The Companies (Amendment) Bill 2017 passed on 10 March 2017 introduces several changes to the Companies Act (Cap. 50) (the “Act“). Amongst them are changes to the restructuring and insolvency regimes, although this is not yet in force (though passed into law).
A significant change to the restructuring regimes is the introduction of “super priority” for rescue finance when provided to a company undergoing a debt-restructuring / turnaround exercise, whether via a scheme of arrangement or judicial management.
When introduced, Section 211E will introduce “super priority” for rescue financing in schemes of arrangement proceedings, whereas Section 227HA will do the same for rescue finance provided in judicial management.
So, what exactly is rescue financing insofar as the amended Act is concerned? This is defined as:-
“…any financing that satisfies either or both of the following conditions:
(a) the financing is necessary for the survival of a company that obtains the financing, or of the whole or any part of the undertaking of that company, as a going concern;
(b) the financing is necessary to achieve a more advantageous realisation of the assets of a company that obtains the financing, than on a winding up of that company…“
In other words, the rescue financing has to be provided for the purposes of the Company’s survival or to facilitate a more advantageous realisation of the Company’s assets than in a winding up.
Nothing controversial there.
Where controversy does arise, is the extent to which rescue finance may be given “super priority” status.
In short, the Court may order – on the company’s application – that rescue financing will be considered to rank as a cost and expense of the winding up or in priority to preferential claims. The Court may also order that rescue financing:-
- be secured against unencumbered property of the company;
- be secured by a security interest over the company’s property that is already subject to a security interest, although the security interest will be subordinate to the pre-existing security interest;
- be secured by a security interest over the company’s property that is already subject to a security interest, with such security to rank equal to or higher than the existing security interest.