Drew & Napier secured the Singapore High Court’s approval of a scheme under section 71 of the Insolvency, Restructuring and Dissolution Act 2018 for Brightoil Petroleum (S’pore) Pte. Ltd. with the utilisation of lock-up arrangements to secure creditors support for the scheme.

21 Feb 2022

Directors Blossom Hing, Chan Wei Meng and team consisting Senior Associate Benjamin Foo and Associate Clarie Ong have successfully secured the Singapore High Court’s approval of a scheme under section 71 of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) for Brightoil Petroleum (S’pore) Pte. Ltd. with the utilisation of lock-up arrangements to secure creditors support for the scheme.

Brightoil Petroleum (S’pore) Pte. Ltd. is the indirect wholly-owned subsidiary of BrightOil Petroleum (Holdings) Limited. The team is advising BrightOil Petroleum (Holdings) Limited and Brightoil Petroleum (S’pore) Pte. Ltd. in relation to the holistic US$1.9 billion debt restructuring of BrightOil Petroleum (Holdings) Limited and more than 90 of its subsidiaries over various jurisdictions, including Singapore, Hong Kong, and the People’s Republic of China.

This marks the first time a Singapore Court has examined whether lock-up fees can have the effect of fracturing a class of creditors in a scheme of arrangement, relying on English and Hong Kong authorities to set out a trio of principles that judges should look out for.

The Court’s decision is also the first reported decision in Singapore on lock-up arrangements used in schemes of arrangement. The decision provides guidance and clarity on the usage of lock-up arrangements in Singapore—whether creditors who enter lock-up agreements with consent fee benefits should be placed in a separate class from other scheme creditors for voting purposes.

The crux in every case is whether the benefit conferred on locked-in creditors is so sizeable that it would have a significant influence on the decision of a reasonable creditor when voting. To assess whether the benefit is significantly influential, the Courts should look at the relative size of the consent fee compared to the forecasted returns to creditors under the scheme and the appropriate comparator scenario.

In addition, a lock-up agreement must have been made equally available to all scheme creditors within the relevant class on substantially the same terms; and that its use must be bona fide, not to mislead creditors for example.

In an interview with Global Restructuring Review (GRR), Director Chan Wei Meng shared that this decision will pave the way for more companies to consider lock-up arrangements as a restructuring tool for schemes of arrangement. “This is definitely a step in the right direction in the development of Singapore as a regional restructuring hub,” he said.

You may read the full report in GRR here.

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