Singapore Gives Bondholders a New Way to Chase Default Losses

By 

David Yong

October 9, 2018, 8:00 AM GMT+10 Updated on October 9, 2018, 12:41 PM GMT+10

•  
  Legal changes to allow outside funding in insolvency cases
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  Creditors to gain if liquidators claw back funds: IMF Bentham

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LCA

LITIGATION CAPIT

0.88

AUD

-0.05-5.41%

IMF

IMF BENTHAM LTD

3.01

AUD

-0.10-3.22%

BUR

BURFORD CAPITAL

1,522.00

GBp

-44.00-2.81%

Singapore is giving liquidators of insolvent companies a new tool to retrieve funds for bondholders and other creditors.

Court-appointed managers will now be able to seek funding from investors unrelated to the case to pay the cost of pursuing claims, in exchange for part of the proceeds. That change came under the Insolvency, Restructuring and Dissolution Act, which was passed by lawmakers on Oct. 1.

Singapore’s corporate debt market has been shaken in recent years by more than S$1.5 billion ($1.09 billion) of defaults as oilfield contractors and shipbuilders stumbled. Many bondholders in these cases are individuals who lack the means to take legal action themselves, so the ability of judicial managers and liquidators to tap third-party funding to chase lost monies should help recoveries.

“In insolvency matters, creditors including bondholders can benefit to the extent that the liquidators are able to claw back any proceeds for the bankruptcy estate,” said Tom Glasgow, head of investment in Asia at IMF Bentham Ltd.

Like 30% Returns? Litigation Finance a Growing $9 Billion Market

Having investors funding another’s claim for profit has been around in countries including Australia for more than a decade. While Singaporean law allows third-party funding in arbitration and mediation cases, a case ruling in September involving the local units of Indonesian phone retailer PT Trikomsel Oke has extended the option to insolvency cases. That ruling will now be grounded in the new Act.

IMF Bentham is funding the liquidators of Trikomsel units in their probe into events that led to two bond defaults in late 2015. A group of noteholders had separately suedsome parties in May this year for misrepresentations.

The legal changes in Singapore, aimed at strengthening the legal framework for debt workouts, are attracting more litigation-finance professionals to the city.

“We are already seeing a lot of opportunity in the Singapore market and expect an increase in opportunity as businesses in Asia continue to grow,” Patrick Moloney, chief executive officer at Sydney-based Litigation Capital Management Ltd., said in emailed comments. LCM is opening an office in Singapore in November, Moloney said.

Peers including U.K.-listed Burford Capital Ltd. and Woodsford Litigation Funding set up operations in Singapore last year.

The mechanisms provided by the new law will likely lead to more efficient administration of bankruptcy estates and give companies in financial difficulty a better chance of rehabilitation and of realizing the value of their litigation assets, said Quentin Pak, a Singapore-based director at Burford, said in email.

“It does present some opportunities for us with all the changes in the law, which is why we set up an office in Singapore,” said Charlie Morris, Managing Director for Asia Pacific at Woodsford. “Insolvency managers may not have the appetite or own money for litigating, and that’s where people like us can step up.”