Keynote Address by Indranee Rajah S.C., Senior Minister of State, Ministry of Law and Ministry of Finance, at the Regional Insolvency Conference 2016

16 SEP 2016

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16 Sep 2016 Posted in Speeches

Honourable Judge Christopher S. Sontchi, United States Bankruptcy Court,

Mr Sushil Nair, Chairman of the Insolvency Practice Committee, The Law Society of Singapore,

Distinguished Guests,

Ladies and Gentlemen,

I am delighted to be here at this 3^rd Regional Insolvency Conference, that has been organised by the Insolvency Practice Committee of the Law Society of Singapore and the Insolvency Practitioners Association of Singapore.
Let me start, as all things should be started, with a good story – and that is the story of the Leicester City Football Club. Fans of English Premier League football were treated last season to the fairy-tale story of Leicester City Football Club’s improbable triumph as league champions, despite being ranked at the start of the season as 5,000-1 outsiders. For our US friends, this is just like the team that is at the bottom of the league suddenly winning the Super Bowl. That is what it was like. Leicester City’s victory also led to a £25 million payout by the bookies, the largest in British sports betting history.
But there is a story behind this, because behind this story of overcoming the odds was the fact that Leicester City had actually previously fought for survival the early 2000s, when it was burdened with over £30 million of debt and placed into administration in October 2002. Like any good underdog story, the club’s stay in administration lasted four months, as the club successfully restructured its debts through a company voluntary arrangement. This restructuring played a small but vital part in ensuring that Leicester City Football Club could continue as a going concern and eventually become one of the most exciting sporting stories in recent memory. That is the power of restructuring, and that is what you do.
Another story is General Motors (GM). During the global financial crisis, many US automakers were placed in dire financial straits; chief among them was General Motors. At the end of 2008, GM was saddled with debts and in the red by more than $30 billion. It filed for Chapter 11 bankruptcy proceedings in June 2009 and was able to recover with the help of government funding and a radical restructuring plan. Although the US Government spent around $11.8 billion to restructure GM, around 1.5 million jobs were saved and preserving GM’s business operations for 2009 and 2010 allowed the US Government from losing $39.4 billion in lost taxes.
Since its restructuring, GM has grown from strength to strength, reporting net income of $1.1 billion and $2.9 billion in July 2015 and 2016 respectively. The US Government’s bailout of GM therefore turns out to have been a very good investment, but more importantly, one of America’s most renowned brands was saved as result of the restructuring, and jobs were saved as well.
So that is really the power of restructuring. There are of course, some companies that cannot be saved, in which case the task is really to bring them to do their insolvency and winding up as painlessly as possible. But for those which can be saved, you can see the tremendous amount of good in them that comes from that. So do bear that in mind, it is not just the dollars and cents, and it is not just the business practice. There really is a bigger, broader and wider purpose behind what you do.

A challenging economic climate
This brings me to our current economic climate. Sushil touched on that earlier, but it is timely because restructuring actually makes the most sense when economies are not doing very well. The global growth outlook has weakened since early 2016 and the IMF is now expecting full-year growth at 3.2 per cent, a 0.2 percentage-point drop from its January forecast. Advanced economies have not been spared this deterioration, for example, US growth has been downgraded and the pace of recovery in the Eurozone remains uneven. In China, efforts to balance the economy have yielded improvements, but growth this year is still projected to be lower than that of 2015.
This sluggish pace of growth has impacted various industry sectors, in particular oil and gas, commodities and shipping. While oil prices rallied by over 30 per cent this month, they are still far below the highs of over $100 per barrel in 2013. Additionally, analysts believe that lacklustre global demand might make this rally short-lived. For commodities, the World Bank reports that non-oil commodity prices are also expected to continue to move in a downward trend. Moreover, the woes that the shipping industry has felt for much of this decade will likely persist. In June this year, Moody’s downgraded the industry’s outlook from stable to negative for the next 12 to 18 months and expects earnings to fall between 7 and 10 per cent.
In addition to slower growth, global markets may also be impacted by significant uncertainties and downside risks. First, the Brexit vote in June has heightened uncertainties and volatility in global financial markets. Second, China’s ongoing reforms to rebalance the economy may cause a further drop in global demand. Third, if the pace of normalisation of US monetary conditions quickens unexpectedly, regional economies could face large capital outflows.
It is no surprise that these difficult conditions have placed greater stress on businesses. Global corporate defaults have hit their highest levels since the global financial crisis in 2008. Emerging markets have not been spared, as for the first time in years, emerging market companies have been defaulting more often than US companies.
In this region, we are seeing ever increasing news coverage of regional businesses such as Hanjin Shipping, China Fishery Group, Pacific Andes Resources Development, Trikomsel, Bumi Resources and Berau Coal Energy, defaulting on debt obligations, entering into restructuring talks or seeking protection from their creditors.
More stories can be expected. Emerging markets companies are due to repay almost US$85 billion denominated debt maturing this year and many anticipate a further rise in defaults as repaying this debt has become more difficult in light of a stronger US dollar and weaker emerging markets currencies. Potential and sudden rises in US interest rates may also create greater than anticipated outflows of investment from developing countries.
We have not been strangers to these pressures here in Singapore. The number of firms in Singapore being wound up in 2015 hit their highest figures in 11 years. Figures for this year are moving at a similar pace.
Stories of well-known companies facing insolvency have also hit the headlines. In July, the long established gym provider California Fitness entered liquidation and closed all gym branches, leaving many customers with little recourse. Additionally, just over a month ago, the Singapore market was shocked by news of Singapore-listed Swiber Holdings Ltd filing first to be wound up and then entering judicial management. Among other things, Swiber has had adverse impacts on the share prices of offshore and marine companies listed on the Singapore Exchange and caused several banks to release statements on their exposure to Swiber’s default.

Restructuring - Opportunities within a distressed environment
But in the midst of this doom and gloom, there are obviously opportunities. This is where the insolvency practitioners can step in and make a difference, as I mentioned just now. In many countries, insolvency regimes have evolved from mere mechanisms that facilitate an orderly realisation and division of assets, and they have developed corporate rescue frameworks which facilitate the rehabilitation of a company, often through a restructuring of its debts. A successful restructuring brings obvious benefits. The company can continue to carry on as a viable business and its creditors obtain recoveries that are better than the traditional liquidation process. And, as mentioned just now, in the cases of Leicester City and General Motors, a restructuring can sometimes offer more than merely saving a business.

Singapore as a Centre for International Debt Restructuring
Having discussed the benefits of restructuring and done a scan of the global economy, let me just bring the focus back to Singapore. I want to talk about how the nature of this work has evolved over time here, and the plans that we have for the future.
Insolvency and restructuring have been greatly impacted by the advent of globalisation. It is a reality today, for businesses to have international operations and assets all over the world. As a result, insolvency and restructuring work often result in complex issues that have a cross-border element, and a significant amount of expertise and coordination is needed.
Work therefore is commonly co-ordinated from one ‘lead’ centre to increase efficiency. Leading financial centres such as New York and London have blazed the trail. Within the Asia-Pacific region, Singapore is well-positioned to offer businesses a convenient place in the geographical heart of Asia to come and restructure their debts.
Singapore possesses the necessary elements to be a leading centre for international debt restructuring. It is a major financial, legal, and business hub, and it has a strong base of professionals with relevant expertise in insolvency and restructuring. Additionally, we have a legal system that is modern and comprehensive, and our courts are highly regarded and respected. And we have a proven track record of co-ordinating significant regional restructuring cases.
In April this year, the Committee that Sushil talked about, that was co-chaired by myself and Judicial Commissioner Kannan Ramesh, released its report which set out the recommendations to enhance Singapore’s restructuring framework and ecosystem in order to make it more attractive to users. The Government broadly accepted the Committee’s recommendations in July this year.
Positioning Singapore as a centre for debt restructuring will help to bring new growth opportunities to professionals operating in the insolvency space, such as lawyers, accountants, insolvency practitioners, banks and funds, many of whom are here today.
These recommendations will enable Singapore restructurings to be conducted quickly and effectively, with a high degree of certainty of outcome. Ultimately, that is what the users want and when the Committee considered its recommendations, we really had an eye on what are the ultimate outcomes for the people who are conducting a restructuring. Legislative amendments to the Companies Act will be introduced to give effect to some of the Committee’s recommendations. The Ministry of Law will be releasing draft provisions for public consultation in due course, and my Ministry welcomes feedback on any of these.
The Committee’s recommendations will be canvassed in detail by Judicial Commissioner Kannan Ramesh’s panel during the final plenary session for today, so I will just briefly touch on the part that the insolvency profession has in contributing to the success of this initiative.

The role of the insolvency profession
What must the profession do? The most urgent task for industry professionals is to bridge the perception gap that the global community has of Singapore’s insolvency and restructuring capability. In a study conducted by Grant Thornton and South Square, Singapore was rated very highly as an effective jurisdiction for cross-border insolvency by practitioners with direct experience here. However, practitioners with no experience with Singapore did not rate us highly. In other words, experiencing is believing. But before you can get to experience it, you have to have a sense of the place, know what you can do. This is where you come in.
Singapore-based professionals will play a vitally important role as ambassadors to the global insolvency community, and you must communicate the benefits of conducting a restructuring in Singapore to international practitioners. You can do this by increasing participation in leading international insolvency organisations, or speaking or being involved in international insolvency conferences and seminars. The profession should also be bold and pursue thought leadership initiatives, such as research on cutting-edge issues on cross-border insolvency and restructuring.
However on a long term basis, it is perhaps even more important that Singapore professionals position themselves to be future-ready. As some of you may be aware, a dedicated Working Group has been set up under our Committee on the Future Economy (CFE) to develop strategies to position Singapore’s Legal and Accounting Services sectors well for the future.
My involvement in the Working Group has yielded significant insights and a major takeaway is that Singapore lawyers and accountants are recognised and valued for their strong technical skills and knowledge. But the profession must build on these core skills to be ready to operate in the future economy. Two aspects are particularly important, based on feedback from clients and other stakeholders.
The first is that professionals must be able to deliver more value to their clients. This is not in terms of technical expertise; technical expertise we have already, everybody recognises that. What the clients want are professionals with a regional network, regional legal expertise and a deep understanding of the clients’ industries and businesses. So you’ve got to be more than a lawyer and accountant, you really have to know your clients’ business and you have to be able to connect them to the people in the region that they need for their regional assistance. This is particularly necessary for restructuring, as complex restructuring will often require familiarity with approaches in the various jurisdictions where the businesses’ subsidiaries, operations and assets are located. It requires you to adopt in dealing with the insolvency and restructuring of a multi-national enterprise; a sense of how these different jurisdictions operate. Stakeholders in a restructuring will also have a diverse spectrum of commercial considerations and cultural backgrounds and all of this must be factored in when devising an effective restructuring solution.
Additionally, restructuring work cuts across various disciplines including law, accountancy, finance and management. Mastery of skills on a multi-disciplinary basis has increasingly become more important for professionals working in this industry. In order to acquire cross-disciplinary skills, I would strongly encourage firms to initiate secondment programmes to clients or other professional service providers in the insolvency industry. This in turn will help spur more effective collaboration across the various professions involved in a restructuring. What you really need is a cross-pollination of experience and ideas, not giving up what you know but adding on to what you know from the experience of other disciplines. This will make you much more effective, and be able to provide higher value to the client.
The second is an increasingly interconnected and complex business environment. Clients will come to view their lawyers and accountants as trusted advisors who are partners to their business. This entails the ability to see around corners, to guide clients in making strategic business decisions. I’m not suggesting that we should become business advisers per se, but when the clients make business decisions, they need sometimes more than just purely legal and accounting advice. They need their legal and accounting advisers to know the business environment, to give them input, so that they can make the necessary business decisions. This too is highly applicable in restructuring, as professionals will need to understand complicated financial arrangements and capital structures, and thereafter, guide the clients in executing complex and innovative solutions to turn the business around. The professions must strive towards becoming holistic trusted business advisers to their clients, and not merely just “lawyer” or “accountant”.

Conclusion
Let my conclude by saying that while economic conditions may be challenging and the future is, as always, uncertain, I have no doubt that professionals in the insolvency industry will be able to rise to the challenge and seize the opportunity to establish Singapore as an international centre for restructuring work. On this note, let me conclude by wishing all of you a fruitful and enjoyable conference.
Thank you very much.

Last updated on 16 Sep 2016