SGX Proposals to Facilitate Restructuring and Resumption of Trading by Issuers

The Singapore Exchange (SGX) published a consultation paper on Proposed Enhancements to Corporate Restructuring Framework and Trading Resumption Framework on 23 February 2024 (Consultation Paper). It proposes amendments to the Mainboard and Catalist Listing Rules to, among other things, facilitate efforts by issuers undertaking a restructuring under the Insolvency, Restructuring and Dissolution Act 2018 (IRDA). It also proposes a new Practice Note that sets out more fully the SGX’s expectations and requirements for issuers whose securities are suspended from trading. The consultation ends on 22 March 2024.

Issuers in financial distress

Apart from the over-arching continuing obligation to disclose any information known to the issuer concerning the group which is necessary to avoid the establishment of a false market in the issuer’s securities or would be likely to materially affect the price or value of its securities, the Listing Rules currently do not expressly deal with the situation where an issuer (or any of its subsidiaries) have applied to court to be under court-supervised moratorium proceedings involving a compromise or arrangement with its creditors (Moratorium). The proposed amendments address this by expressly extending various existing obligations that apply in the case of winding up and judicial management to a Moratorium, as well as to other insolvency-related applications that an issuer may make. The proposals are summarised in the table below.

Suspension of trading of the securities of issuers in financial distress

The Listing Rules currently provide that trading in an issuer’s securities will be suspended if the issuer is unable to continue as a going concern or unable to demonstrate to the SGX and its shareholders that it is able to do so. This is expressly stated to include the following circumstances:

• when an application is filed with a court to place the issuer (or “significant subsidiary”) under judicial management; or
• when an application is filed with a court for the liquidation of the issuer (or “significant subsidiary”) and the amount of the debt alleged is significant; or
• when the issuer is unable to reasonably assess its financial position and inform the market.

The Consultation Paper proposes expanding these set of circumstances to expressly include the following actions by the issuer or any of its significant subsidiaries:

• Application to court to be under a Moratorium;
• Application for interim judicial management; and
• Seeking to enter into judicial management or interim judicial management by way of a creditor’s resolution.

The Consultation Paper also proposes defining who is a “significant subsidiary”, which term is not currently defined. A subsidiary will be considered significant if:

• its net tangible assets represent 20% or more of the issuer’s consolidated net tangible assets;
• its net assets (being total assets less total liabilities) represent 20% or more of the issuer’s consolidated net assets; or
• its pre-tax profits account for 20% or more of the issuer’s pre-consolidated pre-tax profits.

With regards to an issuer applying to court to be under a Moratorium, the Consultation Paper proposes that such an issuer may apply to the SGX for an exemption from the requirement to suspend trading in its securities. The SGX anticipates that an exemption may be granted in the following circumstances:

• Where the issuer has worked out a compromise or an arrangement with its creditors or any class of those creditors in a short span of time (such an arrangement is also known as ‘pre-packs’), and the application to court is for the court to approve the ‘pre-pack’ scheme under section 71 of the IRDA without any creditor meetings being held.
• Where the issuer has complied with all statutory requirements under section 71 of the IRDA or where the statutory majority has been obtained based on the supporting affidavit filed by the issuer, the supporting affidavit does not disclose any objection or potential objection from the issuer’s creditors or any stakeholder and the issuer explains why a waiver of suspension is critical to a successful debt restructuring.

Any such application for exemption must be made before the issuer applies to court for the Moratorium.

Disposal of assets in a judicial management situation

Where a judicial manager is appointed to manage the business and property of an issuer, the judicial manager may also need to dispose of the issuer’s assets. Currently, the issuer would be required to obtain shareholder approval for the disposal of assets under Rule 1014 of the Mainboard Rules (or Rule 1014 of the Catalist Rules) if the value of the assets to be disposed of meets the threshold to be classified as a major transaction. It is proposed that this requirement to seek shareholders’ approval should not apply to the disposal of assets by a judicial manager or liquidator where the issuer is in judicial management or under liquidation under the IRDA. This is because the need to obtain approval has hampered the ability of the liquidator or judicial manager in prior transactions to dispose of assets. This is ultimately to the detriment of the issuer, and its creditors and shareholders. Furthermore, the need for shareholder approval is mitigated by the fact that such a liquidator / judicial manager is an officer of the court, is subject to court oversight and has statutory duties they must comply with. Further, the details of such a divestment should still be announced for the information of shareholders.

It is also proposed to remove the need to obtain shareholder approval for major transactions where it is the issuer’s significant subsidiary that is under judicial management or liquidation. The test for whether a subsidiary is significant will be the same as that outlined above in relation to issuers under Moratorium. In the alternative, SGX is seeking views on whether the ambit of non-applicability of Rule 1014 of the Mainboard Rules (or Rule 1014 of the Catalist Rules) should extend to disposal of an asset by a subsidiary of the issuer that is not listed on the SGX or an approved exchange.

Guidance for Suspended Issuers

The Consultation Paper proposes the inclusion of a new Practice Note 13.3 of the Mainboard Rules on Guidance for Suspended Issuers (Guidance) (For the Catalist Rules, this is Practice Note 13B).

The proposed Guidance provides more detail as to the expectations of the SGX in terms of what each of the following types of issuers whose securities have been suspended from trading (Suspended Issuers) should be doing and what their trading resumption proposals should contain:

• A Suspended Issuer that has assets consisting wholly or substantially of cash or short-dated securities (i.e., cash companies): It should, among other things, actively look for new businesses and agree on terms for its acquisition.
• A Suspended Issuer that has going concern issues: Its trading resumption proposals should, among other things, be able to demonstrate what it is doing to be a going concern, the viability and profitability of its business (existing, restructured or new), and if it is undergoing a restructuring exercise, details of the corporate action taken (such as scheme of arrangement, judicial management or capital reorganisation).
• A Suspended Issuer with an unclear state of affairs or irregularities: It should be able to demonstrate that it has taken steps to address the issues raised by the state of affairs or irregularities, including (as required) implementing changes to internal controls and reconstituting the board of directors.
• A Suspended Issuer whose listed securities have an insufficient public float: It should, among other things, formulate and implement an action plan with clear timelines to restore the required minimum public float of 10%, including agreements or placements of new or existing shares. 

To promote a consistent approach in the process of applying for a resumption of trading, SGX has proposed that the Suspended Issuer has to submit a proposal to SGX with a view to resuming trading in its securities within 12 months of the date of suspension, except for a Suspended Issuer whose listed securities have insufficient public float, then given the urgency of restoring public float, the timeline to submit a proposal to resume trading is proposed to be three months.

Other proposed changes

Finally, the SGX is proposing to clarify the alternative listing admission criteria for a life science company that is unable to satisfy the quantitative listing admission criteria in Rule 210(2) of the Mainboard Rules. The amendment will make clear that the life science company is not required to record operating revenue in the latest completed financial year as is required in Rule 210(2)(b) of the Mainboard Rules.