Rescue financing: first blood?

On 08 November 2017, the Singapore High Court issued its judgment in Re Attilan Group Ltd [2017] SGHC 283. This is the first reported judgment by a Singapore Court on the rescue finance provisions introduced pursuant to the 2017 debt restructuring amendments to the Singapore Companies Act. We discuss three key takeaways from that judgment.

An applicant is expected to adduce evidence that financing would not be available but for the grant of super priority

One of the key takeaways is that where super priority for rescue financing is sought under s 211E(1), the company should adduce some evidence of its reasonable attempts at securing less disruptive financing (that is financing without super priority terms). Under s 211E(1)(a), such attempts are a factor in the Court’s exercise of its discretion to grant such rescue financing super priority, whereas under ss 211E(1)(b)-(d), such attempts are a condition to the Court’s exercise of its discretion. The company must adduce sufficient evidence of the attempts which were made - for instance, of failed negotiations, and attempts made with other potential lenders.

On the facts, the judge found that there was insufficient evidence that the company undertook reasonable efforts to source for less disruptive financing. While there was affidavit evidence on discussions which the company undertook, it was not apparent that those discussions were in respect of financing without super priority terms. No evidence, for instance, of correspondence, was provided indicating that financing without super priority terms was sought but rejected. On that basis, the judge declined to confer super priority status on the rescue financing.

Debtor companies should thus note that documentary evidence of its attempts to obtain less disruptive financing may have to be adduced as evidence before the Singapore Court. This may have a knock-on effect on how negotiations which it carries out should be structured.

US authorities may provide guidance on how s 211E should be interpreted

The judge observed that US authorities could guide the appropriate construction of the rescue financing provisions in the Singapore Companies Act, as those super priority provisions were inspired by the Bankruptcy Code 11 USC (US), more commonly known as Chapter Eleven. In this judgment, US case law was referred to in setting out guidance on s 211E(1).

Further credit provided by an existing creditor may constitute “rescue financing” if that creditor would not be bound to provide further credit

In the judgment, it was made clear that proposed financing from an existing creditor of the company can constitute rescue financing, as long as that creditor is not otherwise bound to provide such financing. On the facts, the existing creditor was not obliged to dispense further funds because it was released from its contractual obligations when the company initiated a scheme of arrangement and/or was subject to legal proceedings.

Conclusion

Re Attilan Group Ltd is significant - the Honourable Justice Aedit Abdullah observed that: “this [wa]s the first case where an application [for super priority to be accorded to future financing was made], following the recent amendments” to the Singapore Companies Act. His judgment will be scrutinized by distressed debt funds and lenders seeking to capitalize on the rescue financing provisions moving forward.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.