Related Author: Aslan Boucobza, Paralegal at Mayer Brown
In this case, Re Kobian Pte Ltd (OS 1269 / 2020 in the Singapore High Court), Kobian Pte Ltd applied to the Singapore High Court for a moratorium to propose a scheme of arrangement with its creditors. The legal issues at stake were the necessary conditions to be fulfilled by an Applicant in order to obtain a moratorium under section 64 of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA).
The Singapore High Court dismissed the Application considering in particular that the proposed scheme of arrangement was not feasible. This was the first time a court in Singapore had made its decision on whether to grant the requested moratorium based on its analysis of the scheme to be proposed to the creditors of the Applicant. Whilst the Court did not set down a specific criterion to be applied in determining the feasibility of the proposed scheme, it is, after all, a fact-based analysis, the decision of the Court in this instance shows a willingness to consider the totality of events, as well as the commercial feasibility of the proposed scheme in deciding whether to grant a moratorium under section 64 of the IRDA.
This case is food for thought for potential Applicants and creditors alike, because, on the one hand, it establishes that Applicants can expect the courts to exercise broad discretion when it comes to considering the "feasibility" of a proposed scheme. For creditors, it is encouraging that the courts are willing to undertake robust reviews of proposed schemes before granting moratoria.
On the 14th of December 2020, Kobian Pte Ltd (Kobian) applied to the Singapore High Court to obtain a moratorium, under section 64 of the IRDA with a view to proposing a scheme of arrangement to its creditors.
As a matter of background, Kobian was in a critical financial situation in which it owed more than US$250 million to various bank and trade creditors and thus requested a moratorium on the basis, inter alia, that the moratorium would give it the opportunity to collect its trade receivables.
Generally, an Applicant for a moratorium can apply on two different bases. The first one is that the Applicant has already proposed an arrangement to its creditors, and, in that situation, the Applicant need only provide evidence of creditor support and a brief explanation of the importance of that support relative to the proposed arrangement. The second basis is when the Applicant has not already proposed a scheme to its creditors; then it needs to (i) describe the arrangement with sufficient detail so that the court can determine if the arrangement is feasible and (ii) show some evidence of creditor support.
In the present case, Kobian Pte Ltd applied on the second grounds, because it had not already proposed any compromise to its creditors.
It should also be noted that one of Kobian's creditors, Maersk Trade Finance, objected to this Application on the grounds that the proposed arrangement was not feasible.
On 12th January 2021, Justice Vinodh Coomarswamy dismissed the Application. The High Court of the Singapore Republic found that there were both insufficient details for the intended arrangement and insufficient creditor support. Moreover, the Court specified that the Application was dismissed because the intended arrangement was not feasible.
In deciding that the arrangement was not feasible, the Court recalls that Kobian had financial difficulties in January 2020, far in advance of December 2020, the date of the Application. Thus, the Court stated that, in the meantime, Kobian's financial situation has deteriorated to the point that the intended arrangement could not be considered feasible.
The Court, in its analysis to grant the moratorium, analysed the entire factual environment surrounding the Kobian company and found that the scheme was not feasible mainly because of the time delay. The Court also stated that the banks had already terminated the banking lines of Kobian..
In addition, the Court stated that there was no evidence of support from its creditors but opposition from a substantial numbers of creditors including Maersk Trade Finance.
This case is the first-known case of the Singapore High Court where the Court dismissed an Application for moratorium on the basis that the proposed plan is not feasible. Thus, it would appear that the simple fact of providing a somewhat detailed plan of arrangement and proof of support from the Applicant's creditors does not ensure that an Application for a moratorium would be successful. The Court has shown that it will not hesitate to analyse and, where it deems necessary, to challenge the feasibility of the proposed plan. Moreover, it should be noted that the Court did not provide any legal test to determine if the plan is feasible. The analysis is necessarily a factual one.