 31 August
2020).
62
Cross-border insolvency
The Report of the Working Group on Cross-Border Insolvency had noted that the existing
provisions in the IBC (sections 234 and 235) do not provide a comprehensive framework for
cross-border insolvency matters.40 The proposal to provide a comprehensive framework for
this purpose based on the UNCITRAL Model Law on Cross-Border Insolvency 1997 has been
pending for some time now. It was initially believed that an amendment bill would be intro-
duced in the Winter Session of Parliament in 2019.41
While amendments to the IBC are awaited, the NCLAT advised a framework of coop-
eration between the administrator appointed by a Dutch court in respect of Jet Airways
(having its regional hub in Amsterdam) and the resolution professional appointed by the
AA in a petition filed by a financial creditor.42 The protocol was designed on the principles
of the UNCITRAL Model Law and provides a robust framework for cross-border coordina-
tion, maintaining respect for independent jurisdictions of the Dutch court and the NCLAT.
Since Jet Airways was an Indian company with its centre of main interest in India, the IBC
proceedings in India were the main insolvency proceedings and the Dutch proceedings were
non-main proceedings.43
In the case of Videocon Industries, the AA in India permitted the inclusion of the foreign
assets held through other companies to be included in the resolution process. Further, the AA
also declared that the moratorium under section 14 of the IBC is applicable to such foreign
assets.44 However, in the absence of a clear framework, these matters have to be dealt with
on a case-by-case basis.
Conclusion
Insofar as any legislation can have a transformative effect, the IBC has achieved that objec-
tive. Unlike its predecessor regimes, the IBC has been adopted well by the system and used
in a manner that is maximising stakeholder value. The government has been proactive in
ensuring that problems are dealt with and the courts have also (with the exception of some
occasional stray orders) refrained from overturning the decisions of the COC. For interna-
tional lenders and stakeholders, these are good tidings as they also point to the robustness
of the Code to meet evolving challenges. It is hoped that once the covid-19 pandemic is dealt
with substantially, the government will refocus its efforts on ensuring that the Code is imple-
mented in earnest and made fully operational.
40 Report of Insolvency Law Committee on Cross-Border Insolvency (October 2018), available at: https://ibbi.
gov.in/uploads/resources/Report_on_Cross%20Border_Insolvency.pdf.
41 https://www.thehindubusinessline.com/money-and-banking/cross-border-insolvency-framework-related-
amendments-likely-in-winter-session/article29502104.ece.
42 Jet Airways (India) Limited v State Bank of India and Another, 2019 SCC OnLine NCLAT 385.
43 ibid.
44 Venugopal Dhoot v State Bank of India, MA 2385/2019 in C.P.(IB)-02/MB/2018, available at: https://ibbi.
gov.in//uploads/order/a487133444be9bd8cadd770dbcdcc8db.pdf.
63
Abhishek Tripathi
Abhishek Tripathi is the managing partner of the firm. Abhishek advises clients on a
wide range of laws, including those related to the energy and power sector, insolvency,
real estate, companies, foreign exchange, securities regulations, insurance and tele-
coms. A keen observer of politics and regulatory environments, he routinely interacts
with government and regulatory authorities in India, such as the Central Electricity
Regulatory Commission, the Reserve Bank of India, the Securities and Exchange Board
of India, the Insurance Regulatory and Development Authority, the Department of
Telecommunications and the Telecom Regulatory Authority of India. He is also a regis-
tered insolvency resolution professional.
Abhishek has been a visiting faculty member for insurance laws at the National
Law School of India University, Bangalore and at Amity Law School in New Delhi. He
regularly contributes to various blogs and online magazines, and has written several
articles in leading national dailies and journals.
He is an alumnus of the National Law School of India University, Bangalore and had
worked with Luthra & Luthra Law Offices, New Delhi prior to setting up Sarthak. In his
spare time, Abhishek discusses politics and writes poetry.
Mani Gupta
Mani Gupta is a partner and heads the firm’s litigation practice. She also heads the
firm’s insolvency litigation practice. She advises clients on their corporate and commer-
cial disputes before various courts and tribunals, and in arbitrations. Mani has been
extensively involved in advising clients in financial distress on managing their litiga-
tion, and advising on the corporate debt restructuring and strategic debt restructuring
process of the Reserve Bank of India. Mani also has an expertise in handling commercial
arbitrations in construction contracts, and power and infrastructure projects.
Mani is a prolific writer, having contributed articles on legal issues in newspapers,
legal journals and legal blogs.
Mani is an alumnus of the National Law School of India University, Bangalore.
64
The values and aspirations of the firm are derived from the word ‘Sarthak’, which in the Sanskrit language
means ‘meaningful’. It is our attempt to add meaning, purpose and passion to the practice of law. We are
a law firm with a strong focus on corporate and commercial laws, advising our clients on their transactions,
disputes and projects. We provide high-quality, cost-effective solutions to our clients and are committed to
supporting them in varying economic conditions, and changing the legal and regulatory landscape. This has
enabled us to build continuing relationships with our clients.
The firm blends its transactional experience with an active role in public policy interventions and pro
bono work. In a short time, we have had the privilege of being invited by several Standing Committees of
Parliament to depose as experts on a range of bills, including the Higher Education and Research Bill 2011, the
National Academic Depositories Bill 2011, the Forward Contract Regulation (Amendment) Bill, the Registration
(Amendment) Bill 2013 and the Consumer Protection (Amendment) Bill 2011.
The firm is also empanelled as a legal adviser with the Shipping Corporation of India Limited and Bharat
Heavy Electrical Limited, both leading government companies.
Our biggest strength lies in our counsel who have graduated from the finest law schools of the country.
Some, prior to joining us, have also worked with top-tier law firms in diverse practice areas.
Our principal office is located in New Delhi.
S-134 (Lower Ground Floor) Abhishek Tripathi

Greater Kailash Part 2 abhishek.tripathi@sarthaklaw.com
New Delhi 110048
India Mani Gupta
Tel: +91 11 4171 5540 mani.gupta@sarthaklaw.com
www.sarthaklaw.com
65
Indonesia’s Bankruptcy Law in
Urgent Need of Reform
Debby Sulaiman
In summary
There are two processes for a court-driven restructuring under Indonesia’s 2004
Bankruptcy Law: suspension of debt repayment and bankruptcy. This chapter
outlines these two processes and discusses proposed amendments to the
Bankruptcy Law.
Discussion points
• Overview of Indonesia’s Bankruptcy Law
• Criticism of the Law primarily concerning the lack of transparency and
inconsistency in its application, often to the detriment of foreign lenders
• Proposed amendments to make the Law more debtor-friendly
• Constitutional Court decision requiring the debtor and creditor to agree that
a default has occurred prior to enforcing the security

• Law No. 37 of 2004 regarding Bankruptcy and Suspension of Debt Payment
Obligations
• Decree No. 3/KMA/SK/I/2020 regarding Guidelines on Bankruptcy and
Suspension of Debt Payment Obligation Proceedings, dated 14 January 2020
• Decree No. 109/KMA/SK/IV/2020, dated 29 April 2020
• Constitutional Court Decision No. 18/PUU-XVII/2019, issued on 6 January 2020
• Fiducia Law, Law No. 42 of 1999, dated 30 September 1999
66
Hiswara Bunjamin & Tandjung | Indonesia’s Bankruptcy Law in Urgent Need of Reform
After its enactment in 2004, Indonesia’s Bankruptcy Law1 quickly became a promising
means for foreign lenders to enforce their security rights by levelling the playing field with
Indonesian debtors. However, it is no secret that what is written in the law does not always
translate well into practice. Consequently, the bankruptcy and debt moratorium process has
been questioned, predominantly by these same lenders.
Common criticism of the application of the Bankruptcy Law concerns three issues: trans-
parency of the process; inconsistent application; and lack of detail in the Law itself. This has
led to a variety of interpretations.
For a common law lawyer, the latter two issues can be both problematic and challenging
as Indonesian law does not recognise binding precedents, meaning that each court is able to
make decisions independently.
Key features of the Bankruptcy Law

The Bankruptcy Law introduced a choice of two processes for a court-driven restructuring:
bankruptcy and suspension of debt repayment (PKPU).2 Each process has its own key features,
which are set out in the accompanying table to this article.
On the face of it, the Bankruptcy Law seems to offer a straightforward set of requirements
for filing a bankruptcy or PKPU petition. A creditor (or debtor) may file a petition simply by
evidencing:
• the existence of at least two creditors; and
• either one due and payable debt (for a bankruptcy petition) or if the creditor or debtor can
predict that the debtor cannot pay the debt (for a PKPU petition).
The satisfaction of these two conditions is technically sufficient for the court to grant a bank-
ruptcy or PKPU decision. Comparing the amount of time involved in a bankruptcy and PKPU
process with the challenging landscape of Indonesian commercial litigation and enforce-
ment, it is easy to understand why, at face value, bankruptcy and PKPU are favoured by most
industry practitioners.
Bankruptcy
Following a bankruptcy decision, the company’s assets – technically also including any assets
located overseas – are placed under general attachment for the benefit of all creditors. The
company also comes under the management of the bankruptcy receiver, who will work closely
with the company management in its day-to-day business.
1 Law No. 37 of 2004 regarding Bankruptcy and Suspension of Debt Payment Obligations.
2 Penundaan kewajiban pembayaran utang or suspension of debt payment obligations, which is similar to
Chapter 11 of the US Bankruptcy Code. The bankruptcy process is similar to Chapter 7.
67
Indonesia’s Bankruptcy Law in Urgent Need of Reform | Hiswara Bunjamin & Tandjung
During bankruptcy, a debtor is still permitted to propose a restructuring plan to its

creditors since the debtor’s assets are not yet declared insolvent. If the restructuring plan is
approved by a majority of unsecured creditors, the bankruptcy status will be revoked, and the
company’s management will return to business as usual.
The bankruptcy estate will be declared insolvent if any of the following occurs:
• the debtor company does not propose a restructuring plan;
• the debtor company proposes a restructuring plan but this is not approved by a majority
of unsecured creditors; or
• the restructuring plan is approved by a majority of unsecured creditors but is not ratified
by the court.
A moratorium is applied from the date of the bankruptcy decision, with creditors required to
submit their claims through the bankruptcy verification process managed by the receiver. For
90 days after the bankruptcy decision, secured creditors are prohibited from undertaking any
enforcement action against the assets. Specific leave can, however, be granted by the receiver
to allow a secured creditor to initiate early enforcement. If specific leave is granted, then the
secured creditor must initiate enforcement no later than two months after the stay period
ends, failing which the receiver may undertake enforcement on behalf of the secured creditor.
PKPU
A PKPU decision protects the debtor from any enforcement action by secured creditors for
the entire PKPU period, which can last up to 270 days. During the PKPU process, the business
will operate as usual, except for a prohibition on acquiring new debts or granting security
over the debtor’s assets.
Similar to the bankruptcy receiver, a PKPU administrator has the authority to accept or
reject claims made by creditors. In principle, a claim not submitted to the PKPU administrator
during the prescribed PKPU process still exists; however, unsecured creditors whose claims
are not submitted during the bankruptcy and PKPU process are bound by the terms of the
restructuring plan.
Challenges
Two of the most frequent criticisms of the bankruptcy and PKPU process are lack of transpar-
ency and inconsistency in the application of the Bankruptcy Law.
Concerns have been raised over the potential for spurious claims to be made by bogus
creditors in an effort to reduce the voting leverage of unsecured creditors. Responsibility for
ensuring the credibility and legality of claims rests with the appointed receiver or adminis-
trator, and concerns tend to grow if there is doubt over their impartiality.
Creditors (especially foreign creditors) often feel they have no option but to follow the
restructuring plan being proposed, and it is no different for secured creditors. Under the
Bankruptcy Law, a secured creditor that opposes a restructuring plan is entitled to compen-
sation. The amount of compensation will be the lower of the value of the security or the value
of the loan secured.
68
However, the Bankruptcy Law contains no guidance on how or when this compensation
should be paid to dissenting secured creditors. The likelihood of a dissenting secured creditor
succeeding in obtaining compensation from a debtor is not known as it is usually settled or
litigated privately and not generally made public.
It is common for creditors to believe they are unable to abandon the PKPU process once
they have registered their claims. Most foreign secured lenders believe that they must use
their voting rights to vote either for or against the restructuring plan. However, a possible
third option is to not attend the voting meeting and instead seek to enforce the security once
the PKPU process has concluded. This third option is almost never considered, primarily
through fear of the unknown.
Inconsistent application of the Bankruptcy Law can also be problematic. For instance, a
common understanding among practitioners is that, based on the Bankruptcy Law, a volun-
tary PKPU filing would take precedence over an involuntary PKPU filing. This view is based
on comparing how long it takes for a court to issue a PKPU decision when a debtor files
(three days) compared with when a creditor files (20 days). In the past, that was also how the
provision was implemented. Yet in a ruling in recent years, the court rejected a debtor’s filing
because another filing had already been made by the creditors.
The inconsistent behaviour by the court arises from a lack of binding precedents under
Indonesian law. In practice, a lower court may make a ruling that differs from a higher court’s
ruling, and it may even differ from the same court’s rulings in past cases.
The lack of clarity and inconsistency applies not only to court findings but also to how the
bankruptcy and PKPU process is carried out in practice. While there is no express restriction
preventing a company from entering a second PKPU, the Bankruptcy Law expressly states
that if a debtor breaches the approved restructuring agreement, the creditor may then peti-
tion the court to annul the restructuring agreement and declare the debtor bankrupt. In one
case, the court granted a second PKPU petition immediately following the first PKPU of the
debtor, rather than ordering annulment of the restructuring agreement and declaring the
company bankrupt. While the legal arguments in that court decision were unclear, it is not
uncommon for a decision to have only minimal legal considerations.
Proposed changes
Over the past few years, there have been several discussions on amending the Bankruptcy
Law. The idea of amending the present Bankruptcy Law was initiated by parties that consider
the Bankruptcy Law to be overly friendly to creditors – potentially subjecting solvent debtors
to an unnecessary bankruptcy or PKPU process. However, parties that have been subject to
Indonesian court-driven restructurings may well hold the opposite view.
The discussion on the key provisions of the proposed law concerns the right of secured
creditors to file for bankruptcy or petition for PKPU. One proposal was to restrict the right to
file a bankruptcy petition to unsecured creditors, allowing only the debtor to petition for PKPU.
A Decree issued by the chair of the Supreme Court on 14 January 2020, Decree No. 3/KMA/
SK/I/2020 regarding Guidelines on Bankruptcy and Suspension of Debt Payment Obligation
Proceedings (Decree 3/2020), was intended to provide clear and detailed guidelines and
69
procedures for bankruptcy and PKPU proceedings, from registration of the petition through
to the process after the Commercial Court’s decision. However, Decree 3/2020 introduced a
new restriction preventing secured creditors from filing a PKPU petition to the Commercial
Court, stating that only unsecured creditors may file a PKPU petition, but without providing
any legal reasoning. Not long after, the Supreme Court revisited Decree 3/2020 and decided
to replace it by issuing Decree No. 109/KMA/SK/IV/2020, dated 29 April 2020, removing this
controversial restriction.
Another proposal is to introduce an insolvency test prior to submitting the petition to
court. While it is still not decided whether the insolvency test would be based on the book
value or cash flow of the company, there is growing concern about whether it is possible in
practice to obtain the financial statements of a private company when the debtor and creditor
are in conflict.
With the changes being proposed, the only practical option for secured creditors is to
enforce the security. Enforcement in Indonesia has its own challenges and is difficult to
resolve because of various issues. The proposed amendment of the Bankruptcy Law to make it
more debtor-friendly has understandably increased the concerns of foreign lenders. It would
be unattractive for foreign lenders to have only one option in a foreign jurisdiction (ie, to
enforce the security).
On 6 January 2020, the Constitutional Court issued Decision No. 18/PUU-XVII/2019
(Decision 18/2019), which effectively changed the interpretation of article 15(2) and (3) of
the Indonesian Fiducia Law (Law No. 42 of 1999), striking the core principles of the Law.
Decision 18/2019, which is final, binding and not subject to appeal, states the following:
• a default must be agreed by the debtor and creditor;
• if there is no agreement on the default, the default must be confirmed through a final and
binding court decision; and
• upon agreement on the default (or a final and binding court decision confirming the
default), fiducia security can only be enforced through the regular enforcement process
of a court decision.
Decision 18/2019 requires a fresh agreement between the debtor and creditor in the event of
default to confirm that a default has indeed taken place. This is seen by investors as paving
the way for a more borrower-friendly jurisdiction.
The potential impact on Indonesia’s foreign investment climate is not yet known. Although
Indonesia remains an attractive jurisdiction economically, such a change to the Bankruptcy
Law is bound to be considered carefully by foreign investors and lenders, particularly in light
of the economic impact of the global covid-19 pandemic.
We hope that the Indonesian government will consider amending the Bankruptcy Law to
provide more balanced protection for both foreign lenders and domestic debtors.
70
Item Bankruptcy PKPU

Party initiating petition Debtor (voluntary) or creditors Debtor (voluntary) or creditors
(involuntary) (involuntary)
Requirements Debtor has two or more creditors, and Debtor has two or more creditors, and
debtor fails to pay at least one due and debtor is unable, or predicted to be
payable debt unable, to continue servicing its due
and payable debts
Insolvency test Not required Not required
Court process 60 days in the first court Three days for voluntary PKPU filing
20 days for involuntary PKPU filing
Effect of decision Subject to appeal to Supreme Court, Final and binding decision, subject to
although it will not stay a bankruptcy civil review by the Supreme Court as
process granted by the first court an extraordinary course of action
Duration Indefinite 45 days for the first phase (temporary
PKPU), extendable by up to 225 days
if approved by the majority of the
shareholders (permanent PKPU)
Clawback Available Not available
Management of process Bankruptcy receiver PKPU administrator
Enforcement of security Stayed for a maximum of 90 days, but Stayed throughout the PKPU period
this period can be terminated earlier
by the bankruptcy receiver, supervising
judge or court
Majority voting to More than half of unsecured creditors More than half of unsecured creditors
pass a resolution or in number, representing at least two- in number, representing at least two-
composition plan thirds of unsecured creditors in value thirds of unsecured creditors in value,
and more than half of secured creditors
in number, representing at least two-
thirds of secured creditors by value
71
Debby Sulaiman
Debby Sulaiman is a partner in Hiswara Bunjamin & Tandjung’s dispute resolution
and restructuring, turnaround and insolvency practices. Debby’s practice focuses on
complex high-value disputes, and she also has particular expertise in restructuring,
workouts and corporate insolvency, having acted for international clients in a number
of high-profile bankruptcy and restructuring cases in Indonesia.
Debby trained with Hiswara Bunjamin & Tandjung in Jakarta and in the London
office of associated firm Herbert Smith Freehills in her early years of practice. She
has extensive first-hand experience of representing and handling transnational and
complex commercial disputes before Indonesian courts, as well as in domestic and
international arbitration.
Debby not only advises clients on contentious matters, she also provides strategic
advice and dispute avoidance tactics, given her experience with distressed markets. Her
experience also includes antitrust and anti-monopoly disputes, construction disputes,
and regulatory and compliance issues.
Debby was a partner at two other Indonesian firms with international tie-ups before
returning to Hiswara Bunjamin & Tandjung in August 2017.
72
Hiswara Bunjamin & Tandjung is one of the leading commercial and corporate law firms in Indonesia,
specialising in protection of foreign investor interests in both transactions and contentious situations.
We provide high-quality, innovative legal services of an international standard based on informed and
commercially relevant local knowledge. Our client base includes some of the largest multinational corporations
and financial institutions. In recent years, we have acted on many of the largest transactions in Indonesia,
including privatisations, mergers and acquisitions, and corporate and debt restructurings.
Our restructuring and insolvency practice is ranked top-tier by The Legal 500 Asia-Pacific, and our firm
has been named Best Law Firm in Indonesia by FinanceAsia in 2020 and 2019, and Indonesian Law Firm of
the Year by Chambers Asia-Pacific in 2016 and 2012.
18th Floor, Tower 1, Sudirman 7.8 Debby Sulaiman

Jl Jend Sudirman Kav 7-8 debby.sulaiman@hbtlaw.com
Jakarta 10220
Indonesia
Tel: +62 21 3973 8000
Fax: +62 21 3973 6110
www.hbtlaw.com
73
Japan’s Insolvency Regime
Under Covid-19
Shinichiro Abe
Kasumigaseki International Law Office
In summary
The Japanese government has made provisions for special support to distressed
companies during the covid-19 pandemic. However, Japan will face thousands
of potential bankruptcy cases in the near future. This article outlines several
strategies to resolve this critical situation.
Discussion points
• Japanese bankruptcy cases in 2019
• Impact of the pandemic and the government response towards the business
sector in Japan
• Strategies to prepare for the flood of insolvencies

• Bankruptcy Act
• Civil Rehabilitation Act
• Corporate Reorganisation Act
• Act on Strengthening Industrial Competitiveness, etc
74
Kasumigaseki International Law Office | Japan’s Insolvency Regime Under Covid-19
General overview
Situation until the end of 2019
The number of insolvency cases filed at the Tokyo District Court was 9,578 in the fiscal year
2019 (between 1 April 2018 and 31 March 2019). This was a 3 per cent decrease compared to the
fiscal year 2018. The covid-19 pandemic will put an end to this downward trend. For the fiscal
year 2020, the number of insolvency filings in Japan is expected to skyrocket even beyond the
24,476 filings of fiscal year 2008 when the Lehman Brothers collapse occurred.
Impact of the pandemic and government response

The Japanese government declared a state of emergency on 8 April 2020, which was lifted on
25 May 2020. During – and even after – that period, most of the Japanese economy suffered
significantly and became ineffective, and the cash flow of companies fell dramatically. The
government subsidised the distressed companies, and several governmental financial institu-
tions lent special funds to them very quickly. The deadline for lending that money is the end of
September 2020. When the deadline passes, we may face the situation where the companies
will still struggle to recover their business, face a lack of cash, implement labour lay-offs, etc.
Japan must prepare for a flood of filings for insolvency. Based on data collected by a Japanese
research firm, the Japanese media has already reported that over 400 Japanese businesses
have gone bankrupt owing to the covid-19 pandemic.1
No special insolvency-related treatment has been issued by the Japanese government
for the covid-19 pandemic, while actions have been taken countries such as Spain, India and
Turkey, where treatment, such as suspension orders or amendments to insolvency law, has
been adopted to suspend filings for insolvency.
Strategies to prepare for the flood of insolvencies

The following strategic treatment is required to support distressed companies.
First, special institutions that specialise in restructuring companies must be established.
One good example is the Industrial Revitalisation Corporation (2003–2007), where non-
performing loans were dealt with by the Corporation, and several distressed large companies
survived with the help of the Corporation.
Second, there must be provisional loans that help the cash flow of distressed companies
during the pandemic and that are needed for those companies to survive.
Third, insolvency mechanisms, such as those under insolvency law, out-of-court work-
outs, and practices, should be easy to file, easy to handle and quick to rehabilitate distressed
companies.
Lastly, lists or pools of professionals who can deal with thousands of potential insolvency
cases must be created.
1 ‘Coronavirus bankruptcies total 400 in Japan’, (3 August 2020), NHK World – Japan: https://www3.nhk.
or.jp/nhkworld/en/news/20200803_29/.
75
Japan’s Insolvency Regime Under Covid-19 | Kasumigaseki International Law Office
Strategy one: establishing special institutions

Two main government institutions are involved in rehabilitating financially troubled compa-
nies: the Regional Economy Vitalisation Corporation of Japan (REVIC) for regional distressed
companies and the small and medium-sized enterprises (SMEs) revitalisation support coun-
cils for distressed SMEs. The government also established a government-subsidised fund
called the ‘Fund which strongly supports SME business’ to infuse equity into distressed SMEs
in August 2020. The Japan Investment Corporation, which is also subsided by the govern-
ment, was established to support corporate reorganisation and growth investment for rela-
tively large companies that are healthy or distressed. The Business Rehabilitation alternative
dispute resolution (ADR) process, which is a totally privately executed process, has already
been established for medium-sized and large companies.
The issue on which the government-backed institutions have been criticised for over a
decade is that these institutions and the government itself have made strong requests to
Japanese banks, including mega banks and regional banks, to require their financially trou-
bled borrowers to apply for assistance from a government-backed institution rather than
to seek insolvency proceedings under the court system or an out-of-court workout through
a private institution. These banks are supervised by the Financial Services Agency and are
unable to defy this ‘order’, even though they may view that private sector-oriented turna-
round professional companies would be more appropriate to rehabilitate these distressed
companies.
Meanwhile, Japanese turnaround companies have been growing and becoming more
sophisticated in the past 20 years, with a track record of restructuring many distressed
companies. Government-backed institutions have sometimes been too slow to step in owing
to the volume of distressed companies coming to them for assistance, which raised the risk of
losing the opportunity to rehabilitate distressed companies. The principle of ‘early revitalisa-
tion’ remains essential to rehabilitating distressed companies.
We hope that the private sector and public sector will coordinate with each other to allo-
cate potential cases for the purpose of efficient and early rehabilitation.
REVIC
REVIC was established in 2013 as the successor entity of the Enterprise Turnaround Initiative
Corporation of Japan (ETIC), which was established in 2009. REVIC is funded both by the
Japanese government and by Japanese financial institutions. Its main purpose had been to
support medium-sized, financially troubled companies, with a focus on business rehabilita-
tion; however, gradually, it has started to shift its focus to managing regional vitalisation
funds with regional banks, deploying rehabilitation specialists to the banks.
REVIC should have completed its mandate to support financially troubled companies;
however, because of the economic downturn owing to the pandemic, on 12 June 2020, the
Japanese government decided to extend its role to support financially distressed compa-
nies. Therefore, REIVIC is again expected to support regional medium-sized companies in
the future.
76
SME revitalisation support councils

SME revitalisation support councils, located in every prefecture in Japan, were formed to
support business rehabilitation (eg, providing support to draw up a business rehabilitation
plan and negotiating with banks) under the supervision of the Small and Medium Enterprise
Agency. SME revitalisation support councils will also support regional SMEs in various ways
since their branches are located in each prefecture. The professionals retained by those coun-
cils include tax accountants, certified public accountants, lawyers and business turnaround
consultants. From their formation in 2002 to the end of March 2019, the total number of cases
they have counselled is 44,391.
Turnaround ADR
History and system
Separate from the options offered by the government institutions discussed above, business
rehabilitation ADR procedures through entirely private institutions engaging in business
rehabilitation have also been gaining attention recently.
In 2001, a process under out-of-court workout guidelines was established in Japan. It was
an out-of-court workout process for debtors with only financial institutions as creditors. This
process, modelled on the INSOL Principles, INSOL being the world’s largest association of
insolvency professionals, was the first formal out-of-court work out process adopted in Japan.
In 2007, to improve some demerits or inefficiencies of this process, the ‘turnaround ADR’
process was established. The turnaround ADR process was developed through the frame-
work created by amendments to the Act on Special Measures for Industrial Revitalisation
and Innovation of Industrial Activities2 in 2007, and further through provisions in the Act
on Strengthening Industrial Competitiveness (the Industrial Competitiveness Act) of 2013.3
During the past 10 years, there have been 180 companies that have adopted business rehabili-
tation plans pursuant to the turnaround ADR process, representing 83 per cent of accepted
applications.
The overall approach of the turnaround ADR process is to assist a debtor in financial
difficulty to restructure the debts to its financial creditors, using a certified turnaround ADR
provider as a neutral third party. The aim is early diversion to preserve the business before
court proceedings become necessary. Because the turnaround ADR process does not include
the claims of trade creditors, these claims benefit from the protection of full repayment when
a debtor is rehabilitated using this process.
Regarding the participants of the turnaround ADR process, any legal entity may qualify as
a debtor for the process, and only natural persons are excluded from eligibility as debtors for
these purposes. Accordingly, large enterprises, such as Japan Airlines, medical corporations
and educational institutions, are all eligible. Anticipated creditors are financial institutions,
with particularly large trade creditors permitted on an exceptional basis where necessary,
2 Act No. 131 of 1999.

3 Act No. 98 of 11 December 2013.
77
although this exception has not been applied to date. This is essentially a process in which
trade creditors are not informed of the process, and modification of repayment terms, such
as rescheduling or reduction of debt, is implemented with financial creditors.
To act as arbiter between the debtor and creditors involved in the process, the Japanese
Association of Turnaround Professionals (JATP), a private organisation certified by both the
Ministry of Economy, Trade and Industry and the Ministry of Justice, is permitted to act in
this role. A panel of three process practitioners is usually elected to oversee the process.4 The
panel is usually composed of one presiding lawyer, one accountant and one consultant or
another lawyer, each with a background in business rehabilitation.
The process begins with a standstill notice to creditors to stop any action in relation to
collecting money from the debtor, including filing lawsuits. The first creditors’ meeting is held
within two weeks of the standstill notice. In the first meeting, the debtor explains its financial
situation, proposing a draft rehabilitation plan, and asks the creditors to approve the stand-
still until the process is completed. The debtor negotiates and modifies the rehabilitation plan
with the creditors. In the second meeting, the debtor proposes the final rehabilitation plan
and receives comments and questions from the creditors. In the third creditors’ meeting,
which is the final meeting, the creditors decide whether to approve the plan. The plan must
be approved unanimously for it to be executed.
If the plan is not approved unanimously, the debtor turns to a legal insolvency process,
such as the civil rehabilitation process or the corporate reorganisation process.
Strategy two: provisional loans from government financial institutions

To support the financing and prevention of their insolvency owing to the covid-19 pandemic,
SMEs must obtain working capital for their business to use in their day-to-day operations,
which may include rental fees, employment wages and the purchase of goods. The govern-
ment has promoted lending by government financial institutions. A summary of each type of
lending system is as follows.
Lending by the JFC

Funds provided by the Japan Finance Corporation (JFC) include:
• special lending to respond to the covid-19 pandemic: as the core of the lending system
for responding to the pandemic and to support the strong financing of businesses that
have suffered a decrease in sales as a result of the pandemic, the following provisions
have been introduced:
• the preparation of ¥60 million by the JFC and ¥300 million for small businesses,
providing a relatively large amount of financing; and
• the extension of repayment periods, with the repayment of funds for equipment to be
completed within 20 years (with an instalment within five years) and the repayment
4 Article 22(3), Regulation for Enforcement of the Act on Strengthening Industrial Competitiveness Relating
to the Ministry of Economy, Trade and Industry (Order of the Ministry of Economy, Trade and Industry No.
1 of 17 January 2014, ‘Regulations’).
78
of working capital within 15 years (with an instalment within five years), as well as
flexible treatment in accordance with the debtor’s financing situation;
• funds to improve the management of small businesses: to support the financing of
relatively small businesses, in addition to the usual lending limit of ¥20 million, it has
been made possible to lend a further ¥10 million to respond to the pandemic, for a total
¥30 million, and with a lower rate of interest than normally applied,5 as well as provide a
longer period for repayment; and
• a special loan to respond to drastic changes in the environment: this special loan is to
provide support for funding in respect of the daily sanitary activities of hotel businesses,
barbershops, public baths, restaurants and others that are susceptible to a downturn in
business owing to the pandemic.6
Safety net loans by the JFC

These loans are provided in response to major changes in the management environment
and have been used in the past in respect of earthquakes and similar events. These will also
be available in response to the covid-19 pandemic. The lending limit of ¥720 million for the
Finance Corporation for Small Business allows for a broad scope of financing needs to be met.
Emergency response loans from the Shoko Chukin Bank

As a non-secured, non-guaranteed loan with a lending limit of ¥300 million, this assistance
is characterised by the ability to disburse a relatively large loan. It is expected that certain
specified businesses will be able to use the Interest Aid System,7 which will make it possible
for those businesses to receive, effectively, a no-interest, non-secured loan.
CGGs
Japan, as is the case for many other countries, has a system of credit guarantee corporations
(CGCs), which guarantee loans from private banks. With the guarantee of a CGC, even if the
debtor goes insolvent, the bank can be certain that it can recover the guaranteed amount
through the CGC. Normally, there is a maximum of ¥280 million for general guarantees;
however, in light of the situation resulting from the pandemic, two layers of guarantees have
been added: the safety net guarantee of ¥280 million and an ‘emergency-related guarantee’
of a further ¥280 million, giving a maximum total of ¥840 million.
5 The normal rate of interest is 0.9 per cent.

6 Limit on the amount of lending: ¥10 million (¥30 million for hotel businesses). Repayment periods: for
working capital, within seven years (instalment within three years); and for funds for equipment, within 10
years (an instalment within four years). Basic rate of interest: the basic rate of interest (in certain cases,
the basic rate of interest is 0.9 per cent).
7 The institutions that will provide the interest aid are designated by the government.
79
By taking this action, the government can encourage lending by financial institutions. The
CGC can guarantee repayment of the entire loan in the case of covid-19 pandemic-related
loans. In normal times, the CGC guarantees provide for only up to 80 per cent of the amount
of the loan.
Strategy three: insolvency mechanism

For the purpose of preparing for a potential flood of insolvencies, a framework and practice
must be in place for an efficient route to resolution, whether in the form of court proceedings
or out-of-court workouts.
Early action is essential to preserve enterprise value. For this purpose, companies can file
for an out-of-court workout under Japan’s turnaround ADR process as a first step. Creditors of
this process are mainly financial institutions. If they unanimously agree to the rehabilitation
plan prepared by the debtor, this completes the process for a successful rehabilitation under
which the company survives. However, because of the situation resulting from the covid-19
pandemic, the debtors may give up on the ADR process before completion because one or
more creditors raise strong objection to their plans. In such a case, they would then file for a
legal insolvency procedure, such as the civil rehabilitation procedure or corporate reorganisa-
tion procedure, under which the rehabilitation plan (the reorganisation plan) can be approved
by a legal majority of the creditors, including financial creditors and trade creditors.
There have been several cases, such as the Japan Airline case, in which the debtor filed for
the turnaround ADR process but then moved to legal insolvency procedures in Japan. In the
Japan Airline case, the largest Japanese bankruptcy case in recent history, although the matter
was ultimately moved to corporate reorganisation proceedings, turnaround ADR was initially
pursued as a means to explore early restructuring through a private workout to preserve
corporate value and for a swift reorganisation. In this way, turnaround ADR has become the
first choice for the restructuring of medium-sized to large companies.
On the other hand, it is also true that there remain some issues with turnaround ADR. In
particular, especially as businesses become increasingly global, the requirement to achieve
unanimous consent of the creditors covered under the process will become increasingly
untenable. To gain the acceptance of all creditors where the creditors are based in various
countries, with differing fundamental goals and differing interests in the outcome, is an
almost impossible prospect. Going forward, the challenge for turnaround ADR in this respect
will be to establish a system for consent by a majority and to bind the objecting creditors to
the result. Before accepting this new system, a more efficient practice for the legal insolvency
system must be pursued.
Strategy four: capable turnaround professionals

For the Japanese legal system to be ready to respond to the flood of insolvencies expected to
arise as a result of the pandemic, the legal community in Japan must urgently begin gath-
ering and preparing insolvency professionals, such as lawyers, accountants and consultants,
from both within and outside Japan to address the situation. In particular, the legal profes-
sion in Japan should coordinate with global associations, such as INSOL, the Turnaround
80
Management Association, the International Insolvency Institute and the International Bar
Association to pool recommended professionals with the expertise to handle the cross-border
aspects of Japanese insolvency cases.
Conclusion
The covid-19 pandemic is on its way to causing a worldwide economic depression, the nature
of which many expect will be completely different from that of both the Great Depression of
the 1930s and the subprime mortgage crisis of 2008. We still have time to prepare for this
depression. The Japanese government has enacted various emergency measures to stimulate
the economy and support struggling businesses; however, the time will soon come when
government funding will run out. When this happens, Japan’s insolvency professionals and
institutions will face a tsunami of bankruptcy cases. Now is the time to prepare.
81
Shinichiro Abe
Kasumigaseki International Law Office (KILO)
Shinichiro Abe is one of Japan’s leading specialists in Japanese and international corpo-
rate restructuring and insolvency law. He is also well versed in domestic corporate
and commercial transactions and disputes, including domestic and international arbi-
tration. Shinichiro has also contributed to numerous publications and has spoken at
various seminars and events on the topics of insolvency, arbitration and mediation, and
other topical subjects. Shinichiro is a visiting law professor both at Chuo Law School
and Kokushikan University (Department of Law).
He established his own law firm in 2016 and is a member of various professional affil-
iations, with roles including the following: former chair of the insolvency committee of
the International Pacific Bar Association; board member of the International Insolvency
Institute; board member of the Japanese Association for Business Recovery (affiliation
of Insol); and board member of the Japanese Association of Turnaround Professionals.
His recent publications include:
• ‘Recent Trends in Japanese ADR for Restructuring Insolvent Business’, KLRI Journal
of Law and Legislation, Vol 9 Number 2, 2019, (KORIA LEGULATION RESEARCH
INSTITUTE, November 2019);
• ‘Recent developments in Japanese insolvency practice’, International Insolvency &
Restructuring Report 2018/2019 (Capital Market Intelligence, 2018);
• ‘The Role of Mediation in Japanese Insolvency Practice’, Transnational Dispute
Management 4, 2017;
• ‘Japan’, Cross-Border Insolvency, Globe Law and Business’, 2016 (co-author);
• A Revised Corporate Law, Yachiyo Shuppan, 2016 (co-author); and
• ‘Creditor Reorganization Procedure Strategy’, Final Results of Reorganization, Shoji
Homu, February 2015.
82
KILO was established in 2016 as a new kind of boutique firm that can deliver superior expertise. KILO provides
the highest-quality legal services, with speed and efficiency, and draws on our relationships with professionals
in Japan and across the globe, as well as making effective use of technology.
KILO focuses on the areas of financial restructuring and international dispute resolution (litigation,
arbitration and mediation) as well as general corporate-related issues.
Kasumigaseki Building Shinichiro Abe

3-2-5 Kasumigaseki sabe@kiaal.com
Chiyoda-ku
Tokyo 100-6023
Japan
Tel: +81 3 5157 1218
www.kiaal.com
83
Recent Developments in
Singapore’s Restructuring
Regime
Meiyen Tan, Keith Han, Angela Phoon and Zephan Chua
Oon & Bazul LLP
In summary
This chapter discusses certain recent developments and issues that have emerged
in Singapore’s fast-developing debt restructuring regime.
Discussion points
• Related party creditor voting in a scheme meeting
• Recent developments in the case law on super-priority rescue financing under
section 211E of the Singapore Companies Act (Cap 50)
• Recent case law on the substantial connection test for foreign companies
looking to apply for a section 211B moratorium in Singapore

• Insolvency Restructuring and Dissolution Act
• Re PT MNC Investama TBK [2020] SGHC 149
• Re Design Studio Group Ltd and other matters [2020] SGHC 148
84
Oon & Bazul LLP | Recent Developments in Singapore’s Restructuring Regime
Introduction
The economic uncertainty and financial distress brought by the covid-19 pandemic have
not spared Singapore. While the unprecedented amount of government stimulus and emer-
gency (but temporary) legislative measures have salved the damage in the short term, the
general sense is that many companies will require some form of debt restructuring in the
months to come.
We have already seen a few high-profile restructurings involving mainly commodity
trading companies, including Agritrade International, Hin Leong Trading and ZenRock
Commodities Trading.1 While these cases involve allegations of financial impropriety, the
unfavourable economic environment undoubtedly played a role in pushing these companies
into formal restructuring processes.
The Insolvency, Restructuring and Dissolution Act (IRDA) also came into force on 30 July
2020. The IRDA consolidates Singapore’s personal and corporate insolvency and debt restruc-
turing laws into a single piece of legislation and is intended to be the centrepiece legislation
dealing with restructuring, insolvency and bankruptcy matters.
Against the above backdrop, the development of Singapore’s jurisprudence continues
apace. In this chapter, we will discuss a number of recent developments and issues that have
emerged in Singapore’s fast-developing debt restructuring regime, namely:
• the issue of related party creditor voting in a scheme meeting and how and to what extent
those votes should be discounted;
• recent case law on the substantial connection test for foreign companies looking to apply
for a section 211B moratorium in Singapore; and
• recent case law on super priority rescue financing under section 211E of the Singapore
Companies Act (Cap 50).
These issues are likely to gain significant prominence as companies and businesses in
Singapore continue to grapple with the impact of the covid-19 pandemic in the months to come.
Related creditors’ voting regulation in section 210(1) scheme of arrangement

Under section 210 of the Companies Act (Cap 50) (the Companies Act),2 a proposed creditors’
scheme of arrangement is considered approved if more than 50 per cent of the scheme credi-
tors or class of scheme creditors (present and voting) holding at least 75 per cent in value of
debt claims agree to the proposed scheme.
1 Neil Hume & Stefania Palma, ‘Community trading blow-ups dent Singapore’s reputation’, Financial Times
(21 May 2020): https://www.ft.com/content/28356e03-1ef9-46ab-aa08-8751687e146d (last accessed 3
August 2020).
2 Section 210 of the Companies Act (Cap 50, 2006 Rev Ed).
85
Recent Developments in Singapore’s Restructuring Regime | Oon & Bazul LLP
After the voting thresholds have been met, the court will still need to be satisfied, among
other things, that those who attended the meeting were fairly representative of the class of
creditors and that the majority did not coerce the minority to promote interests adverse to
those of the class whom the majority is purported to represent.3
Where there are related-party creditors, the question arises in respect of how their votes
should be treated. The development of the jurisprudence in this area will have a real impact
on the susceptibility of a scheme being challenged at the sanction stage.
The test for establishing related creditors

The starting point is that the courts will generally attribute less weight to the votes of related-
party creditors. In Wah Yuen Electrical Engineering Pte ltd v Singapore Cables Manufacturers
Pte Ltd [2003] 3 SLR(R) 629, the Singapore Court of Appeal explained that this is because
‘the related party may have been motivated by personal or special interests to disregard the
interest of the class as such and vote in a self-centred manner’.4
It is understood that such personal and special interests would arise by virtue of the
related party creditors’ relationship to the applicant company.5 What, then, are the guidelines
for determining whether a scheme creditor is related to the scheme company?
This issue was more recently revisited by the Court of Appeal in SK Engineering Construction
Co Ltd v Conchubar Aromatics Ltd and another appeal [2017] SGCA 51 (SK Engineering).6 In that
case, the Court declined to definitively set out what constitutes a related creditor as the ‘objec-
tivity of a creditor can be undermined in a variety of ways’.7 Nevertheless, the Court observed
that the presence of one or more of the following (non-exhaustive) factors could point towards
the existence of a relationship between a creditor and a scheme company:
• the scheme company controls the creditor or vice versa, or they share a common control-
ling shareholder;
• the creditor and the scheme company have common shareholders who hold less than
50 per cent but more than de minimis stake in both companies;
• the creditor and the scheme company have common directors, in particular, directors
who propose or support the scheme;
• the scheme company and the creditor do not have any common shareholders, but their
controlling shareholders are either: (i) related by blood, adoption or marriage, or (ii) where
the controlling shareholders are corporate entities, in turn controlled by individuals who
are related by blood, adoption or marriage; and
3 The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd
and another appeal [2012] 2 SLR 213 at [70].
4 Wah Yuen Electrical Engineering Pte ltd v Singapore Cables Manufacturers Pte Ltd [2003] 3 SLR(R) 629 at
[35].
6 SK Engineering Construction Co Ltd v Conchubar Aromatics Ltd and another appeal [2017] SGCA 51.
7 id at [41].
86
• the creditor is related by blood, adoption or marriage to the controlling shareholders or

directors of the scheme company.8
The above factors are helpful in identifying related party creditors. Further guidance can also
be gleaned from other jurisdictions, such as the United States and Canada, where the relevant
statutes deal directly with the definition of related creditors.
Canadian position
Related parties are defined under the relevant Canadian legislation.9 Such related parties
may only vote against, and not for, a compromise or arrangement relating to the scheme
company.10 This effectively wholly discounts the votes of parties found to be related to the
scheme company.
Of particular interest is section 4(2)(c) of the Canadian Bankruptcy and Insolvency
Act, which lists situations in which two entities will be considered related to each other.
Some of these situations were not enumerated by the Court in SK Engineering and include
scenarios where:
• one of the entities is controlled by one person and that person is related to each member
of an unrelated group that controls the other entity;
• one of the entities is controlled by a related group of which a member is related to each
member of an unrelated group that controls the other entity; or
• both entities are controlled by different unrelated groups, and each member of one of the
groups is related to at least one member of the other group.11
US position
In the United States, related creditors refer to both statutory insiders and non-statutory
insiders. As explained by the United States Court of Appeals, Ninth Circuit, in US Bank NA,
Trustee v Village at Lakeridge, LLC (9th Cir 2016) 814 F3d 993 (Lakeridge), statutory insiders have
‘a sufficiently close relationship with a debtor to warrant special treatment’,12 and are persons
explicitly described in section 101(31) of the US Bankruptcy Code (the Bankruptcy Code).13 For
a scheme (referred to as ‘plan’ in the United States) to be confirmed, section 1129(a)(10) states
that there must be at least one class of creditors exclusive of insiders that votes to accept
the plan.14
8 ibid.
9 Section 2(2) of Canada’s Companies’ Creditors Arrangement Act, read with section 4 of the Bankruptcy
and Insolvency Act.
10 Section 22(3) of the Companies’ Creditors Arrangement Act (RSC 1985, c C-36).
11 Section 4(2)(c) of the Bankruptcy and Insolvency Act (RSC 1985, c B-3).
12 US Bank NA, Trustee v Village at Lakeridge, LLC 814 F3d 993 (9th Cir 2016) at 999.
13 11 USC section 101(31).
14 11 USC section 1129(a)(10).
87
As in Canada, some of the situations listed in section 101(31) have yet to be considered by
the Singapore courts; for instance, a partnership in which the debtor company is a partner
and a general partner of the debtor would also be considered as ‘insiders’ and related party
creditors under section 101(31).15
Section 101(31) of the Bankruptcy Code is not an exhaustive list. The courts in the United
States have recognised some persons not on that list as insiders – commonly known as
‘non-statutory insiders’. In this respect, the court in Lakeridge held that a creditor is a non-
statutory insider if (i) the closeness of its relationship with the debtor is comparable to that
of the enumerated insider classifications in section 101(31), and (ii) the relevant transaction is
negotiated at less than arm’s length.16
The relationship must be close enough to gain an advantage attributable simply to
affinity rather than to the ordinary course of business dealings between the parties.17
Further, a showing of actual control of the debtor is not necessary to render a creditor a
non-statutory insider.18
In Singapore, ultimately, the issue of whether a particular creditor is related to the scheme
company involves a fact-sensitive and fact-intensive analysis.19 The court in SK Engineering
shed light on what exactly a related party creditor would entail by providing a list of factors
indicating a relationship between a creditor and the scheme company. Importantly, the court
recognised that this list of factors is non-exhaustive, and there can be other situations in
which related party creditor issues would arise. It remains to be seen how the Singapore
courts will deal with other fact situations in the future.
Applicability of discounts on the votes of related creditors

Prior to SK Engineering, the court in The Royal Bank of Scotland NV (formerly known as ABN
Amro Bank NV) and others v TT International Ltd and another appeal [2012] 2 SLR 213 held that
wholly owned subsidiaries of a scheme company should have their votes discounted to zero,
and effectively be classified separately from the general class of unsecured creditors. This is
because wholly owned subsidiaries are entirely controlled by their parent company and can
be seen as ‘extensions’ of the scheme company itself.20
It was also held that other related party creditors, apart from wholly owned subsidiaries,
should generally have their votes discounted by the value of their interest in the company (ie,
a partial discount).21
15 ibid.
16 US Bank NA, Trustee v Village at Lakeridge LLC (9th Cir 2016) 814 F3d 993 at 1001.
17 Friedman v Sheila Plotsky Brokers Inc 126 BR 63 (9th Cir BAP 1991) at 70.
18 Schubert v Lucent Technologies Inc 554 F3d 382 (3rd Cir 2009) at 396.
19 SK Engineering Construction Co Ltd v Conchubar Aromatics Ltd and another appeal [2017] SGCA 51 at
[41].
21 id at [170]–[171].
88
The application of a partial discount to the votes of related creditors has subsequently
been criticised for being too arbitrary and subjective, leading the court in SK Engineering to
suggest, in obiter, that a more principled approach would be to wholly discount the votes of
the creditor once it is found to be related to the scheme company.22
There is, however, a real risk that an approach that wholly discounts related party credi-
tors’ votes purely because of their relationship to the company may end up impeding effective
restructurings.
An illustration of this would be the restructuring of honestbee Pte Ltd (honestbee) in
Singapore. The online grocery and food delivery business honestbee ran into financial diffi-
culties and commenced restructuring proceedings. The three largest creditors, one of which
also held a floating charge over all the assets of honestbee, collectively holding approximately
89.8 per cent of the debt continued to finance the business of honestbee while it worked on the
restructuring. One of the three largest creditors, an individual, was also the general partner
in one of these creditors and a director in the other creditor. He was also for a short period
of time the interim CEO and a director of honestbee after the previous management was
removed. He also held 0.96 per cent of the shares of honestbee. In the proposed restructuring,
all the scheme creditors were unsecured creditors to be placed in one class, and entitled to the
same recovery under the scheme. The opposing creditor (to the scheme) (holding 1.65 per cent
of the debt) argued that the votes of these three largest creditors should be wholly discounted
as they were related creditors of honestbee.
Applying the court’s obiter dicta approach in SK Engineering, those related creditors would
have their votes discounted to zero, effectively giving the opposing creditors a veto right.
This is notwithstanding the fact that the individual related creditor only held a de minimis
shareholding stake and was not entitled to vote on general matters of honestbee, other than
as provided for in the Companies Act. Further, despite his investments in honestbee, and his
role in the other two largest creditors and honestbee, there was no evidence that he or the
other two largest creditors had any special interest that might have motivated them to act
differently.
Although honestbee’s application for leave to convene a scheme meeting under section 210
of the Companies Act did not proceed, and the related party creditor issues were never
decided, this case highlights the pitfalls of wholly discounting related party creditors’ votes
purely on the basis of their relationship to the scheme company. Such an approach could
inadvertently complicate the genuine efforts of a scheme company and deter creditors (espe-
cially those found to be related to the scheme company) from supporting and investing in the
company’s restructuring efforts.
Other jurisdictions, such the United Kingdom and Hong Kong, have instead taken a more
nuanced approach to the discounting of related creditors’ votes.
22 SK Engineering Construction Co Ltd v Conchubar Aromatics Ltd and another appeal [2017] SGCA 51 at
[67].
89
UK position
In the United Kingdom, related party creditors, or creditors with ‘special interests’, do not
have their votes discounted merely because they are related to the scheme company. Instead,
the focus is on whether the classes were ‘fairly represented’.23 Therefore, the creditors whose
votes are to be discounted must have an interest adverse or contrary to the interests of the
class of creditors as a whole.24 There must also be a strong and direct causative link between
the creditor’s decision to support the scheme and the creditor’s adverse interest such that
the creditor’s voting decision was driven by the adverse interest.25
In this regard, the court in Apcoa Parking Holdings GmbH & Ors [2014] EWCA 3849 laid
down the ‘but for’ test, namely that the person challenging the relevant vote must show that
an intelligent and honest member of the class without those collateral interests would not
have voted in the way he or she did.26 In that case, the court did not find that the senior lenders
had a collateral interest and did not discount their votes. In Re Apcoa, the senior lenders had
provided a bridging loan, but the court noted that the bridging loan was relatively small. The
court also accepted evidence from the senior lenders that they were motivated to approve
the scheme not because of the bridging loan, but because of their interest in protecting their
creditor position.27
In Re Lehman Brothers,28 a certain creditor group (the Wentworth Group) with senior
claims had entered into a joint venture with a creditor with a subordinated debt that entitled
them to a proportion of the recoveries of that creditors’ subordinated debt.29 The opposing
creditors argued that the Wentworth Group had voted in favour of the scheme to enhance
payments to the subordinated member rather than to further its own interests as creditors
within that class. The court held that a special interest that merely provides an additional
reason for a creditor to support the scheme does not undermine the representative nature of
the vote.30 Instead, it must be demonstrated that there was a strong direct and causative link
between the adverse creditor’s interest and the creditor’s decision to support the scheme.31
In that case, the court noted that the special interest identified was ‘adverse’ to the interests
of the rest of the class.32 However, the court declined to accept that this was a dominant or
causative reason for their support of the scheme. The court further noted that even after
excluding the Wentworth Group, 93.9 per cent in number and 62.2 per cent in value of the
23 Re Telewest Communications plc (No 2) [2004] EWHC 1466 at [20].

24 Lehman Brothers International (Europe) (In Administration) [2018] EWHC 1980 at [89].
25 id at [91].
26 Apcoa Parking Holdings GmbH & Ors [2014] EWCA 3849 at [129]–[130].
27 id at [103].
28 Lehman Brothers International (Europe) (In Administration) [2018] EWHC 1980.
29 id at [114].
30 id at [89].
31 id at [104].
32 id at [128].
90
creditors had voted in favour of the scheme.33 This supported the view that the dominant
reason for the Wentworth Group to support the scheme was the principal objectives of the
scheme as a whole instead of the special interest.
Hong Kong position

Similar to the position in the United Kingdom, the courts in Hong Kong have declined to
discount the votes of related creditors purely by reason of relation. As Lord Millett explained
in UDL Argos Engineering & Heavy Industries Co Ltd & Ors v Li Oi Lin & Ors [2001] 3 HKLRD 634,
the court will discount or disregard altogether the votes of those who, though entitled to vote
at a meeting as a member of the class concerned, have such personal or special interests in
supporting the proposals that their views cannot be regarded as fairly representative of the
class in question.34
In determining whether the related creditors were motivated by interests other than
those to which an intelligent and honest person, acting in the interests of the class as a
whole, might have regard, the commerciality of the proposed scheme would be a significant
consideration.35
In our view, a focus on whether the classes of creditors are fairly represented should be
preferred to a strict discounting of related party creditors’ votes purely on the basis of these
creditors’ relationships to the scheme company. Significantly, the approach adopted in the
UK and Hong Kong courts would reduce the likelihood of holdouts by minority creditors that
will hinder effective restructurings.
Substantial connection test for a scheme moratorium

The Singapore High Court, in Re PT MNC Investama TBK [2020] SGHC 149 (Re PT MNC),
recently addressed the question of whether a foreign company has the requisite standing to
apply for a section 211B36 moratorium under the Singapore Companies Act.
Re PT MNC is the first known application by an Indonesian company to the Singapore
Court for moratorium relief, and provides useful insights on the factors taken into account in
determining whether a company has a substantial connection with Singapore under section
351(2A) of the Singapore Companies Act.37
In particular, this case clarifies that section 351(2A) is not an exhaustive list, and having
company securities traded on a Singapore exchange is a strong indicator of a substantial
connection with Singapore.38
33 id at [131].
34 UDL Argos Engineering & Heavy Industries Co Ltd & Ors v Li Oi Lin & Ors [2001] 3 HKLRD 634 at [24].
35 Re App (Hong Kong) Ltd [2004] HKCFI 229 at [37].
36 With the enactment of the IRDA, the moratorium provision is now section 64 of the IRDA, but the
provisions are the same and operate the same way.
37 With the enactment of the IRDA, the provision setting out the factors in determining substantial
connection is now section 246(3) of the IRDA, but the provisions are the same and operate the same way.
38 Re PT MNC Investama TBK [2020] SGHC 149 at [13].
91
Background
The applicant in Re PT MNC was an investment company listed on the Indonesia Stock
Exchange that held interests in various industries, including media, financial services, life-
style property and energy.39 In 2018, it had issued US$213 million worth of 9 per cent senior
secured notes (the Notes), which were listed on the Singapore Stock Exchange (SGX).40
The applicant encountered financial difficulties because of the covid-19 pandemic and
sought moratorium relief under section 211B(1) of the Companies Act so that it could engage
in negotiations with the holders of the Notes.
Substantial connection with Singapore

The court noted that under Singapore law, a foreign company would only have legal standing
to make an application under section 211B if it had a ‘substantial connection’ with Singapore,
and was thus liable to be wound up in Singapore.41
Section 351(2A) of the Companies Act provides a non-exhaustive list of factors that might
support a determination of ‘substantial connection’. These include:
• Singapore being the centre of the company’s main interests;
• the company carrying on business in Singapore or having a place of business in Singapore;
• the company being a foreign company that is registered under Division 2 of Part XI of the Act;
• the company having substantial assets in Singapore;
• the company having chosen Singapore law as the law governing a loan or other trans-
action, or the law governing the resolution of one or more disputes arising out of or in
connection with a loan or other transaction; and
• the company having submitted to the jurisdiction of the court for the resolution of one or
more disputes relating to a loan or other transaction.
However, in Re PT MNC, the applicant could invoke none of the statutorily enumerated factors.
Nevertheless, the court confirmed that these enumerated factors were not an exhaustive and
definite list and, applying the ejusdem generis approach to statutory interpretation, rational-
ised that the presence of business activity, control and assets in Singapore with some degree
of permanence would generally satisfy the ‘substantial connection’ test.42
On the facts, the court found that having company securities traded on the SGX would
have required the company to subject itself to Singapore regulations and laws on the listing
of securities and was akin to having business activity in Singapore of some degree of perma-
nence.43 Thus, the court held that the fact that the Notes were being traded on the SGX was
in and of itself sufficient to establish substantial connection.44

40 ibid.
41 Companies Act (Cap 50, 2006 Rev Ed) ss 211A(1) and 351.
43 ibid.
44 Re PT MNC Investama TBK [2020] SGHC 149 at [13] to [14].
92
Can other factors also establish substantial connection?

The Singapore High Court’s decision in PT MNC follows an earlier 2019 unreported decision of
China Sport International Limited, which was the first foreign-incorporated company to enter into
judicial management in Singapore following the wide-ranging 2017 legislative amendments to
the Singapore Companies Act. In that case, the court also found that the company’s listing on
the SGX, and the fact that it was subject to the requirements for financial reporting, accounting
standards and audit under the Companies Act were factors that established Singapore as the
company’s centre of main interest and thereby its substantial connection to Singapore.45
The PT MNC case is also interesting as the applicant there had also pointed to other
factors – such as the situation of its debt service account in Singapore, the fact that the Notes
were arranged by Singapore-based banks, and that the account charge over the debt service
account is governed by Singapore law – as also buttressing its argument that the substantial
connection test was satisfied.
Given its finding that having securities traded on the SGX satisfied the ‘substantial
connection’ test, the court declined to make any findings on these other factors. It is fair to
say, however, that the decision leaves the door open for foreign companies to argue in future
cases that the ‘substantial connection’ test is satisfied based on many of the other criteria
used in other jurisdictions, in particular the United States (where payment of a retainer to a
US law firm is considered sufficient).
A wider jurisdictional ambit for foreign companies to avail themselves of the court-
supervised restructuring regime in Singapore would accord with Singapore’s stated goal of
becoming a restructuring hub. Nevertheless, it would appear that the Singapore Court will
still require, at minimum, companies to be involved in activities of some degree of perma-
nence in Singapore.
Super-priority rescue financing: debt roll-ups

On 28 May 2020, in an application by Design Studio Group Ltd (Design Studio) and five of
its subsidiaries,46 the Singapore High Court granted approval for S$62 million super-priority
rescue financing with a debt roll-up pursuant to section 211E(1)(b) of the Companies Act.47
The Design Studio group of companies are collectively involved in the construction,
upgrading and interior fit-out industries. They had experienced liquidity issues owing to
competition in the industry and initiated formal restructuring proceedings in the Singapore
High Court.48
45 Debby Lim, ‘China Sportswear Manufacturer is the First Foreign Company to be Placed Under Judicial
Management in Singapore’, Shook Lin & Bok LLP, October 2018 (accessed on 9 January 2019).
46 In the case, it was the fifth applicant that had applied for an order granting super-priority under section
211E(1)(a) of the Companies Act, However, we will refer to the applicant as ‘Design Studio’ for ease of
reference.
47 Re Design Studio Group Ltd and other matters [2020] SGHC 148.
48 Dominic Lawson, ‘Landmark debt roll-up approved for Singapore DIP financing’ (1 June 2020) Global
Restructuring Review.
93
Design Studio sought rescue financing from its existing creditors, HSBC (Singapore
branch) (HSBC) and Design Studio’s controlling shareholder, Depa United Group (DEPA), both
of which sought super-priority (ie, priority over all preferential and unsecured debt) over both
the new monies provided.49 What sets this case apart is that part of the new monies was to be
used to pay off existing prepetition debt owed to HSBC and DEPA. This effectively ‘rolls up’ the
prepetition debt into the super-priority post-petition debt and is known as a debt roll-up.50
The Court considered two main issues:51
• whether the proposed financing constituted rescue financing under section 211E(9); and
• whether it was appropriate for the Court to exercise its discretion in favour of the
application.
The proposed financing constituted rescue financing

The Court concluded that debt roll-ups were permissible under section 211E and would
constitute rescue financing if it ultimately created some new value for the company and
supported its restructuring.52 The Court added that roll-ups that involved new funds used
largely to repay old debts would not be regarded as rescue financing. It also qualified that this
issue would have to be scrutinised on a case-by-case basis.
The Court found that the proposed financing constituted rescue financing under
section 211E(9) as it would enable Design Studio to continue performing project contracts and
result in better recovery to creditors than in a liquidation scenario. Out of the S$62.08 million
extended by DEPA and HSBC in the proposed financing, S$2.7 million was allocated as fresh
working capital and S$30 million was allocated to issue and renew performance bonds and
guarantees for existing and new construction projects.53 The Court also accepted the analysis
of the chief restructuring officer (CRO) that creditors would receive zero to 3.94 cents to the
dollar in a liquidation scenario in at least two years, whereas they would receive up to 8.12
cents to the dollar by the third quarter of 2020 in a scheme scenario enabled by the proposed
financing.54
The court should exercise its discretion to grant super-priority

Drawing guidance from parliamentary debates, committee reports and US cases, the Court
arrived at four main factors to guide its exercise of discretion in granting super-priority:55
• alternative financing: whether better financing proposals are available and if the applicant
had made reasonable efforts to procure those offers;
49 ibid.
50 Re Design Studio Group Ltd and other matters [2020] SGHC 148 at [7].
51 id at [35]. The Court also listed the issue of ‘[w]hether Design Studio would not have been able to obtain
rescue financing unless super-priority was given’, but this was subsequently considered within the second
issue.
52 id at [46] and [49].
53 id at [38].
54 id at [40].
55 id at [33].
94
• terms of proposed financing: whether the terms were made in good faith and for a proper
purpose, as well as were reasonable and adequate;
• viability of restructuring: on an assessment on how the rescue finances are to be used,
whether restructuring is likely to succeed; and
• creditors’ interests: whether the interests of other creditors would be unfairly prejudiced
by the arrangement.
The Court then reviewed foreign literature on roll-ups and noted the concern of unequal
treatment of creditors in roll-ups. It added that in considering a roll-up, the court should
‘especially consider’ the extent to which other unsecured creditors are likely to benefit or be
prejudiced,56 and give special note to creditors whose priorities would be lowered.57
Alternative financing
The Court was satisfied that there was a bona fide attempt in obtaining alternative funding.
Design Studio had engaged ‘a reputable independent global financial services firm’ to seek
potential lenders. While five financiers expressed interest, none were able to match the much
lower interest rates and fees of HSBC and DEPA.
Terms of proposed financing

The Court was satisfied that the proposed financing was in the exercise of sound and reason-
able judgment. In reaching this, the Court considered the dearth of willing financiers, the
industry need for performance guarantees and that a majority of the proposed financing
was to constitute new funding to create new value as opposed to being used to repay
prepetition debt.
Viability of restructuring
The Court was satisfied that the proposed financing would allow Design Studio to take up new
projects and keep the group as a going concern, which would result in a more advantageous
realisation of assets than in a winding-up.
Creditors’ interests
The Court was satisfied that the proposed financing was in the creditors’ best interests. Their
likely recovery in a scheme was much more advantageous than in a liquidation scenario, and
it was telling that none of the creditors opposed the proposed financing. Further, HSBC was
already the sole secured creditor, and the roll-up did not serve to allow it to jump ahead of
the other creditors.
56 id at [53].
57 id at [54].
95
Analysis
The provisions on super-priority rescue financing had been imported into Singapore in 2017,
from the US debtor-in-possession financing provisions, to aid and enhance the rescue options
available to distressed companies. Super-priority gives security to the investor by giving him
or her the first cut from the assets of the company if the restructuring fails. Debt roll-ups
make the deal even more attractive by allowing the investor-creditor’s prepetition debt to be
rolled up into the super-priority rescue financing.
Before this case, super-priority orders had only been granted in two other instances: the
restructurings of Asiatravel.com Holdings Ltd and Swee Hong Limited. Re Design Studios is
the first case involving a debt roll-up and is a timely and welcome development, particularly
given the current economic climate resulting from the covid-19 pandemic.
This decision also leaves the door open for cross-collateralisation in Singapore. In Re
Design Studio, arguments on cross-collateralisation were raised, but the Court did not make
any ruling on them since those issues did not arise on the facts. Cross-collateralisations are
similar to debt roll-ups in that they both result in elevating the priority of prepetition debts.
However, instead of granting super-priority to prepetition debt, cross-collateralisation
involves the debtor granting a prepetition lender a security interest in assets to secure both
prepetition and post-petition debt.58 Similar to debt roll-ups, cross-collateralisations are
highly controversial as they disrupt the pari passu principle.59 Yet, the availability of cross-
collaterisation may help convince an investor to inject new monies in circumstances where the
investor would otherwise be unwilling or unable to invest. Based on the previous approaches
taken by the Singapore Court, the Court is likely to very closely scrutinise any claims that
rescue financing will otherwise not be available unless cross-collaterisation is given.
The development in Singapore case law on rescue financing thus far has shown that the
Singapore Court is flexible and open to different forms of rescue financing, provided that the
process is not abused. This bodes well for the creation of a more vibrant distressed financing
and secondary debt market, which is an important element of any debt restructuring regime.
58 Glossary ‘Cross-Collateralization’: https://content.next.westlaw.com/Document/

I3a9a0f30ef1211e28578f7ccc38dcbee/View/FullText.html?contextData=(sc.Default)&transitionType=Default
&firstPage=true&bhcp=1> (accessed on 29 December 2019).
59 McCormack Gerard, ‘Corporate Rescue Law in Singapore and the Appropriateness of Chapter 11 of the US
Bankruptcy Code as a Model’ (2008) 20 SAcLJ 396, at [88].
96
Meiyen Tan
Oon & Bazul LLP
Meiyen’s main areas of practice include cross-border disputes, consensual and non-
consensual insolvency and restructuring, corporate fraud and investigations. She has
acted for and advised individuals, multinational corporations, court-appointed admin-
istrators, distressed and special situations funds and banks in Singapore and abroad.
Prior to joining Oon & Bazul, Meiyen was a partner at one of the Big Four domestic law
practices in Singapore. She is also the first female to lead a restructuring and insolvency
legal practice in Singapore.
Meiyen’s work has been recognised in several legal publications: Global Restructuring
Review featured her as one of the ‘Names to know in Singapore’ and highlighted her
experience ‘acting on a US$1.11 billion hotel group’s restructuring’ and ‘luxury plane
operator Zetta Jet’s US Chapter 7 trustee’. She is also recommended by The Legal 500
Asia Pacific for the area of restructuring and insolvency, where she is declared to be an
‘insolvency specialist’ who is ‘very good with clients, extremely smart, commercially
minded and realistic’.
She is one of the founding members of the Singapore Network of the International
Women’s Insolvency and Restructuring Confederation (IWIRC) and was the co-chair of
the Singapore Network from 2017 to 2019. She also spearheaded the establishment of
IWIRC Malaysia together with members of the insolvency and restructuring practice
area in Malaysia.
Meiyen graduated from the University of Warwick. She is admitted to the Singapore
Bar, the Malaysian Bar and the Roll of Solicitors of England & Wales, and she is qualified
as a barrister-at-law (Middle Temple).
97
Keith Han
Oon & Bazul LLP
Keith’s practice focuses on complex commercial disputes and restructuring and insol-
vency. He has appeared as lead counsel at all levels in the Singapore courts, including in
the Court of Appeal, and his legal submissions have been recognised by the Singapore
High Court in one reported case as being ‘succinct, thorough and well researched’ and
from which the Court derived ‘considerable assistance’.
His work has also been recognised by leading legal publications: the International
Financial Law Review cites Keith as a ‘Rising Star’ for restructuring and insolvency in
Singapore, while The Legal 500 Asia Pacific has recognised him in the local litigation
category as a ‘Next Generation Lawyer’ and a rising star as a practitioner ‘who is praised
for his advocacy and very strategic advice’.
Keith is a frequent speaker at conferences and seminars. He is also presently a
member of the Law Society of Singapore Insolvency Practice Committee, a founding
executive committee member of the Young Insolvency Practitioners’ Committee of the
Insolvency Practitioners Association of Singapore and a founding committee member
of FIRE Starters, a global community of practitioners in the fraud, insolvency, recovery
and enforcement sphere.
Keith graduated from the National University of Singapore with first-class honours,
and is admitted to the Singapore Bar.
Angela Phoon Yan Ling

Oon & Bazul LLP
Angela is an associate at Oon & Bazul’s restructuring and insolvency practice. Her main
areas of practice include consensual and non-consensual insolvency and restructuring.
She has assisted in representing and advising various clients on a variety of matters,
including receivership, schemes of arrangement and related moratoria.
Angela graduated magna cum laude with a bachelor of laws from the Singapore
Management University. She is admitted to the Singapore bar.
98
Zephan Chua Wei En

Oon & Bazul LLP
Zephan is an associate at Oon & Bazul’s restructuring and insolvency practice. He has
a keen interest in restructuring and insolvency and has assisted on a variety of related
matters, including voluntary and involuntary winding up, receivership, out-of-court
restructuring and schemes of arrangement.
Zephan graduated cum laude with a bachelor of laws from the Singapore
Management University. He is admitted to the Singapore bar.
Founded in 2002, Oon & Bazul is one of Singapore’s fastest-growing law firms as recognised by Asian Legal
Business. The firm is a large leading commercial practice and our lawyers are known for their ability to deliver
high-quality work as well as their commitment to helping clients achieve success.
Outside Singapore, the firm’s Asian expertise starts with our Malaysian associate firm, TS Oon & Partners
in Kuala Lumpur, with whom we work closely on matters in Malaysia and involving Malaysian law. Apart from
Malaysia, our strategy is to work with the best lawyers throughout Asia without exclusive tie-ups to ensure
that we can always engage the most suitable professionals in the required practice area, regardless of which
firms they come from.
Apart from English, our lawyers are also fluent in several languages, including Mandarin, Malay,
Indonesian, Tamil, Japanese and Korean, so as to bridge language and cultural barriers in major non-English
speaking Asian countries.
The firm has a sterling international law practice dealing with matters across continents, which has
resulted in our lawyers being particularly adept at coordinating matters involving multiple jurisdictions. We
have also developed an extensive informal network of law firms with whom we have worked over the years.
Our clientele includes sovereign states, Fortune Global 500 corporations, large multinational corporations,
financial institutions and high net worth individuals.
36 Robinson Rd Meiyen Tan

#08-01/06 City House meiyen.tan@oonbazul.com
Singapore 068877
Tel: +65 6223 3893 Keith Han
keith.han@oonbazul.com
www.oonbazul.com
Angela Phoon Yan Ling
angela.phoon@oonbazul.com
Zephan Chua Wei En

zephan.chua@oonbazul.com
99
Corporate Insolvency
Proceedings in South Korea
Chul Man Kim, Ki Young Kim, Sun Kyoung Kim, Su Yeon Lee,
Jin Seok Choi and Sy Nae Kim
Yulchon LLC
In summary
This chapter is an overview of the Korean insolvency proceedings available to a
corporate entity, and also covers recent trends in the Korean corporate insolvency
market.
Discussion points
• Korean rehabilitation proceedings
• Korean bankruptcy proceedings in comparison with rehabilitation proceedings
• Out-of-court restructuring
• Recent trends in corporate rehabilitation proceedings
• Cross-border insolvency

• Debtor Rehabilitation and Bankruptcy Act
• Corporate Restructuring Promotion Act
• Seoul Bankruptcy Court
• UNCITRAL Model Law on Cross-Border Insolvency
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Yulchon LLC | Corporate Insolvency Proceedings in South Korea
Introduction
There are two categories of insolvency proceedings in Korea – court-administered proceed-
ings and out-of-court proceedings. The former category relates to bankruptcy proceed-
ings, rehabilitation proceedings and personal rehabilitation proceedings under the Debtor
Rehabilitation and Bankruptcy Act of Korea (DRBA). The latter category consists of consensual
out-of-court restructurings, which include:
• voluntary restructuring through a workout process (workout), provided for under the
Corporate Restructuring Promotion Act (CRPA); and
• a voluntary workout accord between the debtor and creditors to which the CRPA is not
applied (voluntary workout accord).
Such out-of-court restructurings are often preferred by restructuring market participants,

particularly debtor companies, because they afford more flexibility and generally cause less
disruption to the debtor.
A rehabilitation proceeding is a reconstructive insolvency proceeding that seeks to reha-
bilitate debtors in financial distress via such means as debt rescheduling. A personal rehabili-
tation proceeding, another type of reconstructive insolvency proceeding, is directed towards
individual debtors who earn regular income and bear relatively small amounts of debt; the
debtor repays part of the liabilities with his or her income and has the rest discharged. In
contrast to these two procedures, a bankruptcy proceeding is a liquidation proceeding where
a court-appointed trustee takes into custody and realises the entire property of a debtor
deemed to have no possibility of rehabilitation, which is then distributed fairly to the credi-
tors. Workouts and voluntary workout accords are reconstructive proceedings distinguished
from their rehabilitation counterparts in the sense that the creditors administer the proce-
dures rather than a court.
This article will elaborate on insolvency proceedings to which corporate entities may be
subjected. It will first explain the rehabilitation proceeding and the bankruptcy proceeding.
A workout will be discussed briefly by comparing them to the rehabilitation proceeding.
Given the nature of this report, an explanation on personal rehabilitation proceedings will be
omitted. It will, however, briefly cover recent trends in the Korean corporate rehabilitation
market and examine Korean cross-border insolvency policies.
Rehabilitation proceedings
Persons entitled to file for commencement of a rehabilitation proceeding and
causes for commencement thereof
The following may file for the commencement of a rehabilitation proceeding: the debtor, the
creditors whose total amount of claims is equal to or exceeds one-tenth of the debtor’s paid-in
capital, and shareholders who own more than one-tenth of the debtor’s paid-in capital.
For a rehabilitation proceeding to commence, either the debtor is unable to repay a
matured debt without causing significant encumbrance to the continuation of its business,
or there is a concern that a cause for bankruptcy may arise with the debtor. The cause for
bankruptcy refers to:
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Corporate Insolvency Proceedings in South Korea | Yulchon LLC
• the debtor’s inability to repay its debt in an ordinary, continuous manner owing to the
lack of the capacity to effect performance; or
• the amount of the debtor’s liabilities exceeds the value of its assets.
Asset preservation order and a comprehensive stay order

In a Chapter 11 proceeding in the United States, an automatic stay takes effect immediately
when a petition is filed, thereby preserving the debtor’s assets and preventing creditors
from exercising their rights. In a rehabilitation proceeding in Korea, however, such a stay
is not automatic. To be more specific, the court, upon filing of an application or by its own
motion, separately issues a preservation order against the debtor to prevent the debtor from
dissipating its assets, and a comprehensive stay order to prevent creditors from enforcing
their claims against the debtor until a rehabilitation proceeding is formally commenced. The
Korean court’s response at the time of filing is relatively fast, and when necessary, asset pres-
ervation orders and comprehensive stay orders may be issued on the same day the petition
is filed or the day after. Therefore, in practice, asset preservation orders and comprehensive
stay orders function similarly to an automatic stay in the United States.
Effect of commencement of rehabilitation proceedings

A rehabilitation proceeding formally commences when the court issues a decision to
commence a rehabilitation proceeding in respect of a debtor.
When the court issues an order to commence a rehabilitation proceeding, all compulsory
enforcements are automatically stayed, and the secured creditor cannot foreclose on assets
of the debtor provided as security without court approval. Further, rehabilitation claims and
secured rehabilitation claims can only be repaid as set out in the rehabilitation plan.
The court must appoint a receiver at the same time it issues an order to commence a reha-
bilitation proceeding. A receiver is authorised to take charge of the management and disposi-
tion of the debtor’s assets under court supervision. In principle, the existing management of a
debtor company is appointed as the receiver. However, in exceptional circumstances, such as
when a material cause of the debtor’s financial deterioration can be attributed to the existing
management of the debtor, the court must appoint a third-party receiver.
Differences between rehabilitation claims and common benefits claims

In a rehabilitation proceeding, a creditor’s claims are divided into three categories:
• a rehabilitation claim;
• a secured rehabilitation claim; and
• a common benefits claim.
A rehabilitation claim is one that arises from grounds that existed before commencement of a
rehabilitation proceeding, and a secured rehabilitation claim is a rehabilitation claim secured
on any assets of the debtor. These can be repaid only in accordance with the rehabilitation
102
plan. A common benefits claim, however, is paid on a rolling basis, regardless of the rehabili-
tation plan. A good example of a common benefits claim is one incurred by the receiver with
approval of the court after commencement of the rehabilitation proceeding.
Unless specified otherwise, the explanation below about claims is relevant to rehabilita-
tion claims and secured rehabilitation claims.
Executory contract
An executory contract refers to an agreement wherein obligations relevant to both parties
have not been performed in their entirety at the time of the commencement of the rehabilita-
tion proceeding. This type of contract receives special treatment from the said proceeding;
the receiver may choose to perform or terminate an executory contract. The receiver may
exercise the termination right only until the closing of the meeting of interested parties that
is convened for reviewing the proposed rehabilitation plan.
The counterparty may issue a notice to the receiver urging for a decision on whether to
terminate the contract. Should the receiver fail to provide confirmation within 30 days of
the notice, the receiver will lose the termination right. The court may shorten or extend this
30-day period upon request from the receiver, the counterparty or by the court’s own motion.
If the receiver decides to perform the contract, the other party may enforce the contract
as a common benefits creditor. By contrast, if the receiver chooses to terminate the contract,
the other party’s damages claims arising from such termination are treated as rehabilita-
tion claims.
To protect the receiver’s right to choose, numerous scholars have argued that an ipso
facto clause, which states that filing a petition for the commencement of a rehabilitation
proceeding is an event of termination of the contract, should be deemed invalid. The Korean
court’s position on this matter has not been very clear, although there have been cases wherein
it was ruled that the clause was valid in relation to contracts that require mutual trust.1
Investigation and confirmation of claims

When a rehabilitation proceeding is commenced, the receiver prepares a list of creditors (and
their claims). Separately, each creditor may file his or her respective proofs of claims with the
court within the reporting period designated by the court. Even if the reporting period had
lapsed, however, there are exceptions whereby the proofs of claim can be filed afterwards. In
any event, the latest point in time when a proofs of claim can be filed is before the interested
parties’ meeting for reviewing the proposed rehabilitation plan. If any (secured) rehabilitation
claims are not included in the list of creditors and reported by the creditor, the rehabilitation
claims are discharged upon approval of the rehabilitation plan.
As for the claims for which proofs of claims have been filed or included in the creditors’ list
filed by the receiver, the receiver or other interested parties (eg, other rehabilitation creditors)
may file an objection to those claims. In such an event, the creditor whose claims are contested
1 See, for example, Seoul Central District Court Decision 2013 kahap 80074, rendered on 24 January 2014.
103
may file with the bankruptcy court an application for allowance of the claim, and the scope of
the contested (secured) rehabilitation claims are determined during the claim investigation
and confirmation procedure by the bankruptcy court.
Limitation on set-off
Once a rehabilitation proceeding commences, creditors may offset claims (receivables) with
debts (payables) if their claims are due before expiry of the claim reporting period. The exer-
cise of the set-off right must take place towards the receiver (and not the debtor) within the
aforesaid term.
The creditors may not offset receivables or payables acquired after a certain point in
time. (Depending on the type of claims or obligations, this may be the time of the petition
requesting the commencement of a rehabilitation proceeding or the commencement of the
said proceeding.)
Restructuring through a rehabilitation plan

A rehabilitation plan typically includes the basics of the debtor’s rehabilitation, such as adjust-
ment of claims, repayment methods, adjustment of shareholder rights, matters regarding
mergers and acquisitions, and revisions to the articles of incorporation of a debtor.
After commencement of a rehabilitation proceeding, the court generally appoints an
examiner (usually an accounting firm) to review the overall status of the debtor’s assets,
liquidation value and value as a going concern. If the debtor’s liquidation value is higher than
its value as a going concern, the court may terminate the rehabilitation proceeding, and the
case closes without the filing of a rehabilitation plan. In practice, however, it is becoming
more and more common for debtors with higher liquidation value to seek out investors who
are willing to inject fresh cash into the corporation, with a view to revive its business and
increasing the debtor’s overall value as a going concern. In those cases, the receiver may seek
the court’s approval to proceed with a merger and acquisition process before confirmation
of a rehabilitation plan and avoid dismissal.
A merger and liquidation process in this case usually includes:
• engagement of professionals to manage the public bidding process;
• distribution of bid proposals;
• a public bid; and
• signing of the merger and acquisition contract by the parties.
Although the process may differ significantly in detail, in essence, it is akin to a 363 sale
process in the United States. The process may even involve a stalking horse bidder, as is often
the case in 363 sale processes in the United States.
In the more common cases where the debtor’s going concern value is higher than its
liquidation value, the receiver prepares and proposes a rehabilitation plan based on the report
prepared by said examiner. A rehabilitation plan is proposed and reviewed at the meeting of
the interested parties, and may be accepted by a quorum of:
• three-quarters or more of the total amount of secured rehabilitation claims;
104
• two-thirds or more of the total amount of rehabilitation claims; and

• a half or more of the total number of shares present at the meeting (provided that if the
total amount of debt exceeds the total amount of assets on the date of commencement,
the shareholders do not have a right to vote).
When the proposed rehabilitation plan is accepted by a resolution passed at a meeting of the
interested parties, the court may confirm the rehabilitation plan. Exceptionally the court may
also confirm a rehabilitation plan that was not passed in the meeting; in this case, the court
may reinforce the terms pertaining to the protection of creditors in the rehabilitation plan.
The debt rescheduling for rehabilitation claims includes partial discharge, partial debt-
equity swap and repayment in instalments after deferment. In the case of disposing of collat-
eral securities, it is common to have the rehabilitation plan include terms that provide that
the concerned secured rehabilitation claims shall have priority in repayment at the disposed
value. A considerable portion of shares ordinarily go through capital reduction via retirement
or consolidation.
Implementation of plan and closing of rehabilitation proceeding

When a rehabilitation plan is confirmed, the rights of creditors and shareholders are adjusted
according to the rehabilitation plan. Rehabilitation claims and secured rehabilitation claims
not included in the approved plan shall be discharged by operation of law.2
If the debtor begins repayment under the rehabilitation plan, and there is no hindrance to
carrying out the rehabilitation plan, then the court may issue a final order to close the rehabil-
itation proceeding. In that event, the debtor regains its authority over its assets and business.
Termination of rehabilitation proceeding

The court may terminate the rehabilitation proceeding even before the approval of the reha-
bilitation plan:
• if the court finds that the liquidation value of the debtor clearly exceeds the value as a
going concern;
• if a rehabilitation plan proposal is not submitted; or
• if the rehabilitation plan proposal is not approved by the creditors or the plan is not
confirmed by the court.
The court may also terminate the proceeding if, after approval of the rehabilitation plan, it is
clearly determined by the court that the rehabilitation plan is incapable of being carried out.
In such an event, if the debtor has cause for bankruptcy, the court must declare the debtor
bankrupt and convert to a bankruptcy proceeding.
2 DRBA, article 251.
105
Bankruptcy proceedings (comparison to rehabilitation proceedings)

Since the provisions on bankruptcy proceedings are stipulated by the DRBA as with their
rehabilitation counterpart, most of the detail explained above in relation to rehabilitation
proceedings is applicable to bankruptcy proceedings as well. However, given the difference
between the purposes of the two insolvency procedures, it is worth highlighting notable
disparities.
The following table summarises the comparison between rehabilitation and bankruptcy
proceedings.
Rehabilitation proceeding Bankruptcy proceeding

Creditors entitled to file May be filed by creditors whose claim Creditors may file for the debtor’s
a petition amounts add up to at least one-tenth bankruptcy regardless of the pecuniary
of the debtor’s paid-in capital amount of their claims
Effect on the secured A secured rehabilitation creditor is A secured creditor may execute
creditors unable to execute the security right; he the security right regardless of the
or she receives repayment as per the bankruptcy proceeding
rehabilitation plan
Right to manage and The court usually appoints existing The court usually appoints an attorney
dispose of the debtor’s representative of the debtor company as the bankruptcy trustee
property as the receiver
Failure to file proof of Undeclared claims (claims not included Although undeclared claims are not
claims in the creditor’s list and without a proof discharged, no dividend is paid to such
of claims filed) are discharged after the claims
rehabilitation plan is confirmed
Set-off right Limited in time as well as in other Unlimited in time, although limited in
aspects other aspects
Restructuring Restructuring occurs in accordance with There is no debt restructuring
the rehabilitation plan
Cessation of the juristic The debtor’s juristic personality The debtor ceases to exist as a
personality continues to exist after the completion company once the bankruptcy
of the rehabilitation proceeding proceeding is completed
Workouts (comparison to rehabilitation proceedings)

Workouts differ from rehabilitation proceedings in the sense that they are directed and
conducted by creditors who hold financial claims against the debtor, whereas rehabilitation
proceedings are administered by the court. The CRPA defines ‘financial claims’ as claims that
arise from a credit offering, such as loans, promissory notes and sureties.
Debtors tend to prefer workouts to rehabilitation proceedings since they have less impact
on the debtor’s managerial rights in comparison to rehabilitation proceedings. Workouts can
be a better means of restructuring than rehabilitation proceedings for debtors that must
maintain the relationship of trust with their clients because the procedures do not affect
business claims. Many shipbuilding and construction companies in financial distress have
undergone workouts for this reason.
On 30 June 2018, the CRPA expired amid discussions in favour of and against permanent
legislation regulating out-of-court restructuring. A new CRPA was finally promulgated on
16 October 2018, with minimum changes to its provisions and with a five-year expiry. Notably,
106
in the new enactment, the National Assembly added an opinion directed to the Financial
Supervisory Committee of Korea to evaluate the corporate restructuring policies for their
accomplishments and effectiveness, and after gathering the opinions of the court, relevant
institutions and professionals, submit a report to the relevant standing committee within
the National Assembly. The project is currently underway, and a report is expected to be
submitted before the end of term for the current National Assembly, which is in 2020.
The comparison between workouts and rehabilitation proceedings (a restructuring insol-
vency procedure under the DRBA) is as follows.
Rehabilitation proceeding Workout

Supervising entity The court A committee composed of financial
creditors. The main creditor bank
represents the committee and performs
the actual supervisory work
Debtor subject to the For both corporate and personal For corporate debtors only
proceeding debtors
Person entitled to file a The debtor, the creditors with a certain The debtor
petition volume of claims, or shareholders with
a certain shareholding ratio
Right to manage the The court-appointed receiver has the The existing management continues to
debtor’s property right to manage and dispose of the manage the debtor company. However,
debtor’s property the debtor ordinarily enters into an
agreement with the council of financial
creditors, under which the council or
the principal creditor bank may control
the management of the debtor
Scope of affected Business claims as well as financial Financial claims only
creditors claims
Failure to declare claims Undeclared claims are discharged after Undeclared claims are not discharged
the rehabilitation plan is finalised
Set-off right Limited Offsetting with financial claims is
prohibited
Restructuring Restructuring is decided by the meeting Restructuring occurs in accordance with
of interested parties and occurs as per the decision of the council of financial
the court-approved rehabilitation plan. creditors. The approval of the council of
The requirements for the approval of financial creditors requires:
the meeting of interested parties are by • the consent of financial creditors
a quorum of: that own at least three-quarters
• three-quarters or more of the total of the total value of the financial
amount of secured rehabilitation claims; and
claims; • the consent of financial creditors
• two-thirds or more of the total that own at least three-quarters of
amount of rehabilitation claims; and the secured claims
• half or more of the total number of
shares present at the meeting
107
Recent trends in corporate rehabilitation proceedings

Recent trends in corporate rehabilitation proceedings can be summarised into two parts,
namely a focus on providing easier access to insolvency and other restructuring procedures
for micro, small and medium-sized enterprises (MSMEs) and enhancing the flexibility of
the corporate rehabilitation proceedings to facilitate the restructuring process of debtor
companies.
With respect to the former, the Seoul Bankruptcy Court is providing rehabilitation
consulting services to MSMEs, encouraging corporations to file early, receive customised
assistance from insolvency experts without the burden of excessive fees, and to complete
the restructuring proceedings in the shortest time possible. By using such services of the
Bankruptcy Court, MSMEs are able to restructure their debt and make a turnaround with
ease. The court also devised a special programme referred to as the S-Track programme,
which is a special rehabilitation track tailored for small and medium-sized enterprises. In
this programme, the court takes a more active role in the rehabilitation proceeding, assuming
the role as the one-stop centre for available government support programmes, as well as
connecting the debtor with lenders and investors for debtor-in-possession (DIP) financing.
The court has also adopted the Equity Retention Plan to rid small enterprise owners of their
reluctance to file for rehabilitation owing to their fear of losing their share in the enterprise.
To enhance the flexibility of the corporate rehabilitation proceedings, the Bankruptcy
Court introduced the P-Plan, which is a programme that utilises the provision in the DRBA
that allows the debtor to file a proposed rehabilitation plan at the time of filing the petition
for commencement of the rehabilitation proceedings, or any time thereafter until the court
issues an order to commence the rehabilitation proceedings. When the debtor is able to nego-
tiate a deal with its creditors, obtain DIP financing or restructure its debt through the sale of
its assets, it may prepare and file a pre-packaged plan when filing the petition. This way, the
debtor may successfully restructure its debt within months, if not earlier.
More recently, the Seoul Bankruptcy Court introduced the Autonomous Restructuring
Support (ARS) programme. When a debtor files the petition for commencement of a reha-
bilitation proceeding, it may choose to apply for use the ARS programme, in which case the
court will issue temporary stay orders to allow breathing room for the debtor, but defer the
commencement of the rehabilitation proceeding for up to three months, while the debtor may
attempt to negotiate a deal with its creditors or otherwise try to obtain DIP financing. If the
debtor succeeds in negotiating a deal and reaches settlement, it may withdraw the petition
altogether or file a pre-packaged plan with the court if necessary. If the debtor fails in negoti-
ating a deal with its creditors, then the court will issue an order to commence the rehabilita-
tion proceeding. Since its introduction, the P-Plan and the ARS programme have been utilised
in many proceedings and, in many cases, encouraged the debtor to try and negotiate a deal
with its creditors, thereby raising the possibility of a successful restructuring of the debtor
and early closing of the rehabilitation proceedings.
More recently, in February 2020, the DRBA was revised to provide priority for DIP financing.
In other words, if a DIP lender, with court approval, extends loans to a debtor after the filing
of a petition for the commencement of a rehabilitation proceeding for the debtor, and the
108
rehabilitation proceeding is later converted to a bankruptcy proceeding, the claims of the DIP
lender are treated as an estate claim, which has priority over other estate claims (except for
wage claims and severance payment claims) as well as bankruptcy claims. The purpose of this
revision is to provide the DIP lender with priority not only during the life of the rehabilitation
proceeding, which was already available, but also when restructuring fails and the proceeding
is converted to a bankruptcy proceeding. This much-awaited revision was made with the
purpose of providing more assurance to the DIP lenders to encourage them to inject more
fresh cash into distressed companies, thereby facilitating faster recovery and normalisation.
Cross-border insolvency
The DRBA has incorporated the UNCITRAL Model Law on Cross-Border Insolvency (the Model
Law) as section 5 of the DRBA.
A rehabilitation proceeding has universal effect, reaching beyond the borders of Korea.
For a Korean rehabilitation proceeding or a bankruptcy proceeding to be effective in a foreign
country, the receiver (as the foreign representative of the Korean rehabilitation proceeding)
may apply for recognition of the rehabilitation proceeding in the competent court of that
country, and seek other necessary support. Such measures proved to be especially benefi-
cial for shipping companies in Korea, which obtained recognition from various countries to
preserve the debtor company’s vessels and other operating assets. Notable cases include the
STX Pan Ocean case in 2013, where STX Pan Ocean sought recognition of the Korean insol-
vency in 14 jurisdictions and obtained recognition from at least 10 jurisdictions, namely the
United States, the United Kingdom, Japan, Canada, Mexico, Australia, New Zealand, Belgium,
Singapore and the Philippines. A few years later in 2016, Hanjin Shipping also filed for the
commencement of the rehabilitation proceeding in Korea and obtained recognition from
at least eight jurisdictions, namely the United States, the United Kingdom, France, Japan,
Canada, Australia, Belgium and Spain.
Likewise, the representative of a foreign insolvency proceeding may file an application for
recognition of the proceeding with the Korean court, and ask the Korean court for relevant
relief to preserve the debtor’s assets in Korea. Since the adoption of the Model Law, Korean
courts have been proactive in recognising foreign insolvency proceedings and granting
assistance to the foreign representatives, such as authorising the foreign representatives to
dispose of the foreign debtors’ assets that are located in Korea and allowing for the move-
ment of funds from Korea to the country where the foreign insolvency proceeding is pending,
thereby facilitating fair distribution of funds between creditors.3
3 See, for example, Seoul Bankruptcy Court Case No. 2014 kookji 1, where the Seoul Bankruptcy Court
authorised transfer of the debtor’s funds in Korea to the United States, where a Chapter 11 bankruptcy
proceeding was pending in the US Bankruptcy Court, Eastern District of Virginia. Similarly, in another case
where an administration and a scheme of arrangement proceeding was pending in the UK courts, the
Court issued an order authorising the foreign representative to manage the debtor’s assets in Korea, file
reports with the Bankruptcy Court and seek the Court’s approval when the foreign representative decides
to move any of the debtor’s assets overseas.
109
In an effort to facilitate coordination in cross-border cases, the Seoul Bankruptcy Court

has signed memoranda of understanding with the US Bankruptcy Court for the Southern
District of New York and the Supreme Court of Singapore. The Seoul Bankruptcy Court has
also adopted the Judicial Insolvency Network Guidelines and its Modalities of Court-to-Court
Communication.
Chul Man Kim

Yulchon LLC
Chul Man Kim mainly practises in the areas of financial disputes and bankruptcy.
Before joining Yulchon, he served as a judge at Seoul Southern District Court and Seoul
District Court. He acquired extensive expertise in the area of bankruptcy as an adviser
in bankruptcy proceedings of major conglomerates (Kia, Haitai, Halla, Jinro, Daewoo,
etc) during the Asian financial crisis of 1997, and has since acted on a wide range of
restructuring and insolvency works as a litigator. Recently, he has advised on a number
of bankruptcy and rehabilitation proceedings, including the rehabilitation proceedings
of country club operators, such as Shilla, Castle Pine and Pine Creek.
Ki Young Kim
Yulchon LLC
Ki Young Kim mainly practises in the areas of bankruptcy, corporate, finance, and
mergers and acquisitions. Since joining Yulchon in 1998, he has successfully advised
on a wide range of restructuring and insolvency cases. As he is especially renowned
for his extensive expertise in the area of out-of-court restructuring, he has advised on
the restructurings of Daewoo Shipbuilding & Marine Engineering, Hyundai Merchant
Marine, POSCO Plantec, Dongbu Metal and STX Corporation.
110
Sun Kyoung Kim

Yulchon LLC
Sun Kyoung Kim mainly practises in the areas of financial disputes and bankruptcy.
In recent years, he has performed the authorisation process for the resolution of the
debenture holders’ meeting for the voluntary agreement of Hyundai Merchant Marine,
and advised Keangnam Enterprises and its subsidiaries on the rehabilitation proceeding
and provided representation therein. Most notably, he also advised STX Pan Ocean on
the rehabilitation proceeding and provided representation therein.
Su Yeon Lee
Yulchon LLC
Su Yeon Lee mainly practises in the areas of bankruptcy, corporate, finance, and mergers
and acquisitions. As a renowned adviser in the field of mergers and acquisitions, she has
advised on the sale of a rehabilitation company, Pine Resort, and on the acquisition of
a rehabilitation of Pan Ocean by Harim Consortium. She also advised on the voluntary
agreement of Hyundai Merchant Marine.
Jin Seok Choi

Yulchon LLC
Jin Seok Choi mainly practises in the areas of financial disputes and bankruptcy. With
a remarkable breadth of practice, he has advised GS Caltex as a creditor in relation to
the bankruptcy of Danish bunker supplier OW Bunker, and Hana Financial Investment
on the dispute regarding the settlement of the liquidated over-the-counter derivatives
with the bankruptcy administrator of Lehman Brothers.
111
Sy Nae Kim
Yulchon LLC
Sy Nae Kim mainly practises in the areas of cross-border disputes and insolvency-
related matters. Her experience in insolvency-related matters includes recognition of
Korean insolvency proceedings and seeking assistance for insolvency representatives
in foreign courts, advising clients on complex out-of-court and in-court corporate
restructurings, and representing clients in disputes where cross-border insolvency
issues arise. Her recent work includes advising Pan Ocean (formerly STX Pan Ocean) in
various cross-border insolvency matters and related disputes, and Hyundai Merchant
Marine in its conditional workout; representing major creditor financial institutions
in Dong-A Tanker’s rehabilitation proceeding; and working on various international
arbitration matters involving insolvency issues.
Yulchon’s insolvency team comprises a number of attorneys specialising in bankruptcy, who have in-depth
understanding of bankruptcy proceedings in general, which allows careful management and risk analyses, as
well as experience accumulated over the years and by undertaking numerous cases. Knowledgeable in court
customs, the direction of government policies, and the ways of various industries, the attorneys are capable
of making decisions in multifaceted situations to the satisfaction of creditors and debtors located in and
outside Korea. The team includes attorneys with expertise in tax, finance and corporate law, mergers and
acquisitions, and real property, as well as accountants, attorneys licensed to practise in the United States, and
international arbitration specialists, providing clients with legal consultation that is meticulously custom-made
for their needs. The team also has at its disposal bankruptcy experts who speak several languages, including
English and Japanese, to accommodate foreign clients in bankruptcy cases that involve international issues.
Parnas Tower 38F Chul Man Kim Sun Kyoung Kim

521 Teheran-ro cmkim@yulchon.com skkim@yulchon.com
Gangnam-gu
Seoul 06164 Su Yeon Lee Jin Seok Choi
Korea sylee@yulchon.com choijs@yulchon.com
Tel: +82 2 528 5200
Fax: +82 2 528 5228 Ki Young Kim Sy Nae Kim
kykim@yulchon.com snkim@yulchon.com
www.yulchon.com
112
The Asia-Pacific Restructuring Review 2021 provides exclusive insight,
direct from pre-eminent practitioners. Across eight chapters and 120
pages, it can be described as a blend of invaluable retrospective, handy
primer and crystal ball. All our contributors are vetted for their standing
and knowledge before being invited to take part. Together, they capture
and interpret the most substantial recent international restructuring
developments from the past 12 months, complete with footnotes and
relevant statistics.
Among the gems it contains a behind-the-scenes look at three recent
Australian restructurings, the latest on China’s insolvency regime, helpful
reviews of key recent cases in Hong Kong and India, a note of caution
for foreign lenders in Indonesia, insights into the restructuring world of
Singapore and South Korea, and news that Japan has yet to make any
covid-specific adjustments to its insolvency regime.
Visit globalrestructuringreview.com
Follow @GRRalerts on Twitter
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ISBN 978-1-83862-274-9

GRR - APRR - 2021 (Singapore 84-99)

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Australian Restructuring: Legislation, Transactions and Cases����������������3

What’s New in China’s Bankruptcy and Restructuring?���������������������� 25

Latest Developments in Hong Kong Restructuring Law���������������������� 37

India’s Insolvency and Bankruptcy Code: An Overview���������������������� 51

Indonesia’s Bankruptcy Law in Urgent Need of Reform���������������������� 66

Japan’s Insolvency Regime Under Covid-19������������������������������������� 74

Recent Developments in Singapore’s Restructuring Regime����������������� 84

Corporate Insolvency Proceedings in South Korea����������������������������100

And much, much more.

Global Restructuring Review

38/F Gloucester Tower Look Chan Ho

Referenced in this article

Phoenix amendments to the Corporations Act

A creditor-defeating disposition may be voidable in the winding up of a company if:10

A creditor-defeating disposition may become voidable either upon a court order, or by an

13 Phoenixing EM (n 9), [2.52].

20 ibid, section 203AA.

IFC’s challenge to the scheme

Convening hearing decision

Scheme amendments and scheme meeting

Second court hearing

English recognition and effectiveness

29 Re Tiger Resources Limited (No 2) [2020] FCA 266, [6].

Unfortunately, there is no equivalent to the Practice Statement in Australia, and therefore

Background to the schemes

Terms of the schemes

Approval of the schemes

Compromising English debt

Resurrection of the scheme

46 Wollongong sanctioning hearing (n 39), [63].

Retail Food Group

The share placement was approved by a resolution of RFG’s shareholders at its

Recent noteworthy cases

Colette group: extended rent-free periods in administration

RCR Tomlinson: priority to circulating assets in administration

75 ibid, [25]; Corporations Act (n 3), section 513C.

ANZ Tower Paul Apáthy

Referenced in this article

Key judicial documents released recently in relation to bankruptcy

Criteria for consolidation

Special procedures for consolidation

Selection of bankruptcy administrators

• encourage a competition mechanism to select bankruptcy administrators, especially in

Automatic stay and restrictions on creditors

Further guidance on cramdown

Amendment of reorganisation plans

Recent developments on cross-border bankruptcy in China

Recent developments on reciprocity

1 In re Zhejiang Topoint Photovoltaic Co Ltd, No. 14-24549 (Bankr DNJ).

Recent pilot projects on personal bankruptcy regime in China

Recent rules and the development on rights and remedies of bondholders

Bankruptcy petition against the issuer

Responsibilities and liabilities of the bankruptcy administrator

Australian Restructuring: Legislation, Transactions and Cases��3

What’s New in China’s Bankruptcy and Restructuring?�� 25

Latest Developments in Hong Kong Restructuring Law�� 37

India’s Insolvency and Bankruptcy Code: An Overview�� 51

Indonesia’s Bankruptcy Law in Urgent Need of Reform�� 66

Japan’s Insolvency Regime Under Covid-19�� 74

Recent Developments in Singapore’s Restructuring Regime�� 84

Corporate Insolvency Proceedings in South Korea��100