In July 2016, Technics Oil & Gas and its key subsidiary, Technics Offshore Engineering, filed for judicial management with the High Court of Singapore. (ST, 1 Jun 16) This was followed by Swiber Holdings, a Singapore-listed oilfield services firm with reported net liabilities of USD 539 million, and its main subsidiary Swiber Offshore Construction. (ST, 6 Oct 16)
Just this month, Singapore-listed rig and vessel chartering group Swissco Holdings and its wholly-owned unit, Swissco Offshore, also filed for judicial management after its main lenders rejected its USD 273.4 million debt restructuring plan. (ST, 22 Nov 16)
What is Judicial Management?
Section 227B of the Companies Act provides that the Court may make a judicial management (“JM”) order in relation to a company which is or will be unable to pay its debts if the Court considers that the JM order will achieve:
- The survival of the company, or the whole or part of its undertaking, as a going concern;
- Approval of a compromise or arrangement between the company and its members and creditors under section 210 of the Companies Act; and/or
- A more advantageous realisation of the company’s assets than on a winding up.
The purpose of a JM order is to provide the company with a temporary respite from its creditors and liabilities while the judicial manager attempts to rehabilitate or salvage the company.
An applicant who files a petition for a JM order should outline the proposed restructuring plan based on the nature of the business and circumstances of the case, such as the presence of potential investors, unencumbered assets, ongoing or potential projects and accounts receivables. A JM order is not granted as of right, and the Court must be satisfied that there is concrete evidence of a potentially better outcome as opposed to liquidation.
Once the Court approves the petition, the JM order remains in force for 180 days unless extended by the Court. During this period, unless leave of Court is granted, no liquidation or legal proceedings may be commenced or continued against the company, and no steps may be taken to enforce security over the company’s assets.
The judicial manager has 60 days from the date of the JM order to present a statement of proposals to the members and creditors and call for a creditors’ meeting. After the meeting, the judicial manager must report the result to the Court, who may then discharge the JM order or make such JM order(s) as per the approved proposals.
What is the difference between Judicial Management and Winding Up?
Judicial management is designed to be a temporary court-supervised regime, and is not meant for the general distribution of an insolvent company’s assets to its creditors. While creditors whose debts have fallen due are temporarily restrained from commencing proceedings against the company, they have an opportunity to vote on the judicial manager’s statement of proposals that could help avoid a piecemeal fire-sale of the company’s assets and increase their chances of eventually getting paid.
For instance, the judicial managers for Swiber Holdings and Swiber Offshore Construction warned that unsecured creditors could expect to recover only two cents to the dollar and four cents to the dollar respectively if the companies were liquidated instead of being placed into JM. (ST, 6 Oct 16)
On the other hand, if it is unlikely that any part of the company can survive, or that there would not be a more advantageous realisation of the company’s assets, it would be more appropriate to appoint liquidators to wind up the company. A judicial manager also lacks the mechanism to properly determine provable debts or the authority to pay pre-existing creditors.
Given the weak market sentiments concerning the offshore and marine industry, it remains to be seen if Technics Oil & Gas, Swiber Holdings and Swissco Holdings and their respective subsidiaries can be successfully rehabilitated by judicial management.
This update is for general information only and is it not intended to constitute legal advice. JTJB has made all reasonable efforts to ensure the information provided is accurate at the time of publication
Brenna practices Civil and Commercial Litigation and Arbitration, with a specific focus on shipping-related work. She also handles shipping transactional work.