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Legal Update

Debtor in Possession Financing in Asia - Considerations for Financial Institutions

29 August 2018
Mayer Brown Legal Update
At first blush, it may seem counterintuitive for financiers to compete to provide loans to debtor companies that have just filed for protection under an insolvency or restructuring procedure, but they have been proven to do so on a large scale in US Chapter 11 cases and for a variety of reasons, whether to protect an existing loan position or taking an opportunity to garner significant, safe returns as a new lender.

As Singapore continues efforts to position itself as a restructuring hub in Asia, its adoption of debtor-in-possession financing, commonly known as DIP financing, is likely to generate increased interest. The availability of such post-petition financing, and the granting of special relief to its providers in the form of super-priority status, among other things, can better position a debtor for a well-managed and thoughtful reorganization.

Recently, Singapore amended its Companies Act (the “Act”) and introduced a rescue financing regime via section 211E of the Act. The new regime came into effect in May 2017 and the first judgment that discussed the legislation (Re Attilan Group Ltd [2017] SGHC 283) was issued on 8 November 2017. The Singapore regime is predominantly modelled on relevant provisions from the US Bankruptcy Code and it incorporates concepts of DIP financing that are a hallmark of Chapter 11 reorganizations.

Whilst similar, the provisions are not identical, which may beg the questions whether any differences are material and whether US jurisprudence will be prevalent or departed from. Further, will investors continue to prefer the certainty of US precedent in this area and favour Chapter 11 or will more proximate (and possibly more cost-effective) opportunities encourage a faster take-up of proceedings in Asia? Financial institutions will want to consider strategies to protect and/or enhance their positions as appropriate when DIP financing looms over their debtors.

*Any views presented in this article in connection with Singapore law are based on our knowledge and understanding of Singapore laws and regulations obtained from our past experience in handling matters and by conducting our own research, and also from informal consultations with Singapore lawyers from time to time. As such, this article does not constitute (and should not be construed as constituting) an opinion or advice on the laws and regulations of Singapore.

Authors

  • John M. Marsden
    T +852 2843 2584
  • Tom Pugh
    Partner
    T +852 2843 2309
  • Frederick D. Hyman
    T +1 212 506 2664
  • Ian Roebuck
    T +65 6922 2311
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