Legal developments on restructuring & insolvency

Frameworks focused on restructuring companies in distress are becoming more transparent in Singapore and Taiwan

Singapore’s insolvency and restructuring developments

Singapore’s omnibus Insolvency, Restructuring and Dissolution Act, 2018 (IRDA), came into effect on 30 July 2020 and amalgamated its corporate and personal insolvency processes, which were previously in separate statutes. The IRDA also incorporated the UNCITRAL Model Law on Cross-Border Insolvency (Model Law) into Singapore law.

The IRDA, together with the lingering effects of disruptions and insolvencies brought about by the covid-19 pandemic, has resulted in more insolvency cases being litigated before the Singapore courts. We take a look at four judgments from the apex court, the Singapore Court of Appeal (SGCA).

Test for actual insolvency

In Sun Electric Power v RCMA Asia (2021), the SGCA clarified the test for a company’s inability to pay its debts under the then section 254(2)(c) of the Companies Act (now section 125(2)(c) of the IRDA). The court held that the cash flow test is the sole and determinative test for actual insolvency under this provision.

The cash flow test assesses “whether the company’s current assets exceed its current liabilities such that it can meet all debts as and when they fall due”. “Current assets” and “current liabilities” generally refer to those realisable or falling due within a 12-month timeframe. The SGCA highlighted that a flexible approach should be taken in assessing a company’s cash flow, and a non-exhaustive list of factors includes:

1. 1. The quantum of debts due or becoming due in the reasonably near future;
   2. Whether payment is being, or likely to be, demanded;
   3. Any failure to pay debts, the quantum and duration of non-payment;
   4. Time passed since winding-up proceedings commenced;
   5. Value of current assets and assets realisable in the reasonably near future;
   6. The company’s state of business for expected net cash flow;
   7. Other income or payments receivable in the reasonably near future; and
   8. Arrangements between the company and prospective lenders, such as its bankers and shareholders, to determine whether any shortfall in assets can be made up by borrowings which would be repayable at a later time.

Model Law application in Singapore

In United Securities Sdn Bhd (in receivership and liquidation) v United Overseas Bank (2021), the SGCA examined articles 20(1) and 20(2) of the Model Law and clarified the conditions for granting a stay of Singapore legal proceedings following the recognition of foreign insolvency proceedings. The SGCA held that a stay would only be granted if a stay would have been available in the equivalent Singapore insolvency proceeding. In other words, Singapore’s domestic insolvency laws still apply to determine if a stay would be granted and, if so, to what extent.

Therefore, despite the Singapore court recognising the Malaysian winding-up proceeding as a foreign main proceeding that could have stayed Singapore legal proceedings, a stay on United Overseas Bank’s (UOB) Singapore proceedings against United Securities was not granted because UOB was prima facie a secured creditor. Under Singapore law, leave would readily be granted to secured creditors to proceed with enforcing their security, even if there is a stay of proceedings that arises on the winding up of the debtor.

The SGCA also reiterated the cumulative attributes for a foreign proceeding to be recognised under article 2(h) of the Model Law:

1. 1. It must be a collective proceeding that contemplates the consideration and treatment of the rights, obligations and claims of creditors generally;
   2. It must be based on a law relating to insolvency in that it deals with or addresses insolvency or financial distress;
   3. The foreign court must exercise control or supervision over the debtor’s property and affairs; and
   4. Its purpose must be the debtor’s reorganisation or liquidation.

Arbitration v restructuring moratoria

The importance of the interaction between insolvency and arbitration regimes can be seen from Sapura Fabrication Sdn Bhd v GAS (2025), where the SGCA issued a judgment even though the parties had reached a settlement and the appeals were withdrawn. In its decision, the SGCA made clear that the Singapore court will not automatically grant a carve-out from a moratorium in favour of arbitration.

The case involved an application for a carve-out from an automatic moratorium to allow arbitration claims to proceed. The SGCA held that granting such a carve-out is a discretionary matter for the court. Rejecting the submission that there must be “exceptional circumstances” to grant a carve-out, the SGCA clarified that the Singapore court will consider the factors laid down in Wang Aifeng v Sunmax Global Capital Fund 1 and another (2023), which include, but are not limited to, the following:

1. 1. The timing of the application for a carve-out;
   2. The nature of the claim;
   3. The existing remedies;
   4. The merits of the claim;
   5. The existence of prejudice to the creditors or the orderly administration of the restructuring proceedings; and
   6. Other miscellaneous factors such as the potential of an avalanche of litigation being unleashed by the grant of permission, the proportionality of the cost of the proceeding to the scheme company’s resources, and the views of the majority creditors.

In the Sapura Fabrication case, the complexity of the arbitration claims made them less suitable for the proof of debt adjudication process. The SGCA thus opined that, had the appeals proceeded, it would have dismissed the appeals and upheld the carve-out.

Schemes and creditors

This case arose from the liquidation of the now infamous oil trading company, Hin Leong Trading (HLT), which collapsed during the covid-19 pandemic. In UT Singapore Services Pte Ltd v Goh Thien Phong and others (2025), HLT’s liquidators proposed a scheme of arrangement to distribute about USD80 million of HLT’s assets to its creditors as an interim dividend.

Notably, the scheme provided for dividends to be distributed to creditors with disputed security interests without prior summary determination of those interests. The SGCA’s decision, therefore, addressed creditor classification in schemes of arrangement where creditor rights are uncertain or disputed.

The SGCA affirmed that creditors with uncertain and disputed security claims can be classified into a single class in a scheme of arrangement. In this context, the appropriate comparator for assessing creditor rights was the situation creditors would face if they pursued litigation to determine their claims, including the uncertainty of the outcome and the associated litigation costs.

The appropriate comparator was not the distribution of assets in accordance with the established rights and priorities of each creditor. The scheme, therefore, compromised uncertain claims to security rights.

Consistent with the above-mentioned, the SGCA also held that a scheme compromising such uncertain claims did not require an in-built adjudication mechanism for determining those claims for classification purposes, particularly if claims are complex and not suited for summary determination.

After considering the complexity of the various claims by creditors, as well as the associated costs and potential dilution of the estate, the SGCA held that the HLT liquidators’ proposed scheme offered significant benefits to HLT’s creditors and endorsed the proposed scheme.

Looking ahead

Singapore has made clear that its ambition to be a leading international hub for insolvency and debt restructuring. Even after the introduction of the IRDA in 2021, it continues to refine and develop its restructuring and insolvency framework.

As recently as March 2025, the committee to enhance Singapore’s corporate restructuring and insolvency regime proposed nine recommendations aimed at strengthening the judicial management regime, refining the cross-class cramdown threshold requirements in schemes of arrangements and allowing for more efficient debt restructurings overall.

Further legislative refinements and substantial jurisprudential advancements can be anticipated in the future.

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Restructuring and insolvency laws in Taiwan

Companies may undertake intra-group restructurings to enhance efficiency and optimise resources, often driven by financial or tax considerations. When facing more serious financial distress, formal procedures such as bankruptcy or reorganisation may become necessary to protect creditors’ interests and seek a path to recovery.

Whether through internal restructuring or court-supervised processes, these mechanisms are important tools for businesses to adapt to changing circumstances. In Taiwan, there are established legal frameworks to facilitate restructuring and insolvency processes.

Restructuring options

Restructuring is common within group companies, often involving the integration or adjustment of group resources or business operations to streamline processes and improve efficiency. When undertaking group restructuring, it is essential to consider multiple facets such as operational impact, regulatory compliance, financial arrangements and tax implications to maximise benefits for the entire group.

Group restructuring can take various forms, depending on business objectives and group goals. These may include share transfers, asset transfers, spin-offs, share exchanges and share swaps. When the goal is to integrate group resources by consolidating two companies into one, there are typically two primary options:

In case of implementing a merger, no individual consent from third parties (such as counterparties to the contracts) is required. Instead, the acquiring company will assume all the assets and liabilities of the acquired company on the merger record date. Hence, a merger is more straightforward as assets, agreements and employees are transferred to the merged entity by operation of law. However, it may entail additional procedures and costs to change the assets’ registered owner from the acquired entity to the acquiring entity.

As for asset transfer, if the transferor transfers all or major parts of its business or assets to the transferee (rendering the M&A Act applicable), no individual consent from third parties is required. If certain assets of the transferor cannot be immediately transferred, the parties may enter into transitional service agreements before liquidating the transferor, allowing the business to continue operating without disruption. Nonetheless, the liquidation process may require additional time and costs.

Before deciding on a restructuring option, it is crucial to verify whether there are any registered assets under the transferor (such as intellectual property rights) or supplier qualifications that cannot be immediately transferred. The overall timeframe and costs should be carefully evaluated to determine the most suitable restructuring approach.

Insolvency

Businesses may face challenges that necessitate reorganisation or, in more severe cases, lead to insolvency.

In Taiwan, if a company incurs losses amounting to half of its paid-in capital, the board of directors must report such losses at the next shareholders’ meeting. If the company’s assets are insufficient to satisfy its debt, the board shall declare bankruptcy. However, if the company is a public company and there remains a viable opportunity for rehabilitation, qualified interested parties may petition the court for reorganisation under the Taiwan Company Act.

Bankruptcy procedure. Under the Taiwan Bankruptcy Act, a petition for bankruptcy may also be filed with the court by one or more creditors of the company. After receiving the petition, the court will decide within seven days, which can be extended by an additional seven days (although in practice, the process is likely to be prolonged due to the complexity of insolvency cases).

The court typically requires the petitioner to prove that their application meets the prerequisites for bankruptcy proceedings. However, it may still conduct a necessary investigation by questioning the debtor, creditors and other interested parties, if needed.

Effects of adjudication of bankruptcy. Once bankrupt, the debtor loses the right to manage and dispose of property classified as the bankruptcy estate. Meanwhile, all creditors’ efforts to enforce their claims against the debtor must stop, except for claims secured by means of pledge, mortgage or lien before the adjudication of bankruptcy.

The court will appoint a trustee, usually an impartial professional such as a CPA, lawyer or reputable person in the debtor’s field of business. The trustee is entrusted with a wide range of powers, including the ability to revoke gratuitous or non-gratuitous acts conducted by the debtor, review and verify the debtor’s asset statement and creditor list, and distribute the bankruptcy estate. With this authority, the trustee must act with a duty of care and will be subject to scrutiny by the court.

Rights of creditors. When a bankruptcy is adjudicated, the court will set a period of between 15 days to three months after adjudication for creditors to register claims and schedule the first creditors’ meeting, which must take place within one month of the adjudication date. Failure to file the claim within the specified period precludes the creditor from receiving repayment from the bankruptcy estate, unless the subject debt is secured.

The first creditors’ meeting shall determine matters such as the methods to manage the bankruptcy estate, and whether to continue the debtor’s business. Unless otherwise provided by the Bankruptcy Act, these resolutions shall be adopted by a majority of creditors who account for more than half of the creditors present at the meeting and whose aggregate claims amount to more than half of the total claims. Any objection to the inclusion of a claim must be raised before the first creditors’ meeting concludes.

Distribution of bankruptcy estates. After receiving claims from creditors, the trustee will prepare a distribution plan to be approved by the court and published for creditors to review. Objections must be raised within 15 days. If no objections are received, the bankruptcy estates will be converted into cash and distributed to the creditors according to their priority of rights.

Reorganisation as an opportunity for rehabilitation. As previously mentioned, if the company is a public company and there remains a viable opportunity for rehabilitation, the company, or qualified interested parties such as qualified shareholders, employees or labour unions, may petition the court for reorganisation.

The court will conduct a preliminary review to assess whether the company has viable prospects for reorganisation. In recent cases, the court granted reorganisation as the company retained valuable technologies and operational capacity, with support from major creditors.

However, it is not uncommon for the court to reject such petitions, particularly where the company has a severe asset shortfall or has ceased operations, failed to propose a feasible reorganisation plan and/or faced clear opposition from creditors.

Foreign investors are strongly advised to seek in-depth consultation with legal, financial and tax experts based on their specific circumstances.

Lee and Li
8F, No.555, Sec. 4, Zhongxiao E. Rd.,
Taipei 11072, Taiwan, R.O.C.
Tel: +8862 2763 8000
Email: attorneys@leeandli.com
www.leeandli.com

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