Legislative judicial executive branches powerpoint presentation slides.
Judicial Management_CPE (Final)(Presentation)
-
Upload
suraj-rathi -
Category
Documents
-
view
218 -
download
1
Transcript of Judicial Management_CPE (Final)(Presentation)
Judicial Management:The Key Issues, Processes and Administration
12010 Deloitte & Touche Financial Advisory Services Pte Ltd
Content
22010 Deloitte & Touche Financial Advisory Services Pte Ltd
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
1. The Judicial Management Process
32010 Deloitte & Touche Financial Advisory Services Pte Ltd
42010 Deloitte & Touche Financial Advisory Services Pte Ltd
Potential Outcomes of Insolvent Companies
There are various options in the Companies Act that offers possible routes that
directors can choose:
Debt Restructuring
Receivership
Winding Up
Judicial Management
Objectives of JM
52010 Deloitte & Touche Financial Advisory Services Pte Ltd
To help achieve the survival of the company, or the whole or part of its
undertaking as a going concern
To ensure a more advantageous realization of the company’s assets compared
to a winding up situation
To seek a compromise or arrangement under S210 of the Companies Act,
Chapter 50 (“CA”)
1
2
3
Court grants JM application
Overview of a JM Process
62010 Deloitte & Touche Financial Advisory Services Pte Ltd
Application Court Hearing Application Dismissed
Statement of Proposal
Scheme of Arrangement
Creditors’ Meeting
Accepted Rejected
Court Sanction Revise Scheme of Arrangement or apply to Court to wind up the Company
Creditors’ Meeting
• Basis of making a JM application
72010 Deloitte & Touche Financial Advisory Services Pte Ltd
When to Apply for JM
Where a company or where a creditor or creditors of the company consider that –
1) The company is or will be unable to pay its debts; and
2) There is reasonable probability of rehabilitating the company and preserving
all or part of its business as a going concern; or that interests of creditors
would be better served than by resorting to winding up
• Definition of inability to repay debts
82010 Deloitte & Touche Financial Advisory Services Pte Ltd
There are 3 ways in which a company can be deemed unable to pay its debts:
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
When to Apply for JM
92010 Deloitte & Touche Financial Advisory Services Pte Ltd
Company
Usually via its directors, who will file an affidavit to support the application
Who can Apply for JM
CreditorsCreditors include contingent and prospective creditors. Notice of petition
must be given to the company and debenture holders secured by fixed or floating charges
OR
102010 Deloitte & Touche Financial Advisory Services Pte Ltd
Who can be appointed as Judicial Manager
A person who is a public accountant, but not an auditor of the company
Court reserves the right to reject the nomination of the applicant
Where a nomination is made by the company, the creditors may oppose the
nomination during the Court hearing
2. Effects of a Judicial Management Order
112010 Deloitte & Touche Financial Advisory Services Pte Ltd
Any receiver is to vacate office, no receiver may be appointed
Moratorium will be granted
Any petition to wind up the company shall be dismissed
Creditor cannot enforce security or repossess goods under hire-purchase, except
with the leave of court or the consent of the Judicial Manager
122010 Deloitte & Touche Financial Advisory Services Pte Ltd
General Effects
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
132010 Deloitte & Touche Financial Advisory Services Pte Ltd
Effects on Directors
Do all such things as may be necessary for the management of the affairs, business,
property of the company
Power to run the day to day operations of the company
Judicial Manager is not able to discharge debts without Court sanction unless he
does so via a Scheme or compromise
Judicial Manager has the power to do all the necessary set-offs unlike in a winding
up process
142010 Deloitte & Touche Financial Advisory Services Pte Ltd
Powers of the Judicial Manager
152010 Deloitte & Touche Financial Advisory Services Pte Ltd
The Judicial Manager also has the power to:
Take over the custody and control of all property, including books and records of
the company
Manage the company in accordance to the Statement of Proposal
Revise the proposals on his own discretion
Powers of the Judicial Manager
Floating Charges
Judicial Manager is entitled to dispose the property as if it were not subjected
to the charge
The asset can be sold, with the proceeds used to discharge the sums secured by
such properties
Floating charge will still be ranked above unsecured debts
162010 Deloitte & Touche Financial Advisory Services Pte Ltd
Powers of the Judicial Manager
Fixed Charges
• The Judicial Manager may apply to court to dispose the property as if it is not
subject to security
• The Court will grant the request if it is satisfied that the disposal is likely to
promote one or more of the purposes specified in the JM Order
• Proceeds from the sale of the secured properties (assets), must be used to
discharge the sums secured by such properties (assets)
172010 Deloitte & Touche Financial Advisory Services Pte Ltd
Powers of the Judicial Manager
Judicial Manager acts as an agent of the company
Owes a duty to the company to act with reasonable skill, care and diligence
Judicial Manager may apply to Court for directions
Judicial Manager shall be personally liable to new or adopted contracts, unless he
disclaims personal liability under that contract via notification to the other party
Judicial Manager to examine all contracts and decides whether to adopt the term
within 28 days of the JM Order
182010 Deloitte & Touche Financial Advisory Services Pte Ltd
Duties of the Judicial Manager
192010 Deloitte & Touche Financial Advisory Services Pte Ltd
3. Statement of Proposal
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 ensure a more advantageous realization of the company’s assets compared
to a winding up situation
• To seek a compromise or arrangement under s210 Companies Act
202010 Deloitte & Touche Financial Advisory Services Pte Ltd
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,
professional remunerations and appointment of the Committee of Creditors
In a statement of proposal, the Judicial Manager will set out how the Judicial
Manager intends to achieve one or more of the Aims and will be put to vote at the
first Creditors’ Meeting
212010 Deloitte & Touche Financial Advisory Services Pte Ltd
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 Manager’s
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
creditors222010 Deloitte & Touche Financial Advisory
Services Pte Ltd
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
232010 Deloitte & Touche Financial Advisory Services Pte Ltd
4. Scheme of Arrangement
242010 Deloitte & Touche Financial Advisory Services Pte Ltd
Scheme of Arrangement (“SOA”)
• A SOA is a compromise or arrangement between a Company and some or all of its
creditors governed by s210 of CA
• At any time when a JM order is in force in relation to a Company under JM, s210
shall apply as if for the following clauses which will substitute s210(1) and
s210(3):
– Where a compromise or arrangement is proposed between the Company and its
creditors, the Court may on the application of the Judicial Manager order a
meeting of creditors to be summoned in such manner as the Court directs;
– 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 Company’s assets, save by way of a SOA sanctioned by the Court252010 Deloitte & Touche Financial Advisory
Services Pte Ltd
Scheme of Arrangement (“SOA”)
• The SOA will be binding on the scheme creditors when:
1. 75% in value of the scheme creditors present and voting either in person or by
proxy at the meeting agree to the Scheme;
2. The Court subsequently makes an Order approving the Scheme; and
3. An office copy of that Order is delivered to the Registrar of Companies for
registration
• There are no rigid rules set out for SOA; rather each scheme is tailored to the
individual circumstances of the Company in respect of which it is proposed to
maximize the benefits it may produce
• A SOA and an accompanying explanatory statement have to be provided to each
scheme creditor 262010 Deloitte & Touche Financial Advisory
Services Pte Ltd
Scheme of Arrangement (“SOA”)
• Contents inside a SOA (may vary on circumstances):
- Introduction and background of the Company
- What is a SOA
- Who are the Scheme Creditors
- Cash position and working capital requirements
- The claims and proofs of debt received
- The proposed timeline
- The dividend rate
- Method of payment (cash, equity, assets or a combination)
- Termination of Scheme
272010 Deloitte & Touche Financial Advisory Services Pte Ltd
5. Practical Issues in a JM Administration
282010 Deloitte & Touche Financial Advisory Services Pte Ltd
292010 Deloitte & Touche Financial Advisory Services Pte Ltd
Judicial Management
AdministrationEmployees
Control
NotificationFinancial Review
Operations Review
Subsidiaries & Related Co.
Others
Practical Issues
30
Administration Appointment of legal counsels
Identify secured creditors and their respective charges (Fixed, Floating, Hire-
Purchase, Retention of Title etc.)
Establish contact with essential suppliers
Review (short term) cash flow projection and consider whether trading operations
can be continued. Evaluate immediate critical payments which have to be made
Take possession of cash and cheque books and inform the banks
Review of production orders & ongoing contractual commitments
2010 Deloitte & Touche Financial Advisory Services Pte Ltd
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
Administration
312010 Deloitte & Touche Financial Advisory Services Pte Ltd
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
322010 Deloitte & Touche Financial Advisory Services Pte Ltd
Case StudyIdentity 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?
332010 Deloitte & Touche Financial Advisory Services Pte Ltd
Case StudyTermination 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
Question: Is the JM empowered to terminate employees who are on maternity leave?
342010 Deloitte & Touche Financial Advisory Services Pte Ltd
Control Secure assets, property, books and records, including;
• Safes and petty cash
• Title deeds, Leases and Securities, etc
• Cars, mobile phones, credit cards, laptops etc
Information of all properties
Stock take of inventory
352010 Deloitte & Touche Financial Advisory Services Pte Ltd
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
Engage external security services if necessary
Control
362010 Deloitte & Touche Financial Advisory Services Pte Ltd
Notification and Communication
Notifications are to be sent to all known creditors, debtors, auditors,
government authorities (IRAS, GST, MOM etc) and shareholders, on the status
of the company
All correspondences must state that Company is in JM
Communication to Creditors: -
• Need to be transparent and independent
• Need to provide regular reporting and status updates
• To consider the formation of steering committee
372010 Deloitte & Touche Financial Advisory Services Pte Ltd
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
Financial Review
382010 Deloitte & Touche Financial Advisory Services Pte Ltd
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
Financial Review
392010 Deloitte & Touche Financial Advisory Services Pte Ltd
Operations Review
402010 Deloitte & Touche Financial Advisory Services Pte Ltd
Understand nature of business and company’s business model & structure
Identify key suppliers & customers
Debt recovery process:
• Ensure ability to continue operations
• Ability to procure additional businesses
Case StudySet-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?
412010 Deloitte & Touche Financial Advisory Services Pte Ltd
Proof of debt
422010 Deloitte & Touche Financial Advisory Services Pte Ltd
Proof of Debt has to be submitted by all Creditors
Adjudication process could be complicated depending on the nature of claims:-
• Ensure sufficient time is allocated for adjudication
• To consider the need to engage the relevant experts for the adjudication of debts
Quantum of claims could change in special circumstances
Admit or reject (Full or Partial) claims
Rejection of claims via writing and creditors can only appeal in Court within 21
days from the notice of rejection
Subsidiaries & Related Companies
432010 Deloitte & Touche Financial Advisory Services Pte Ltd
Identify all subsidiaries and related companies
Prepare financial and viability studies of these subsidiaries & related companies
Special care to be taken on cross border issues
Other Issues
442010 Deloitte & Touche Financial Advisory Services Pte Ltd
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 Company’s operations
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
Other Issues
452010 Deloitte & Touche Financial Advisory Services Pte Ltd
6. Review of Past Transactions
462010 Deloitte & Touche Financial Advisory Services Pte Ltd
Review of Past Transactions The Judicial Manager has the power to review and set aside transactions which are:
• Deemed unfair preference to certain stakeholders; and/or
• Transactions at an undervalue amount
472010 Deloitte & Touche Financial Advisory Services Pte Ltd
Unfair Preference
482010 Deloitte & Touche Financial Advisory Services Pte Ltd
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 debtor’s desire to prefer.
Unfair Preference
492010 Deloitte & Touche Financial Advisory Services Pte Ltd
2 Separate Stages of Analysis
Stage 1 – Preference in Fact
• Objective Test; and
• Whether the transaction had
the effect of putting the
creditor in a better position
in the event of the
Company’s winding up or
JM.
Stage 2 – The desire to prefer
• Subjective Test; and
• The Company was influenced
by as desire to confer a
preference on the creditor.
The ‘Desire’
502010 Deloitte & Touche Financial Advisory Services Pte Ltd
Judicial Manager must prove that the Company’s decision to enter into the
transaction was influenced by a subjective desire to put the creditor in a better
position
Courts often state that the existence of the requisite desire may be inferred from the
circumstances of the case
The ‘Desire’
512010 Deloitte & Touche Financial Advisory Services Pte Ltd
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
522010 Deloitte & Touche Financial Advisory Services Pte Ltd
S99 of the Bankruptcy Act imported by S227T of CAThe 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
Applying to Court
Exception: The Company was influenced by proper commercial considerations
Definition of Associates
532010 Deloitte & Touche Financial Advisory Services Pte Ltd
S329CA imports S101 of the Bankruptcy Act which provides that an associate
includes:
• Spouses, Relatives
• A director or shadow director of the company
A company shall be regarded as an associate of another company if:
(a) The same person has control of both companies; or
(b) A group of 2 or more persons has control of each company and such groups either
consist of the same persons or could be regarded as consisting of the same persons
by treating a member of either group as replaced by a person of whom he is an
associate.
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?”
542010 Deloitte & Touche Financial Advisory Services Pte Ltd
Undervalue Transaction
552010 Deloitte & Touche Financial Advisory Services Pte Ltd
A transaction is undervalued when the disparity of margin is of such
magnitude that it could not be explained by commercial practice.
Undervalue Transaction
562010 Deloitte & Touche Financial Advisory Services Pte Ltd
S98(3) Bankruptcy Act imported by S227T CAA 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
Applying to Court
572010 Deloitte & Touche Financial Advisory Services Pte Ltd
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
582010 Deloitte & Touche Financial Advisory Services Pte Ltd
Successful Judicial Management Administrations
Barings Futures (Singapore) Pte Ltd
Van Der Horst Ltd
Alliance Technology & Development Ltd
Amcol International Corp
Citiraya Industries Pte Ltd
592010 Deloitte & Touche Financial Advisory Services Pte Ltd
Question & Answer
602010 Deloitte & Touche Financial Advisory Services Pte Ltd
About the Speaker
Justin LimJustin 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.
Justin is also involved in forensic investigations and litigation support work involving fraud, commercial disputes and insolvency-related matters.
DirectorReorganisation Services
Direct: +65 6216 3269Email: [email protected]: www.deloitte.com/sg
612010 Deloitte & Touche Financial Advisory Services Pte Ltd
About the Speaker
Lydia KohLydia 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 Singapore’s 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 DirectorReorganisation Services
Direct: +65 6216 3193Email: [email protected]: www.deloitte.com/sg
622010 Deloitte & Touche Financial Advisory Services Pte Ltd