(a) If a corporate debtor is in financial difficulty, is there an attitude of 'concealment' or 'denial' toward the admission or exposure of that financial difficulty?

 

It is very difficult to generalise because this depends very much on the managers of the company and their relationship with its financiers. It is the case, however, that most banks monitor their borrowers closely and are usually aware before other creditors of any financial difficulties experienced by the company. Furthermore, the disclosure requirements under the Companies Act mean that a corporate debtor's success in concealing its situation will usually be short-lived as it is under an obligation to file Annual Returns which includes its audited balance sheet and profit and loss statement. Listed companies have a continuing obligation to make semi-annual financial announcements and prompt announcements of price sensitive events.

(b) If so, is the reason for this based on cultural or other factors?

 

Whilst no corporate debtor is likely to volunteer information of its financial difficulty, if they are leveraged their ability to conceal financial difficulty is severely limited.

(c) Is it likely that a corporate debtor would:

(i) volunteer the fact of its financial difficulty to a lender or group of lenders; or

 

(ii) admit or concede it only if and when confronted by a lender or group of lenders?

 

It is very difficult to make generalisations as the attitude of a company's management depends on various factors such as their personalities and their relationship with their financiers. However, there is a perceptible tendency for entrepreneurs who have established a business enterprise and still manage it to be pro-active in seeking independent financial assistance to structure debt refinancing and rescheduling scheme.

(d) If a corporate debtor is in financial difficulty, is it likely that the corporate debtor would:

(i) do nothing;

(ii) seek expert assistance and advice; or

(iii) accept the appointment by a lender of an outside expert/advisor?

 

All three of these possibilities have occurred in the past and it is impossible to generalise which is more likely. However there have been no large insolvencies where the company has gone straight into liquidation, in other words, where the management failed completely to deal with the financial difficulties to the bitter end. A multi-banked borrower will usually appoint an outside adviser to keep the banks happy; if the lending is secured, the adviser may well end up being appointed the receiver. It is only if none of these succeed in turning the company around that the company goes into liquidation.

(e) If it was agreed between a lender and a corporate debtor that an expert/advisor would be appointed, is it likely that a corporate debtor would give the expert/advisor unrestricted access to all relevant financial and other information regarding the corporate debtor?

 

The appointment of an expert or adviser is usually done to give comfort to the debtor's institutional lenders and to encourage them to refrain from recalling the facilities precipitously. As such, it is in the debtor's interests to give the adviser such access as he requires so as to keep the lenders at bay and enhance the prospects of a workout.

(f) In that situation, is it likely that the financial and other information regarding the corporate borrower would be:

(i) complete; and

 

For the reasons set out above, it is usually in the borrower's self-interest to ensure that the information provided is complete. Any withholding of information is likely to lead the banks to re-evaluate their position.

(ii) accurate (particularly regarding the valuation of assets and the assessment of liabilities)?

 

As sub-para above.

(a) Is it more common that the financial difficulty of a corporate borrower will be:

(i) volunteered by a corporate debtor; or

(ii) discovered by a lender (and, if so, how)?

 

Most credit facilities extended by lenders include some facilities where regular repayments are required. The lender is therefore likely to discover very quickly that a borrower is having financial difficulties from the fact that the debtor has defaulted on its payments. Alternatively, a lender may discover this from outside sources, or frequently from the financial information that the borrower must furnish to the lender on a regular basis.

There is no body such as a central credit reference agency in Singapore for lenders to pool credit information. In any event, banks operating in Singapore are prevented from sharing such information without the consent of the borrowers by Singapore's banking secrecy laws. As such, banks have to resort to the relatively crude method of scanning the newspapers and court lists daily for actions brought against their debtors.

(b) If a lender becomes aware that a corporate debtor is in financial difficulty, is it likely that the lender would seek to investigate the financial crisis of the corporate debtor itself and employ an expert/advisor to investigate the financial position?

 

To a large part, this depends on the size of the debtor and the lender's exposure to it. A lender to a small enterprise or with small exposure is likely to make its own informal inquiries of the management and to reassess the credit risk.

Where the enterprise is large or the lenders' exposure is large, they are likely to require the company to appoint an accountant as a Special Consultant or Special Accountant to oversee the management of the company and to report to the lender on the prospects of the company trading out of its difficulties with or without debt restructuring.

Creditors who are not financial institutions usually do not have enough bargaining power to compel the debtor to submit to an investigation.

(c) If so, is the expert/advisor likely to be:

(i) an independent professional; or

(ii) an 'in-house' employee of the lender?

 

he expert is almost invariably an accountant from an independent firm.

(d) Is it likely that information regarding the financial position of a corporate borrower as discovered from the work of an expert/advisor would be:

(i) kept secret from other lender/s or creditors;

(ii) disclosed to other/selected lenders?

 

Banks in Singapore are prohibited by Singapore's banking secrecy laws from disclosing information relating to the state of a customer's account without the customer's consent. However, it is not unusual for a multi-banked debtor to be required as part of a standstill agreement to agree to the creditor banks sharing information amongst themselves.

(e) If there were 2 or more lenders (not in a syndicate) involved with the same corporate borrower, is it likely that they would:

(i) join together to share information and endeavour to work out a common approach to the financial problems of the corporate borrower; or

(ii) act secretly and independently of one another?

 

Banks regularly work together in both formal and informal restructurings and reorganisations provided they can be convinced that there is a realistic possibility of the restructuring or reorganisation being successful. Banks do share information with the borrower's consent, but only where they see that it is in their own self-interest to do so.

 

(f) If there was a group of lenders (whether in a syndicate or not) involved with the same corporate borrower, is it likely that one of them would offer or seek to be the leader on behalf of them all?

 

t is unusual for a single lender to offer or seek to be the leader on behalf of all the lenders. What is more likely in situations where the number of lenders makes dealing with them as a group unwieldy is for a Steering Committee to be established comprising representatives of a few of the lenders, perhaps those with the greatest exposure to the borrower, who will represent the interests of the lenders as a whole.

(g) If so, is it likely that such a proposal would be agreed to by the other lenders?

 

Yes, but only insofar as the lenders interests are common.

(h) Is it likely that local lenders would have employees who are experienced in informal work outs?

 

Yes.

(i) If there was foreign bank lending involved, is it likely that domestic lenders would:

(i) combine with; or

(ii) act independently of the foreign lender/s?

 

There is no discernible discrimination in formal or in informal reorganisations or restructurings by local banks against foreign banks. If the banks are willing to cooperate, the fact that the other lenders are foreign banks is unlikely to make a difference.

(j) Is it likely that 'junior' or 'minor' lenders might seek to trade their debt?

 

Junior and minor lenders do on occasion attempt to trade their debt through being obstructive to any proposed restructuring.