Lending and taking security in Singapore: overview

A Q&A guide to lending and taking security in Singapore.

The Q&A gives a high level overview of the lending market, forms of security over assets, special purpose vehicles in secured lending, quasi-security and guarantees. It covers creation and registration requirements for security interests; problem assets over which security is difficult to grant; risk areas for lenders; structuring the priority of debt; debt trading and transfer mechanisms; agent and trust concepts; enforcement of security interests and borrower insolvency; cross-border issues on loans; taxes; and proposals for reform.

To compare answers across multiple jurisdictions, visit the Lending and taking security in country Q&A tool.

This article is part of the global guide to finance. For a full list of contents visit www.practicallaw.com/finance-guide.

Kok Chee Wai, Mark Hudspeth and Aloysius Ng, Allen & Gledhill LLP
Contents

Overview of the lending market

1. What have been the main trends and important developments in the lending market in your jurisdiction in the last 12 months?

Business lending activity is reported to have contracted year-on-year over the last 12 months, driven by broad weaknesses in the global economy and within the domestic market. Building and construction loan activity (the single biggest proportion of business lending) has declined as a result of the cooling domestic property market. Financings of de-listings have increased, as low valuations and easy access to credit has resulted in a wave of de-listings from the Singapore stock exchange.

An important development is the implementation of the Companies (Amendment) Act 2014, which introduced wide ranging changes to the Companies Act (Chapter 50). Some of the key changes that took effect on 1 July 2015 include the removal of financial assistance prohibition for private companies, and the introduction of new exceptions to the financial assistance prohibition for public companies and their subsidiaries.

 

Forms of security over assets

Real estate

2. What is considered real estate in your jurisdiction? What are the most common forms of security granted over it? How are they created and perfected (that is, made valid and enforceable)?

Real estate

In Singapore, real estate generally means land, buildings and any fixtures and fittings affixed onto land, and can include any parcel of subterranean space or airspace relating to the land.

Common forms of security

Security over real estate is usually either a legal mortgage or an equitable mortgage.

A legal mortgage is created when the mortgagor conveys its legal title to the property to the mortgagee in consideration of a loan.

Where the mortgagor has an equitable title to the land, it can only convey the equitable title to the mortgagee. An equitable mortgage can also be created by a mortgagor with legal title either:

  • By agreement.

  • Where the relevant formalities for the creation of a valid legal mortgage are not fully complied with.

The purchaser of a Singapore property that is under development will usually only have equitable title to the property. A common way to create an equitable mortgage in Singapore is for the mortgagor to assign its rights under the sale and purchase agreement or the building or lease agreement. Notice of the assignment should be given to the developer or lessor who has entered into the sale and purchase agreement, or the building or lease agreement, with the mortgagor.

In addition, a caveat should be lodged at the Singapore Land Authority (SLA) in favour of the lender. The mortgagor also executes a mortgage-in-escrow, so that when it receives legal title to the property, the mortgage-in-escrow can be completed and registered at the SLA.

Formalities

A legal mortgage must be created by deed in the English language, and is subject to a proviso for redemption on repayment of the secured debt. A mortgage or charge created under the general law is perfected on registration (Registration of Deeds Act (Chapter 269)). Security interests involving registered land under the Torrens system are perfected on registration (Land Titles Act (Chapter 157)).

In addition, if the security grantor is a Singapore company or a foreign company registered in Singapore, any mortgage or charge over real estate must be registered with the Accounting and Corporate Regulatory Authority in Singapore within either:

  • 30 days of creation of the security, if the document creating the charge is executed in Singapore.

  • 37 days of creation of the security, if the document creating the charge is executed outside Singapore.

Tangible movable property

3. What is considered tangible movable property in your jurisdiction? What are the most common forms of security granted over it? How are they created and perfected?

Tangible movable property

Tangible movable property, also known as chattels, includes any physical asset that is not affixed onto land. Examples of chattels include:

  • Plant and machinery.

  • Stock and inventory.

  • Ships and aircraft.

Common forms of security

Security over chattels typically takes the form of a fixed charge or a floating charge.

A fixed charge is a security interest that attaches itself to a particular charged asset without any transfer of legal ownership. A fixed charge follows an asset if transferred, that is, the transferee will take the asset subject to the fixed charge. If the debtor defaults, the creditor can sell the asset and assert a claim over the proceeds of sale in priority to other creditors.

Unlike a fixed charge, a floating charge is usually a charge over a class of assets, present or future. The charge does not attach itself to a particular asset within the class. It continues to exist even when the collateral changes in character, classification or location. A chargor is usually free to deal with the assets. Therefore, while security over inventory can technically be taken by means of a fixed charge, a floating charge will probably be more appropriate as the debtor usually needs to deal with the inventory in the course of its business.

It is also possible to take security over chattels by way of a pledge. A pledge gives a creditor a possessory right over chattels or documents of title. The chattel or the document must be delivered, actually or constructively, to the pledgee. This means that the subject matter of the pledge must be capable of actual or constructive delivery.

Formalities

A mortgage or a debenture in respect of tangible movable property, issued by a Singapore company or a foreign company registered in Singapore, is registrable as a charge with the Accounting and Corporate Regulatory Authority in Singapore.

In addition, specific registration requirements apply to security over specific classes of chattels. For example, the Merchant Shipping Act (Chapter 179) governs the formalities relating to security over registered ships in Singapore.

Financial instruments

4. What are the most common types of financial instrument over which security is granted in your jurisdiction? What are the most common forms of security granted over those instruments? How are they created and perfected?

Financial instruments

Financial instruments over which security is commonly granted include shares and debt securities.

Shares in Singapore companies can be evidenced either in certificated form or book-entry form.

Certificated shares are evidenced by registration in the register of members of the company. Legal title in the shares is vested in the person to whom the shares are allotted or transferred and whose name is entered on the register of members of the company in respect of the shares.

Book-entry securities are shares of a Singapore company that meet all the following conditions:

  • The shares are listed on the Singapore Exchange Securities Trading Limited (SGX-ST).

  • The share certificates are deposited with The Central Depository (Pte) Limited (Central Depository), the clearing house of SGX-ST.

  • The shares are transferable by way of book entry in the Depository Register maintained by the Central Depository, and not by way of an instrument of transfer.

The Central Depository is a corporation established as a depository company under the Securities and Futures Act (Chapter 289) which, as a bare trustee, operates the Central Depository System for the holding and transfer of book-entry securities. Only persons who have an account directly with the Central Depository, or a sub-account with a depository agent, can deposit book-entry securities with the Central Depository.

Book-entry securities also include dematerialised debt securities.

Common forms of security

Security over certificated shares in a Singapore company can take the form of a legal mortgage or an equitable mortgage.

The forms of security over book-entry securities are statutory security or security created under the common law.

A statutory security interest in book-entry securities to secure the payment of a debt or liability can be created in favour of any depositor by way of either (section 81SS(2), Securities and Futures Act):

  • Assignment, under an instrument of assignment in the prescribed form executed by the assignor.

  • A charge, under an instrument of charge in the prescribed form executed by the chargor.

Formalities

Mortgage over certificated shares. To create a mortgage over certificated shares, the mortgagor must deliver the share certificates, together with a duly executed transfer form to the mortgagee. If the mortgagee chooses to submit the duly executed transfer form to the company, the shares will be registered in the mortgagee's name in the company's register of members, to create a legal mortgage. If the mortgagee chooses not to have the shares registered in its name, it obtains an equitable mortgage over the shares.

Security over book-entry securities. To take a statutory security over book-entry securities, the lender must either hold an account with the Central Depository or be itself a depository agent. The statutory security must be in the prescribed form and registered with the Central Depository.

To create a common law security over book-entry securities, the security grantor and the lender must each open a sub-account with the same depository agent. The grantor and the lender must then enter into a security agreement under the terms of which the grantor will charge in favour of, and assign to, the lender:

  • All its right, title and interest in the sub-account maintained by it with the depository agent.

  • All the book-entry securities held in that sub-account.

Notice of that assignment must be given to, and acknowledged by, the depository agent.

Claims and receivables

5. What are the most common types of claims and receivables over which security is granted in your jurisdiction? What are the most common forms of security granted over claims and receivables? How are they created and perfected?

Claims and receivables

Claims and receivables are intangible assets that are enforceable through legal action. Examples include:

  • Trade debts.

  • Cash deposits.

  • Rights under insurance or other contracts.

Common forms of security

The most common form of security is a statutory assignment.

Formalities

For an assignment to be statutory, the following conditions must be satisfied:

  • The assignment must:

    • be absolute;

    • not merely transfer an equitable interest;

    • not expressed to be "by way of security"; and

    • be in writing.

  • The assignor must give written notice of the assignment to the person against whom any assigned right is exercisable.

If these conditions are not met, the assignment will be an equitable assignment. The distinction between an equitable and statutory assignment is of limited practical significance, provided that notice of assignment is given to the debtor.

An assignment of receivables granted by a Singapore company or a foreign company registered in Singapore is registrable as a charge with the Accounting and Corporate Regulatory Authority in Singapore.

Cash deposits

6. What are the most common forms of security over cash deposits? How are they created and perfected?

Common forms of security

Security over a bank account is created by way of assignment or charge.

If the lender is also the bank where the account is held, the security must be by way of charge, which is usually expressed to be fixed. English case law (which is of persuasive effect in Singapore) provides that it is not possible to create a fixed charge over receivables if the proceeds are payable into a bank account where the debtor has a more or less unrestricted right of withdrawal. This is because the English courts have held that, if the debtor can use the proceeds out of the bank account, the debtor can use the receivables themselves.

If the account bank is not the lender, security is generally granted in the form of an assignment of the account.

Formalities

The debtor must give notice of the security to the account bank, and receive acknowledgment of the notice of assignment from the account bank, to protect priority in favour of the bank.

A charge or assignment of bank account granted by a Singapore company or a foreign company registered in Singapore is registrable as a charge with the Accounting and Corporate Regulatory Authority in Singapore.

Intellectual property

7. What are the most common types of intellectual property over which security is granted in your jurisdiction? What are the most common forms of security granted over intellectual property? How are they created and perfected?

Intellectual property

The following IP rights are, or can be, treated as personal or movable property:

  • Copyright.

  • Patents.

  • Trade marks.

  • Registered designs.

  • Layout designs of integrated circuits.

Therefore, these IP rights can be the subject of a charge in the same way as other personal or movable property.

Common forms of security

Generally, security over IP can be granted by way of either a:

  • Mortgage.

  • Fixed or floating charge.

Formalities

The following formalities apply:

  • Copyright. An assignment of copyright must be in writing and signed by or on behalf of the assignor. Alternatively, a charge can be taken. The effectiveness of the assignment will be enhanced where the physical subject matter containing or embodying the copyright is delivered to the assignee or placed in escrow with a reputable escrow agent, who must release the materials on the occurrence of clearly defined events of release.

  • Patents. An assignment or mortgage of a patent or patent application will be void, unless it is in writing and signed by or on behalf of the parties to the transaction. In the case of a body corporate, the assignment or mortgage must be signed by, or be under the seal of, the body corporate. In the case of a mortgage, it is also necessary to incorporate a proviso for reassignment on redemption. The assignment or mortgage must be registered to be enforceable against any other person who subsequently claims to have acquired an interest in the registered patent (Patents Act (Chapter 221)).

  • Trade marks. An assignment of a trade mark must be in writing and must be signed by, or on behalf of, the assignor or its personal representative. If the assignor or personal representative is a body corporate, this requirement can be satisfied by the affixing of its seal. Any assignment or grant of security over a trade mark must be registered to be enforceable against any other person who subsequently acquires a conflicting interest in or under the trade mark (Trade Marks Act (Chapter 332)).

Problem assets

8. Are there types of assets over which security cannot be granted or can only be granted with difficulty? Which assets are difficult or problematic when security is granted over them?

Future assets

A charge can create a security interest over property acquired by the chargor after the date of the creation of the charge. It is possible to create either a fixed or a floating charge over future property, provided that the property is adequately identified in the charge document.

Fungible assets

It is possible to grant security over fungible assets under Singapore law. The security must be expressed to be created over a clearly identified class of fungible assets.

Other assets

When assigning the rights of a party to a contract, the terms of that contract may contain an express prohibition against assignment by that party. Where assignment is prohibited, the assignor must obtain the consent of the counterparties to that contract for the assignment to be effective. The assignee will typically require the assignor to obtain the consent of these counterparties. The terms of the assignment will commonly provide that, if consent cannot be obtained, the assignee will take security over all amounts that the assignor may receive under the contract, instead of the contract itself.

 

Release of security over assets

9. How are common forms of security released? Are any formalities required?

Security is commonly released by a deed of discharge executed by the beneficiary in favour of the security provider. The following filings requirement may also apply:

  • Where the security was registered as a charge against the chargor with the Accounting and Corporate Regulatory Authority, a deregistration filing will typically be made to remove that charge from the chargor's records.

  • Filings with specialist registries, depending on the nature of the released asset. For example, the release of a mortgage over registered land must be in the prescribed form and registered with the Singapore Land Authority.

 

Special purpose vehicles (SPVs) in secured lending

10. Is it common in your jurisdiction to take security over the shares of an SPV set up to hold certain of the borrower's assets, rather than to take direct security over those assets?

It is common in Singapore to take security over both the shares of the SPV and all its assets and undertakings. If any shareholder loans are granted to the SPV, these loans are commonly subordinated to, and assigned to secure, the secured debt.

 

Quasi-security

11. What types of quasi-security structures are common in your jurisdiction? Is there a risk of such structures being recharacterised as a security interest?

Sale and leaseback

Sale and leaseback is a method of raising finance "secured" on the company's fixed assets while the company continues to use the assets. If the lessee defaults, the lessor can sell the assets according to the terms of the lease. A lease over plant or machinery can be an operating or a finance lease.

Factoring

Factoring refers to the sale of receivables by way of assignment. Factoring can be recourse or non-recourse in nature. Recourse factoring is a form of quasi-security, as the assignee continues to have recourse to the assignor if the debtor defaults. To preserve priority, the sale of receivables must be absolute, in writing and with notice in writing to the debtor.

Hire purchase

Hire purchase involves the owner letting goods to a hirer with an option to purchase at the end of the hire. In Singapore, hire purchase is commonly used in consumer financing.

Retention of title

Retention of title is a method for suppliers to secure payment of the price of goods. Retention of title over goods that lose their identity due to being mixed during manufacturing can be recharacterised as a charge over the end-product. If the buyer is a company, the charge will be void on insolvency for failure to register it with the Accounting and Corporate Regulatory Authority.

Other structures

Contractual set-off is commonly used as a form of quasi-security in Singapore. On winding-up, mutual credits, debts and dealings are set off against each other, with only the balance provable in bankruptcy (section 88, Bankruptcy Act (Chapter 20)). Set-off is commonly provided for in loan documentation, allowing a lender to set off loan amounts against monies in the borrower's deposit accounts with that lender.

 

Guarantees

12. Are guarantees commonly used in your jurisdiction? How are they created?

Guarantees are commonly used in Singapore. A guarantee is essentially an undertaking to be liable for the debt or default of another. To be enforceable, a guarantee must be both (Civil Law Act (Chapter 43)):

  • In writing.

  • Signed by the guarantor.

 

Risk areas for lenders

13. Do any laws affect the validity of a loan, security or guarantee (or the terms on which they are made or agreed)?

Financial assistance

A public company or a subsidiary of a public company is restricted from providing financial assistance, whether directly or indirectly, to any person for the acquisition or proposed acquisition of shares in that company, its holding company or ultimate holding company. Financial assistance can occur even where a party seeking to acquire shares in a company procures that company to charge its assets to refinance the loan taken to acquire that company. However, it is possible to "whitewash" financial assistance if the relevant procedures set out in the Companies Act (Chapter 50) are complied with.

There is a new exception under which a company can provide financial assistance if all of the following conditions are satisfied:

  • The giving of the assistance does not materially prejudice the interests of the company or its shareholders, or the company's ability to pay its creditors.

  • The board of directors of the company passes a resolution allowing the company to provide the assistance.

  • The terms and conditions under which the assistance is proposed to be given are fair and reasonable to the company.

Corporate benefit

To ensure that an agreement entered into by a Singapore company is valid and binding on the company, the transaction must be in the interests of the company and provide a corporate benefit to the company.

When a Singapore company provides an upstream guarantee, this may raise a question of whether there is any corporate benefit to that guarantor company. The directors of the company have a duty to ensure that the company only enters into agreements that are in the interests of the company as a whole. A director who does not make a decision honestly may be liable both civilly and criminally for failure to discharge their fiduciary obligation to act in the best interests of the company.

Loans to directors

A Singapore company that is not an exempt private company is prohibited from giving a guarantee or providing security for a loan or quasi-loan made to another company if the directors of the first company are interested in 20% or more of the total voting power of the other company, unless the shareholders grant prior approval for the guarantee or security (with the interested directors and their family members abstaining from voting). This prohibition does not apply if the company providing the guarantee or security is a subsidiary or holding company of the other company, or a subsidiary of the holding company of the other company. An exempt private company is a private company whose shares are owned by not more than 20 individuals.

Usury

While there are no usury laws in Singapore, any provision in the financing documents requiring the payment of additional or an increased rate of interest may not be enforceable if this amounts to a penalty.

In addition, under the Moneylenders Act (Chapter 188), it is an offence for a person to carry out a money lending business without holding a licence. Whether granting a loan amounts to a money lending business generally depends on the facts and circumstances of the particular case. However, any person who lends a sum of money in consideration of a larger sum being repaid is presumed to be a money lender. This presumption can be rebutted if it can be shown on the facts that the lender is not in the money lending business.

 
14. Can a lender be liable under environmental laws for the actions of a borrower, security provider or guarantor?

There are few precedent cases in Singapore on lenders being held liable to third parties for performing their obligations under the financing documents. However, a lender may inadvertently be exposed to liability if it enforces its security over property and comes into possession and management of the borrower's premises. Owners and occupiers can be liable under the Environmental Protection and Management Act (Chapter 94A) or the Sewerage and Drainage Act (Chapter 294) if they cause, permit or allow a prohibited activity, such as air, water, noise and environmental pollution.

 

Structuring the priority of debts

15. What methods of subordination are there?

Contractual subordination

Contractual subordination is common in Singapore. Subordination of debt can be achieved by agreement (for example, between two creditors of the same debtor) or by waiver of a creditor's rights to claim its debt.

The validity of contractual subordination is based on the 1994 English decision in Re Maxwell Communications Corporation PLC No. 2 1 All ER 737. Although it is a first instance decision and has not been considered by the higher courts of England and Wales, the 2006 English Court of Appeal judgment in In re SSSL Realisations (2002) Limited [2006] EWCA Civ 7 was based on it being a correct statement of the law. English courts' decisions have a persuasive effect in Singapore.

Structural subordination

The subordination of mezzanine debt to the senior debt can be achieved through structural subordination, where the mezzanine creditor lends to the holding company of the borrower (while the senior creditors lend to the borrower directly) to be used for subscription of shares in the borrower.

Inter-creditor arrangements

Inter-creditor arrangements in Singapore can vary from a vanilla security trust arrangement to a highly structured or bespoke inter-creditor agreement, depending on the complexity of the transaction. Inter-creditor arrangements can include sharing arrangements similar to those in typical syndicated loan transactions. Any debt recovery proceeds received by a creditor in excess of the amount it is entitled to receive can be clawed back and redistributed to the other creditors in accordance with the inter-creditor agreement.

 

Debt trading and transfer mechanisms

16. Is debt traded in your jurisdiction and what transfer mechanisms are used? How do buyers ensure that they obtain the benefit of the security and guarantees associated with the transferred debt?

Debt trading is common in Singapore. Lending transactions can be structured as bilateral loans or syndicated loans. The following transfer mechanisms can be used for both bilateral and syndicated loans:

  • Assignment. The existing lender can assign its rights under the financing documents to the new lender. The obligations of the existing lender cannot be transferred to the new lender under this mechanism. Therefore, assignment is commonly used to transfer facilities that have been fully utilised.

  • Novation. The existing lender can transfer through novation all its rights and obligations under the financing documents to a third party. This mechanism is commonly used in syndicated financings. While the consent of all the parties to the financing documents (including the borrower and all other lenders) is required, the terms of a syndicated loan agreement will typically authorise the agent to accept, on behalf of all parties, any transfer by a lender.

  • Sub-participation. In a sub-participation, the existing lender merely transfers the credit risk of the financing to a third party (the participant), without changing the contractual relationship between the existing lender and the borrower.

In a bilateral loan, the benefits of any associated guarantee or security can be similarly transferred by way of assignment or novation. In syndicated loans, any associated guarantee or security will be granted to a security trustee who will hold the benefit of the guarantee or security in favour of all lenders, including any new lender who is transferred any part of the loans by way of assignment or novation.

 

Agent and trust concepts

17. Is the agent concept (such as a facility agent under a syndicated loan) recognised in your jurisdiction?

The agency concept is recognised in Singapore.

 
18. Is the trust concept recognised in your jurisdiction?

Singapore law recognises security trusts, where security is granted to a security trustee who holds the security on behalf of a group of lenders.

 

Enforcement of security interests and borrower insolvency

19. What are the circumstances in which a lender can enforce its loan, guarantee or security interest? What requirements must the lender comply with?

The circumstances in which a lender can enforce its loan, guarantee or security are governed by the terms of the relevant agreement.

Generally, a lender can accelerate the loans (that is, demand repayment of a loan before its stated date of maturity) by giving notice to the borrower on the occurrence of certain events of default specified in the loan agreement. These events of default can include:

  • Non-payment.

  • Breach of obligations.

  • Insolvency.

A guarantee will typically be enforceable on the occurrence of a failure by the borrower to perform its obligations. On the occurrence of an event of default, it is usual for the lender to accelerate the loans and demand payment from the guarantor of all the accelerated amounts.

The security documents will typically provide that the security is enforceable on the occurrence of an event of default or if the lender has accelerated the loans.

Methods of enforcement

20. How are the main types of security interest usually enforced? What requirements must a lender comply with?

Subject to the terms of the security documents, a lender can generally enforce its security without court involvement. Enforcement remedies can include the following:

  • Possession. A legal mortgage confers on the mortgagee an unqualified right to possession of the mortgaged property, regardless of default on the part of the mortgagor. Unless expressly provided, an equitable mortgagee does not grant the mortgagee a right to enter into possession without a court order for possession.

  • Sale. A mortgagee has a statutory power of sale if the mortgage is made by deed or is registered under the Land Titles Act (Chapter 157). Alternatively, the mortgage document can grant the mortgagee a power of sale. The mortgagee's statutory right to sell arises when the mortgage monies are due. This right does not become exercisable until certain statutory requirements are met, which can be varied (or excluded) by the mortgage deed. When exercising its power of sale, the mortgagee has a duty to:

    • act in good faith; and

    • take reasonable steps to obtain the true market value, the proper price or the best price reasonably obtainable at the time for the asset.

  • Receivership. The mortgagee can appoint a receiver when the mortgage monies become due. Alternatively, the mortgage document can provide for the option to appoint a receiver in certain circumstances. The purpose of appointing a receiver is to remove the management of the mortgaged property from the hands of the mortgagor, and to place it in the hands of a person chosen by the mortgagee. The appointment of a receiver must be in writing. There is no need for a court order.

  • Foreclosure. The right to foreclose can exist under the common law, statute or an express contractual provision. The effect of foreclosure is that the mortgagor's equity of redemption is extinguished as the mortgagee becomes the owner of the mortgaged property absolutely and beneficially. Foreclosure requires judicial approval. Foreclosure is not commonly used, due to the legislation protecting the mortgagor's interest.

These remedies are cumulative and not mutually exclusive.

Rescue, reorganisation and insolvency

21. Are company rescue or reorganisation procedures (outside of insolvency proceedings) available in your jurisdiction? How do they affect a lender's rights to enforce its loan, guarantee or security?

Judicial management

Under the Companies Act (Chapter 50), the court can appoint a judicial manager to the company. Judicial management allows the company to continue operating under the court's supervision, with the aim of rehabilitating and restoring the company's profitability.

From the date of filing an application for judicial management, the company's creditors cannot enforce any security over that company's assets. Assets of the company that are held under hire purchase or finance leasing agreements cannot be repossessed. Additionally, no legal proceedings can be commenced against the company without court approval. However, self-help remedies, such as contractual set-off and other non-judicial actions, remain available to creditors. This moratorium continues to apply if the application is approved, and while the judicial management order remains in force.

Scheme of arrangement

Schemes of arrangement can be implemented to vary the rights of members or creditors of a company inter se, for the benefit of the class or of the company as a whole (section 210, Companies Act). In particular, a scheme of arrangement can be used to reach a compromise regarding creditors' claims against an insolvent company.

A scheme of arrangement is initiated by a court application for an order to convene one or more meetings of the members and/or creditors of a company. Once the application is approved, the court can grant a stay of all proceedings against the company. Separate meetings must be called for different classes of members and/or creditors. Whether a group constitutes a separate class depends on the particular facts of the case, on the nature of the differences between the different classes and on the relevant terms of the particular scheme. A majority in numbers representing 75% in value of the members or creditors at each of these meetings must approve the scheme.

 
22. How does the start of insolvency procedures affect a lender's rights to enforce its loan, guarantee or security?

There is a moratorium on legal proceedings after the commencement of winding-up. For court ordered winding-up, this moratorium is imposed from the presentation of the winding-up petition. During the period until a winding-up order is made, the company or any creditor or contributory can apply to court to restrain proceedings. Once a winding-up order is made, any action against the company requires the leave of the court. In a voluntary winding-up, the moratorium is imposed from the commencement of winding-up.

Any form of execution against the company after the commencement of winding-up is void. Additionally, in all winding-up procedures, the benefits or proceeds of any execution or attachment of debts that are not completed by the commencement of the winding-up must be surrendered to the liquidator.

The sale of mortgaged property by a secured creditor does not constitute a legal proceeding that is stayed on commencement of the winding-up. However, the moratorium on legal proceedings will affect, for example, a mortgagee wishing to take possession of a secured property by taking out a writ of possession (as it is a legal proceeding and is therefore subject to the moratorium).

 
23. What transactions involving loans, guarantees, or security interests can be made void if the borrower, guarantor or security provider becomes insolvent?

When a Singapore company is wound up, the liquidator can challenge the following transactions:

  • Transaction at an undervalue. A transaction is at an undervalue when the company receives no consideration or consideration of significantly less value than it gives. A transaction at an undervalue is voidable if it was entered into within the five years before the presentation of the winding-up petition and the company was insolvent at the time of the transaction or became insolvent as a result of it. Insolvency is presumed, unless proven otherwise, if the person who entered into the transaction is connected to the insolvent company.

  • Unfair preference. An insolvent company will have given an unfair preference if:

    • the company does anything or suffers anything to be done which places a person (being a creditor or guarantor) in a better position than they would have been in on the company's winding-up;

    • the company had the desire to prefer that person;

    • the transaction was entered into within a period of two years (for persons connected to the company) or six months (for other persons) ending on the day of the presentation of the winding-up petition; and

    • the company was insolvent at the time of the transaction or became insolvent as a result of the transaction.

  • Extortionate credit transaction. A credit transaction is extortionate if, having regard to the risk accepted by the creditor, the terms either require the company to make grossly exorbitant payments, or are harsh and unconscionable or substantially unfair. These transactions are voidable if they are entered into within a period of three years before the date of presentation of the winding-up petition.

  • Floating charge for past value. A floating charge created within the six months before the commencement of the winding-up is invalid, unless the company was solvent immediately after the creation of the charge. A floating charge is not invalid if it is given in consideration for cash given to the company at the time of, or subsequently to, the creation of the charge.

  • Transaction defrauding creditors. Where a Singapore company conveys its property (by way of a mortgage over its real property or a charge or assignment of its personal property) with intent to defraud creditors, the liquidator can apply to avoid the transaction, provided that the conveyance was not made to a person for valuable consideration and in good faith.

In addition, on the winding-up of a Singapore company, the liquidator can challenge the effectiveness of a security granted by the company that is registrable with the Accounting and Corporate Regulatory Authority, but is not registered.

 
24. In what order are creditors paid on the borrower's insolvency?

In distributing the assets of a company on liquidation, its secured creditors will generally first be paid out of the assets that have been charged or mortgaged in their favour, while the remainder of the assets will be distributed among the other creditors. The order of priority in insolvency proceedings of a Singapore company is as follows:

  • Cost and expenses of the winding-up.

  • Wages and salary and certain other employee benefits (up to a maximum amount of five months' salary or S$12,500, whichever is the lesser).

  • Certain retirement and termination benefits provided under contracts of employment, collective agreements or awards made by the Industrial Arbitration Court (up to a maximum amount of five months' salary or S$12,500, whichever is the lesser).

  • Workers' injury compensation.

  • Contributions to provident funds.

  • Remuneration for vacation leave.

  • Taxes (including claims that are deemed to rank equally with taxes).

  • Unsecured creditors.

The debts above are usually referred to as preferred debts as they rank ahead of unsecured debts. Although secured creditors will generally be paid ahead of the preferred debts, the preferred debts referred to in the first, second, third, fifth and sixth bullets above will be paid ahead of the debts secured by a floating charge. Debts secured by a fixed charge are paid ahead of unsecured debts.

The rules determining the priority of charges under Singapore law are fairly complex and this answer is a summary of the main principles. In this section, the term "charge" refers to both charges and mortgages (the distinction is not material for the purpose of the priority rules).

Under general common law and equitable principles, the relevant time for determining priority between charges is the time of creation of the charges. However, a prior equitable charge will be defeated by a subsequent bona fide legal chargee for value who had no actual or constructive notice of the prior charge.

For common law charges over choses in action, priority is given to the party that first gives notice of its interests to the counterparty, under the rule in the English case of Dearle v Hall (1828) 3 Russ 1.

The general priority rules are subject to variations as a result of the charges registration system under the Companies Act (Chapter 50). The charges registration system creates many permutations, which can be summarised as follows:

  • A registered fixed charge, whether legal or equitable, takes priority over a subsequent fixed charge, whether legal or equitable.

  • A registered fixed charge, whether legal or equitable, takes priority over a prior unregistered charge, unless:

    • the chargee had notice of the prior charge at the time of creation of the subsequent charge; and

    • the prior charge is a legal charge that complied with the registration requirements after the registration of the subsequent charge.

  • A registered floating charge ranks in priority to a prior or subsequent fixed charge, unless the subsequent fixed chargee has actual notice of any restrictive clause in the floating charge.

 

Cross-border issues on loans

25. Are there restrictions on the making of loans by foreign lenders or granting security (over all forms of property) or guarantees to foreign lenders?

There are no restrictions on the making of loans by foreign lenders or granting security or guarantees to foreign lenders. To enforce its rights under a typical financing document, or to execute or perform its obligations under a financing document, a foreign lender need not be licensed, qualified or otherwise entitled to carry on business in Singapore.

 
26. Are there exchange controls that restrict payments to a foreign lender under a security document, guarantee or loan agreement?

There are currently no exchange controls in effect in Singapore. The operation of the Exchange Control Act (Chapter 99) has been suspended since June 1978.

 

Taxes and fees on loans, guarantees and security interests

27. Are taxes or fees paid on the granting and enforcement of a loan, guarantee or security interest?

Documentary taxes

Ad valorem stamp duty of up to S$500 is payable on a mortgage or charge over immovable property, stock and shares.

Registration fees

Nominal registration fees are payable for the registration of:

  • Security instruments with the Accounting and Corporate Regulatory Authority in Singapore.

  • Assets on specific registers (such as land, vessels and IP).

Notaries' fees

No notaries' fees are payable.

 
28. Are there strategies to minimise the costs of taxes and fees on the granting and enforcement of a loan, guarantee or security interest?

Not applicable.

 

Reform

29. Are there any proposals for reform?

The Ministry of Law in Singapore is currently drafting an omnibus insolvency bill to consolidate bankruptcy and corporate insolvency laws into a single piece of legislation. The bill is expected to introduce significant changes to insolvency laws in Singapore.

 

Online resources

Singapore Statutes Online

W http://statutes.agc.gov.sg/aol/home.w3p

Description. Singapore Statutes Online is a free database maintained by the Attorney-General's Chambers, which aims to provide the public easy access to reliable and updated primary legislation. Legislation is updated every month.



Contributor profiles

Kok Chee Wai, Partner

Allen & Gledhill LLP

T +65 6890 7724
F +65 6302 3213
E kok.cheewai@allenandgledhill.com
W www.allenandgledhill.com

Professional qualifications. Singapore Bar, 1992

Areas of practice. Banking and finance; energy; infrastructure and projects.

Recent transactions

  • Advised the lenders of the acquirer on the multi-billion cash offer for a leading Singapore conglomerate with businesses in the food and beverage and publishing and printing industries.

  • Advised the mandated lead arrangers and bookrunners on the S$2.27 billion loan and bank guarantee facility to Resorts World at Sentosa Pte. Ltd.

  • Advised the mandated lead arrangers and bookrunners on the US$388 million term and revolving loan facilities to various subsidiaries of Halcyon Agri Corporation Limited. The facilities were used to, among other things, refinance the acquisition of all the shares in Anson Company (Private) Limited as well as existing working capital loans of the group and to finance working capital.

Languages. English

Professional associations/memberships. Law Society of Singapore.

Publications

  • Woon's Corporations Law (Chapter F (Shares, Debenture and Changes) Update), LexisNexis (2016).

  • Acquisition Finance 2nd Edition Global Guide (2016).

Mark Hudspeth, Partner

Allen & Gledhill LLP

T +65 6890 7722
F +65 6302 3212
E mark.hudspeth@allenandgledhill.com
W www.allenandgledhill.com

Professional qualifications. Singapore Bar, 1988

Areas of practice. Banking and finance.

Recent transactions

  • Advised the original lenders on the S$520 million syndicated secured loan facilities to Prima Asset Holdings Limited. The loan facilities were secured by security over the retail and office components of the Parkway Parade Property in Singapore.

  • Advised a syndicate of banks on property financing facilities to Milano Central, Roma Central and Verona Central (units of Lend Lease) to finance the development of a commercial retail, office and residential project in Paya Lebar, Singapore (S$2.1 billion).

  • Advised a syndicate of banks as mandated lead arrangers on a revolving credit facility to an international integrated supplier of agricultural commodities. This was a significant financing given the large facility size and group of syndicate banks involved.

Languages. English

Professional associations/memberships. Law Society of Singapore.

Aloysius Ng, Partner

Allen & Gledhill LLP

T +65 6890 7060
F +65 6302 3360
E aloysius.ng@allenandgledhill.com
W www.allenandgledhill.com

Professional qualifications. Singapore Bar, 2010

Areas of practice. Banking and finance; Islamic finance.

Non-professional qualifications. Bsc (Economics and Management), University of London

Recent transactions

  • Advising the mandated lead arrangers on the S$3 billion term loan facility to the acquirer to finance its acquisition of a leading diversified property group in Australia.

  • Advised the mandated lead arrangers and bookrunners on a S$1.9 billion financing for the acquisition and development of a retail, residential and office development in Singapore.

  • Advised the mandated lead arrangers and bookrunners on the S$2.27 billion loan and bank guarantee facility to Resorts World at Sentosa Pte. Ltd.

Languages. English

Publications. Acquisition Finance 2nd Edition Global Guide (2016).


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