SGX RegCo proposes changes to Listing Rules to aid company restructuring: Allen & Gledhill

19 March 2024

On 23 February 2024, Singapore Exchange Regulation (“SGX RegCo”) published a consultation paper proposing changes to the Listing Rules (Mainboard) (“Mainboard Rules”) and Listing Rules (Catalist) (“Catalist Rules”) (collectively, “Listing Rules”) that will facilitate the restructuring process for issuers under Singapore’s Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”). It is stated in the consultation paper that Singapore Exchange Securities Trading Limited (“SGX-ST”), as a listing venue, has a role to play to support Singapore’s efforts to become a leading debt restructuring hub and support its issuers in both good times and bad times. The changes, if implemented, will enable issuers to restructure more efficiently and lessen the regulatory burden when they are trying to manage their financial affairs and meet time-sensitive milestones. The consultation closes on 22 March 2024.

Immediate announcement for financially distressed issuers undergoing Moratorium

Currently, rules 704(20) and 704(21) of the Mainboard Rules and rules 704(19) and 704(20) of the Catalist Rules require an issuer to make an immediate announcement where it is undergoing a winding up process or judicial management, to allow investors to understand the issuer’s prospects and make informed decisions. Similar to an issuer undergoing judicial management, where an application has been filed with the court for the issuer to be under a court-supervised moratorium proceeding involving a compromise or arrangement between a financially distressed issuer (or any of its subsidiaries) and its creditors (“Moratorium”), the financially distressed issuer is most likely unable to continue as a going concern.

Accordingly, SGX RegCo proposes to extend rules 704(20) and 704(21) of the Mainboard Rules and rules 704(19) and 704(20) of the Catalist Rules to include an issuer (or any of its subsidiaries) undergoing Moratorium.

Providing quarterly updates instead of monthly updates in certain instances

Currently, rule 704(23) of the Mainboard Rules and rule 704(22) of the Catalist Rules provide that a monthly update on the issuer’s financial situation must be announced in certain instances, such as:

where an application has been filed with a court to wind up the issuer (or any of its subsidiaries), or to place any of them under judicial management;
where a receiver, judicial manager or liquidator has been appointed in respect of the issuer (or any of its subsidiaries); or
where there is a breach of or occurrence of any event under any loan agreement or debt securities of the issuer (or any of its subsidiaries), which may have a significant impact on the operations of the issuer or result in the issuer facing a cash flow problem

(collectively, “Specified Instances”).

SGX RegCo proposes to require quarterly updates instead of monthly updates in the Specified Instances and where a financially distressed issuer is under Moratorium, as there are unlikely to be reportable developments on a monthly basis in such cases.

Announcement of financial statements for financially distressed issuers under Moratorium

SGX RegCo proposes to amend rule 705(2B) of the Mainboard Rules and rule 705(2) of the Catalist Rules so that a financially distressed issuer that is under Moratorium pursuant to the IRDA or the Companies Act 1967 would not be required to announce its quarterly financial statements. Instead, such an issuer need only announce its first half financial statements.

SGX RegCo recognises that, similar to an issuer under judicial management (including interim judicial management), a financially distressed issuer under Moratorium would most likely be unable to prioritise resources towards the preparation of quarterly financial statements. Any material developments on the state of affairs of the financially distressed issuers are more likely to be released pursuant to (a) their continuous disclosure obligations under rule 703 of the Listing Rules, or (b) the quarterly periodic updates specified in rule 704(23) of the Mainboard Rules and rule 704(22) of the Catalist Rules, as opposed to through the quarterly financial statements.

Disposal of assets by judicial manager without shareholders’ approval

Chapter 10 of the Listing Rules sets out the requirements for significant transactions (including realisation of assets) undertaken by issuers or a subsidiary that is not listed on SGX-ST or an approved exchange (“Chapter 10 Subsidiary”), and prescribes materiality thresholds, wherein, among others, disclosure and shareholders’ approval are required.

SGX RegCo notes that where a judicial manager is seeking to dispose of an issuer’s assets to achieve the statutory purposes, and where such disposal is classified as a major transaction, it may not be practicable for the judicial manager to seek shareholders’ approval pursuant to rule 1014 of the Listing Rules.

Feedback is sought on among other things whether, taking into account the need to balance the interests of various stakeholders (including existing shareholders and creditors), the requirement to seek shareholders’ approval for major transactions in rule 1014 of the Listing Rules should not apply to the disposal of assets by a judicial manager or liquidator where the issuer or a significant subsidiary is in judicial management or under liquidation under the IRDA, respectively. As a safeguard, the information specified in rules 1010 to 1013 of the Listing Rules should still be announced for the information of shareholders.

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 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 consolidated pre-tax profits.

It is proposed that rule 1014 of the Listing Rules would not apply only if the relevant subsidiary met these thresholds as it is expected that the restructuring of the issuer would ordinarily involve only itself or its significant subsidiaries.

Feedback is also sought on the proposed definition of “significant subsidiary”. In the alternative, SGX RegCo seeks views on whether, instead of a “significant subsidiary”, the ambit of non-applicability of rule 1014 of the Listing Rules should extend to disposal of an asset by a Chapter 10 Subsidiary.

Trading suspension

Rule 1303 of the Listing Rules sets out a non-exhaustive list of circumstances in which SGX RegCo may suspend trading of the listed securities of an issuer.

SGX RegCo proposes to amend rule 1303 to allow SGX-ST to facilitate in suspending the trading of the listed securities if (a) the issuer or its significant subsidiary is seeking judicial management by way of a creditors’ resolution, or (b) the issuer is a financially distressed issuer under Moratorium.

Waiver of trading suspension

There may be exceptional circumstances where a financially distressed issuer is of the view that trading suspension is not required as there is certainty as to the completion of the issuer’s restructuring process, and shareholders’ approval is not required.

SGX RegCo proposes that the financially distressed issuer may, ahead of filing its application with the court, write to SGX RegCo to seek such exemption. One circumstance contemplated is 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 (also known as a “pre-pack”), following which the court may then approve such a “pre-pack” scheme under section 71 of the IRDA without any creditor meetings being held. Other circumstances contemplated include 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 creditor or any stakeholder and the issuer explains why a waiver of suspension is critical to a successful debt restructuring.

SGX RegCo invites feedback on these proposals and suggestions for additional benchmarks or safeguards when SGX RegCo assesses the waiver application.

Trading resumption

Rule 1304 of the Listing Rules currently requires an issuer whose trading is suspended under rule 1303(3) of the Listing Rules to submit resumption proposals to SGX RegCo. SGX RegCo has discretion to delist the issuer if no satisfactory trading resumption proposal has been received within 12 months from the date of suspension.

To promote a consistent approach in the process of applying for a resumption of trading, SGX RegCo proposes to apply the process in rule 1304 of the Listing Rules to suspensions for all reasons, other than insufficient public float or lack of a continuing sponsor. Given the urgency of restoring public float and finding a sponsor for a Catalist issuer, the timeline to restore public float of at least 10% or finding a continuing sponsor will remain at three months.

For such suspensions, SGX RegCo proposes to require quarterly updates instead of monthly updates. SGX RegCo also intends to issue a practice note to provide further clarity to the market on the process of applying for a resumption of trading and its expectations.

Miscellaneous amendments

SGX RegCo is making a technical amendment to clarify that life science companies are not required to record operating revenue in the latest completed financial year in line with the policy intention of rule 210(8) of the Mainboard Rules. It will also make an editorial amendment in relation to when funds from institutional and accredited investors must be raised prior to listing.

Reference materials

The following materials available on the SGX website www.sgx.com: