(a) Is the system of ownership rights in respect of both land and other property reasonably stable and certain in this economy?

 

Yes. Property in Singapore is divided into real and personal property. Singapore's system governing ownership rights in respect of both types of property is reasonably stable, subject only to the uncertainties inherent in any common law system. Personal property is governed by principles derived from English common law. Real property in Singapore is divided into three broad categories - freehold land, leasehold land and land granted under the State Lands Act. All lands are held under one of the two systems operating in Singapore :-

(i) the common law system which is regulated by the Conveyancing and Law of Property Act and Registration of Deeds Act.

(ii) the Torrens system which is based on the Torrens legislation of New South Wales, Australia. The Torrens system is governed by the Land Titles Act and the Land Titles (Strata) Act.

Both systems are in concurrent operation. They provide a very stable and certain system of land ownership in Singapore. Furthermore, certainty was enhanced by the abolition of the doctrine of adverse possession in 1993. The Land Titles Registry is progressively converting all land to the Torrens system. This ensures a more uniform and efficient system of land ownership and conveyancing in Singapore.

The State has the power to compulsorily acquire land under the Land Acquisition Act (Cap 152, 1985 Ed). However, this can only be done for specific purposes and the owner is entitled to fair compensation for the value of the land acquired.

 

(b) In particular:

(i) is the system of land ownership and rights sufficiently developed to encourage lending on the security of land; and

 

The system of land ownership and conveyancing is sufficiently developed to allow lending on the mortgage of land. Indeed, because of the high price of property in Singapore, virtually all financing of purchases of land is secured on the property itself.

Security over unregistered land is taken by an instrument under seal and registered under the Registration of Deeds Act. Priority of between competing deeds is determined by the date of registration and not according to the date of the mortgage. However, if a caveat is lodged before completion, and the mortgage is subsequently registered after completion, the mortgage will have priority from the date of lodgement of the caveat.

Security over land under the Torrens system is taken under a statutory mortgage by way of legal charge. The instrument of charge must be registered with the Registrar of Titles. It is the act of registration that creates the security. Priority between two competing charges is determined by the date of registration and not by the date of execution. Caveats can however be lodged to preserve any priority pending registration of the charge.

Registration of a statutory mortgage under the Torrens system and common law system creates a security interest at law. It is also possible to create a charge in equity by way of a deed of assignment/mortgage in escrow or by the deposit of title documents.

Under the Residential Property Act, there are restrictions on foreign individuals and foreign owned or controlled companies owning residential property other than in apartments of more than 5 storeys or in condominium developments. However, security over such property can be taken by foreign lenders with no disabilities save that if they foreclose, they must sell the property within 3 years.

 

(ii) is the system of ownership and rights in relation to property other than land sufficiently developed to encourage lending on the security of such property?

 

The system of ownership and rights in relation to property other than land is sufficiently developed to encourage lending on the security of personal property. However, because Singapore's system is derived from English law and shares English law's mistrust of the non-possessory security, much security over personal property is achieved by transactions such as hire-purchase which are not security transactions in form. Singapore has no comprehensive statutory regime of personal property security such as Article 9 of the United States' Uniform Commercial Code or the personal property security legislation in some Canadian provinces which regulate transactions which have the function of giving security regardless of their form.

There are two types of possessory security over personal property recognised in Singapore law (as in English law and in those systems derived from it): the pledge and the lien. A pledge is a transaction under which a borrower delivers actually or constructively personal property to a lender to be retained as security for the due discharge of the loan. Pledges are commonly used in trade financing. A lien is a right given to a person in possession of the borrower's property entitling him to retain the property until the borrower's obligation to him has been discharged. The distinction between a pledge and a lien are as follows: (a) a pledge involves the giving of credit whereas the lienee retains his right of immediate action to enforce the obligation; (b) a pledgee has an active right to dispose of the property pledged where a lienee has merely a passive right of retention;

Singapore law on non-possessory security given by individuals is found in the Bills of Sale Act and on such security given by companies.

(a) What mechanisms for taking of security over assets of a corporate borrower are available to financiers in this economy (for example mortgages over land; fixed and/or floating charges over personal property; legal and/or equitable mortgages; debentures; pledges; liens, etc.)?

(b) In practice, which of these types of security are most commonly employed by financiers?

 

The most common mechanism for taking security over the assets of a corporate borrower is the fixed and floating charge. This involves a first legal fixed charge over the borrower's real property (and perhaps personal property of a permanent and non-fluctuating nature) and a floating charge over the entire remainder of the borrower's undertaking. Such security is commonly embodied in a debenture and gives the lender the right to crystallise the floating charge on the occurrence of certain events of default and to appoint a receiver and/or manager to enforce the lender's security.

(c) Is there a system of registration in this economy for any of these types of security taken by financiers?

 

Security taken over real property must be registered in the Registry of Deeds or the Land Titles Registry, depending on whether the real property is registered or unregistered. Security taken over personal property owned by an individual (but not a company) must be registered under the Bills of Sale Act. Transaction which are the functional equivalent of security but are not security in form do not need to be registered.

There are in addition registration requirements where the security-giver is a company. Certain types of charges given by companies are required to be registered under the Companies Act within 30 days after creation of the charge. These are: (a) a charge to secure the issue of any debentures; (b) a charge on the uncalled share capital of a company; (c) a charge on shares of a subsidiary of a company which are owned by the company; (d) a charge or an assignment created or evidenced by an instrument which if executed by an individual would require registration as a bill of sale; (e) a charge on land wherever situate or any interest therein; (f) a charge on book debts of the company; (g) a floating charge on the undertaking or property of a company; (h) a charge on calls made but not paid; (i) a charge on a ship or aircraft or any share in a ship or aircraft; and (j) a charge on goodwill, on a patent or licence under a patent, on a trade mark or on a copyright or a licence under a copyright. The consequence of non-compliance with the registration requirement is that the security created by the charge is void against the liquidator or any creditor of the company, although the company's personal covenant to repay the money secured by the charge remains valid and enforceable.

(d) To what extent are priorities between competing securities regulated?

 

Priorities between competing securities are regulated largely by common law principles derived from English common law.

(a) When a corporate borrower is in financial difficulties and a secured debt has become due, would it be usual or customary for a secured lender and/or the corporate borrower to attempt to negotiate a suitable arrangement for repayment and/or refinancing before the secured lender invokes legal enforcement methods?

 

This is possible, but only if the lender feels there is a reasonable probability that the arrangement is workable and that the borrower will ultimately be in a position to pay off its debts. In most cases, it is more likely for the secured lender to call in the loan and enforce the security. However, the MAS has recently circulated to banks in Singapore a proposal for a Singapore Approach based on the London Approach, a non-statutory and informal framework for dealing with temporary support operations mounted by banks and other lenders to a company or group in financial difficulties pending a restructuring.

 

(b) What mechanisms are available to security holders to enforce their securities under the legal system of this economy (For example, power to take possession of the property, power to appoint a receiver, power to foreclose on a mortgage, power to sell the secured property, power to wind up the corporate borrower)?

 

Security over land can be enforced upon default by the borrower by: (a) appointing a receiver under section 24(1)(c) of the Conveyancing and Law of Property Act; (b) obtaining possession of the mortgaged property either by consent or by court order and subsequently exercising the power to sell the mortgaged property under section 24(1)(a) of the Conveyancing and Law of Property Act; and (c) obtaining an order for foreclosure. By far the most commonly exercised mode of enforcement is (b).

Furthermore, a debenture creating a fixed and floating charge customarily provides for the crystallisation of the floating charge and the enforceability of the fixed charge upon the occurrence of an event of default. Singapore law gives wide power to lenders to define events of default and recognises automatic crystallisation. The debenture also customarily confers on the lender the power to appoint a receiver or a receiver and manager out of court upon the occurence of an event of default.

Unless the power to foreclose is exercised, any shortfall upon realisation of the security can be recovered from the borrower under his personal covenant to repay.

A secured lender could also in theory petition to wind up the borrower but will rarely do so since Singapore law allows secured creditors, in so far as their debt is secured, to stand outside the liquidation and enforce their security.

(c) Do these methods include that a secured creditor may 'self-enforce' the security (ie, without the need for an order of a court or the consent of a regulatory authority)?

 

A legal mortgagee's power of sale can be exercised without resort to court provided the conditions under the mortgage for its exercise have arisen. A court order is necessary only if the mortgagor refuses to give up possession of the land voluntarily or if the lender wishes to foreclose instead of exercising his power of sale. If the mortgagee's security is equitable, a court order is necessary before the power of sale can be exercised.

The appointment of a receiver under a debenture creating a fixed and floating charge is a self-help remedy which can be resorted to without reference to the courts or any regulatory authority. However the onus is on the lender to ensure that the debenture was validly given and that the power to appoint a receiver has validly arisen, failing which the lender and the purported receiver will be liable in damages to the borrower.

 

(d) In practice, which method(s) of enforcement are most commonly employed by security holders?

 

Security holders usually exercise their power of sale or appoint receivers or receivers and managers out of court.

 

(e) Briefly describe the process involved in these method(s).

 

If the security-holder holds a mortgage over land, he will first obtain possession of the mortgaged property. If the mortgagor refuses to give up possession voluntarily, the mortgagee must obtain a court order for possession to be given to him. Thereafter, the mortgagee can exercise the power to sell the property without further resort to the court.

If the security holder holds a floating charge, he will declare an event of default under the debenture and appoint a receiver in writing in accordance with the terms of the debenture.

(a) How effective is the judicial or court system for the purpose of enforcing secured property rights?

 

The Singapore legal system is very effective for the purpose of enforcing secured property rights. This is both in terms of the substantive law applied and in terms of procedural aspects such as the timely adjudication of legal disputes.

(a) What effect, if any, does the commencement of insolvency proceedings in respect of the corporate borrower (ie where an application has been filed for some type of insolvency procedure but has not yet been adjudicated) have on the process of security enforcement?

 

There are three types of insolvency proceedings under Singapore law which require judicial intervention. They are: (a) a scheme of arrangement under section 210 of the Companies Act; (b) a petition for the liquidation of the company under Part X of the Act; and (c) a petition for judicial management under Part VIIIA of the Act. Another type of insolvency proceeding is the appointment of a receiver. As this is in itself a method of security enforcement, it will not be discussed further under this section.

Section 210 of the Act empowers a company to propose a compromise or arrangement with its creditors subject to the sanction of the Court. The pendency of such a scheme has no automatic effect on the process of security enforcement as there is no statutory moratorium provided for in section 210. However, section 210(10) allows a company to obtain a court order restraining further proceedings in any action or proceedings against the company once a scheme has been proposed. Section 210 is in pari materia with section 425 of the UK Companies Act 1985 and section 411 of the Australian Corporations Law. There is no provision in Singapore law for a company to bind dissenting creditors in a compromise without the intervention of the court such as exists under a company voluntary arrangement as provided for by the UK Insolvency Act 1986 or under a company deed of arrangement under the Australian Corporations Law.

The presentation of a winding up petition does not affect a secured creditors' right to deal with its security. In general, a secured creditor is entitled to stand outside the mandatory collective procedure provided for by the liquidation provisions and rely on its security interests. If the secured creditor's security is insufficient to discharge the debt due to it, it is entitled to prove in the liquidation for the balance due as an unsecured debt.

The presentation of a petition for the judicial management of the company brings into effect an automatic statutory prohibition on the taking of any steps for the enforcement of security rights and other rights which have the function but which may not have the form of security subject to the leave of court. The judicial management provisions are in pari materia with the English administration provisions under the UK Insolvency Act 1986.

(b) What effect, if any, does the formal pronouncement of an insolvency administration in respect of the corporate debtor have on the process of security enforcement?

 

The formal approval of a scheme of arrangement under section 210 affects secured creditors only in so far as the scheme makes provision to that effect, and only in so far as the secured creditor has consented to his rights being affected .

The formal pronouncement of a winding up order has no effect on a secured creditor's rights of security enforcement.

The formal pronouncement of a judicial management order makes significant inroads into the process of security enforcement. In brief, the security-holders' rights are subordinated by law to the judicial managers' overriding duty to achieve one of the purposes for which the judicial management order was made, that is: (a) the survival of the company or the whole or part of its undertaking as a going concern; (b) the approval of a scheme of arrangement; or (c) a more advantageous realisation of the company's assets than would be effected on a winding up. Upon the making of a judicial management order, the mandatory statutory moratorium which came into force upon the presentation of the petition continues in force and, as before, covers steps to enforce both formal and functional security. The judicial manager has the power to dispose of or otherwise exercise his powers in relation to any property of the company which is subject to a floating charge as if the property were not subject to the security. With the prior approval of the Court and if the disposal would be likely to promote one of the purposes for which the judicial management order was made, a judicial manager has the power to dispose of assets which function as security if the disposal would be likely to promote one of the purposes for which the judicial management order was made. If the judicial manager does dispose of such assets, the security-holder's interest is detached from the property disposed of and attaches to the property of the company which directly or indirectly represents the property disposed of, usually the proceeds of sale thereof. The judicial manager is under an obligation to apply the net proceeds of sale towards discharging the sums secured by the security.