Professional Documents
Culture Documents
Content
1. The Judicial Management (JM) Process
Application Effects of a Judicial Management Order Statement of Proposal 2. Conducting a JM Administration Practical Experiences Outcomes of Judicial Management
Debt Restructuring
Receivership Winding Up
Judicial Management
Objectives of JM
1 To help achieve the survival of the company, or the whole or part of its
undertaking as a going concern
Overview of a JM Process
Application Court Hearing Application Dismissed
Court Sanction
1. Company owns a sum exceeding $10,000 and; Have been served with a statutory demand and Company has neglected to pay the sum after 21 days 2. Execution of Judgment in favor of a creditor is returned unsatisfied in whole or in part 3. The Court is satisfied that the Company is unable to pay its debts. The Court will consider all contingent and prospective liabilities
OR Creditors
Creditors include contingent and prospective creditors. Notice of petition must be given to the company and debenture holders secured by fixed or floating charges
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General Effects
Any receiver is to vacate office, no receiver may be appointed
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Effects on Directors
Functions and powers of the board of directors are transferred to the Judicial Manager The directors must submit a statement of affairs to the Judicial Manager within 21 days Judicial Manager may apply to court to summon any officer or any person to assist in the JM process
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the company
Manage the company in accordance to the Statement of Proposal Revise the proposals on his own discretion
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such properties
Floating charge will still be ranked above unsecured debts
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3. Statement of Proposal
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Statement of Proposal
The Judicial Manager has 60 days to send to members and creditors of the company his proposal for the achievement of the purposes for which the order was made
To help achieve the survival of the company, or the whole or part of its
undertaking as a going concern
to a winding up situation
To seek a compromise or arrangement under s210 Companies Act
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Statement of Proposal
The Judicial Manager will also call for the submission and adjudication of Proof of Debt
Thereafter, the Judicial Manager is to convene a Creditors Meetings with not less
than 14 days notice to seek approval for the Statement of Proposal Agenda for First Creditors meeting include reporting of significant matters to date,
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Statement of Proposal
At the Creditors Meeting, the statement of proposal will only be deemed to be approved if the majority of creditors present, personally or by proxy, vote in favour
of the Proposal
A majority vote both in terms of value and the number of creditors is required for approval
The statement of proposal will usually encompass a brief summary of the current
situation of the Company, the financial position and the Judicial Managers proposal to achieve one or more of the JM objectives Other items that may be presented in the statement of proposal (Optional): Estimated fund available for distribution and the estimated dividend rate to creditors
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Committee of Creditors
The committee of creditors shall comprise of no less than 5 members and no more than 7 members and must include an employee and a shareholder
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4. Scheme of Arrangement
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Obtain 75% in value of the creditors present and voting, either in person or by
proxy, at the meeting The Judicial Managers have no power during JM to distribute any proceeds of realization of the Companys assets, save by way of a SOA sanctioned by the Court
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Practical Issues
Administration Others Employees
Judicial Management
Control
Operations Review
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Administration
Appointment of legal counsels Identify secured creditors and their respective charges (Fixed, Floating, Hire-
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Administration
Identify major suppliers and customers and meet them to address their concerns
Meet key employees to understand the trading operations & business structure
Determine if an industry expert is required (e.g. shipping, aerospace, property etc) Review major contracts and any legal matters with solicitors
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Employees
Obtain detailed information of employees Retention of key employees Establish control procedures Recall of corporate cards, credit cards, tokens given to employees Brief employees on the status of the company/ the JM process Streamline employees headcount if necessary; Depends on several factors such as: Job scope and functions Volume of business
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Case Study
Identity of Employer Some employees may be employed pursuant to a letter of employment issued by one of the subsidiaries The employees were carrying out tasks instructed by JHT Letters of promotion were issued by JHT Question: Who would be considered as the employer of these employees?
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Case Study
Termination of pregnant employees As part of the administration, the JM would terminate all employment contracts and offer new contracts to those employees whom would be retained There could be instances where the terminated employees consist of pregnant ladies having their maternity leave
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Control
Secure assets, property, books and records, including;
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Control
Movements of goods to obtain JM approval Data imaging of electronic records (emails, SAP records, financial records, computers and servers etc) Insurance coverage for all assets for public liabilities, fires and thefts
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Financial Review
Assess profitability of existing contracts and work in progress Assess viability of business operations in subsidiaries and related companies Review Balance Sheet, Profit and Loss Statement & Cashflow Statements Understand the financial position of the Company, with assessments on its income stream and burn rate
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Financial Review
Identify assets which can be sold and explore the best method to realize them Conduct valuation of property, plant & machinery and other assets Prepare Information Memorandum
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Operations Review
Understand nature of business and companys business model & structure Identify key suppliers & customers
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Case Study
Set-offs Company A is both a debtor and creditor Question: Are set-offs allowed in a Judicial Management as well as in a winding up scenario?
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Proof of debt
Proof of Debt has to be submitted by all Creditors Adjudication process could be complicated depending on the nature of claims:-
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Other Issues
Stigmatism: Suppliers and Customers will have low confidence when they deal with the Company, hence affecting trading prospects This stigma will likely still follow even if a new entity is set up to take over the profitable businesses of the Company Bank facilities are likely to be frozen Trading may be reduced to a cash basis Difficulties in retaining employees Difficulty in recovering new money for the Companys operations
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Other Issues
Consider options available including compromise under s210 and/or prepare Statement of Proposal to be sent to creditors Commence marketing and search for potential investor / white knight Possible need for the extension of JM Order Adhere to listing requirements (if Company is listed) Announcement of all material records Ensure monthly updates are made
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Unfair Preference
An unfair preference is said to be given if a creditor is put in a better position
than winding up as a result of the debtors desire to prefer.
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Unfair Preference
2 Separate Stages of Analysis
the creditor.
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The Desire
Judicial Manager must prove that the Companys decision to enter into the
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The Desire
The mere presence of the desire will not be sufficient
Must show that the desire had influenced the decision to enter into the transaction
The relevant desire need only be an influence. It need not be the dominant or decisive factor
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Applying to Court
S99 of the Bankruptcy Act imported by S227T of CA The Judicial Manager may apply to court if: (i) Preference was given, (a) Within 2 years before commencement of winding up to an Associate (b) Within 6 months before commencement of winding up to an Non-Associate (ii) Company was insolvent/became insolvent as a result of the transaction (iii) Company was influenced by a desire to prefer Exception: The Company was influenced by proper commercial considerations
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Definition of Associates
S329CA imports S101 of the Bankruptcy Act which provides that an associate includes: Spouses, Relatives A director or shadow director of the company
Determining Insolvency
Insolvency can be determined using the following methods: Cashflow Insolvency Can the company pay its obligations as it is due? Balance Sheet Insolvency Does Liabilities exceed Assets?
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Undervalue Transaction
A transaction is undervalued when the disparity of margin is of such
magnitude that it could not be explained by commercial practice.
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Undervalue Transaction
S98(3) Bankruptcy Act imported by S227T CA A transaction is considered undervalued if the Company: (a) Enters into a transaction where no consideration is received; or (b) Enters into a transaction for a consideration of which is significantly less than the value of the consideration provided by the other party
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Applying to Court
S100(1) BA - The Judicial Manager can apply to court to set aside the transaction if:
1. The transaction was entered within 5 years ending with the date of making the
winding up application
2. The company was insolvent or became insolvent as a result of the transaction
For an associate, the company is assumed to be insolvent at the time of the transaction or became insolvent as a result of the transaction
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Justin Lim
Justin has more than 13 years experience in the areas of corporate restructuring and business recovery and dispute resolution work. He had led teams in some of Singapore largest corporate restructuring and business recovery engagements covering a spectrum of industries including construction, manufacturing, energy & resources, retail and the hospitality sectors.
Director Reorganisation Services Direct: +65 6216 3269 Email: juslim@deloitte.com Website: www.deloitte.com/sg
Justin is also involved in forensic investigations and litigation support work involving fraud, commercial disputes and insolvency-related matters.
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Lydia Koh
Lydia has more than 8 years of professional experience in Singapore and UK, specializing in corporate restructuring, business recovery, litigation support and forensic investigation. She was extensively involved in some of Singapores largest corporate restructuring projects, providing turnaround consulting and developing workable and effective restructuring and reorganization proposals for listed and major non-listed clients. Lydia has also been involved in various insolvency and forensic investigations within the region.
Associate Director Reorganisation Services Direct: +65 6216 3193 Email: lkoh@deloitte.com Website: www.deloitte.com/sg
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