Debt Restructuring - Shift In Attitude Needed
One year ago, groundbreaking amendments were made to the Singapore Companies Act (Cap 50) that significantly enhanced the legal framework governing debt restructuring in Singapore. The primary objective behind these reforms was to enable a more constructive and efficient restructuring solution to business rescue.
Singapore now has the legal tools in place to compete effectively with other restructuring hubs. Since the new amendments came into effect, at least 15 applications for formal debt restructuring proceedings have been made, demonstrating a promising early trajectory. However, for Singapore to truly become the destination of choice in the region for debt restructuring, an attitudinal shift is needed to remove the stigma still attached to the process and to recognise that restructuring strategies can be a highly effective means of preserving shareholder value.
Getting past denial
Many companies undergoing debt restructuring will have seen early signs of financial weakness years earlier, yet only act once it has become too late to preserve value. This has led to a reputation among the public that debt restructuring is a prelude to corporate failure and liquidation.
On the contrary, by acting early, debt restructuring can offer the liquidity and create the runway needed to survive a period of financial weakness or an industry downturn. For management, acting early can also serve to build trust among the company’s financial stakeholders, a key commodity during a debt restructuring exercise.
Creditors also have an important role to play in helping companies move past the denial stage and seek a restructuring solution. A short-term forbearance of financial weakness will address the symptom but not the underlying cause, and lenders should thus start having honest conversations with borrowers earlier rather than later.