By LYNETTE KHOO

A CHAPTER 11 as an alternative to Singapore's judicial management (JM) regime? Yes and no, insolvency professionals say.

While they admit that the 22-year-old JM regime can be improved to give companies a better chance of rising from the ashes, they do not advocate a complete swing to the US Chapter 11 bankruptcy code.

According to the Singapore High Court, the number of JM filings has jumped to nine this year, from two in 2008 and five in 2007. There are no official statistics released on companies under JM.

A JM allows a company that is not hopelessly insolvent some breathing space to reorganise its affairs with court protection and with the help of judicial managers.

But sceptics question its rate of success to rehabilitate distressed companies, with some calling it a prelude to winding up and urging a move towards US Chapter 11.

The debate gets heated up as Singapore's omnibus Insolvency Act - that will bring corporate and individual insolvency laws together - gets underway.

The Ministry of Law and Singapore's Insolvency & Public Trustee's Office (IPTO) told BT that they are currently working towards a draft omnibus insolvency legislation by 2011.

'The merits of retaining our present JM model will be examined in the course of our ongoing review,' they said.

Insolvency practitioners note that many people have a negative perception of judicial management.

'One of the criticisms against the JM is that the management is displaced by judicial managers who are not as equipped in a particular industry to run the business,' said Patrick Ang, senior practitioner in Rajah & Tann's Restructuring and Insolvency Department.

This is where Chapter 11's principle of 'debtor-in-posession' has its supporters, as the management remains in control. When the directors are stripped of their powers, they may be less motivated to assist the judicial managers, Mr Ang added.

There is currently a provision for companies to restructure under its incumbent management under Section 210 of the Companies Act, but this receives less court oversight.

Some lawyers believe there could be a provision for management-in-control under the JM regime. But where there is integrity or competence issues in the management, early intervention by an independent third-party becomes very crucial.

Otherwise, the same management that gets the company into trouble may continue to make similarly bad decisions, said Don Ho, chairman of the Insolvency Practitioners Association of Singapore (IPAS).

That's akin to allowing the driver to remain in the driver's seat even though he may drive the car into the ditch again, he quipped.

'There is scope for more than one regime,' said Andrew Chan, a litigation partner at Allen & Gledhill. 'Given the diversity of circumstances, there is room for both a judicial management type regime and a regime that allows management to remain in control.'

Another area in the JM regime that deserves a relook is the 'right of set-off'. Though JM provides a moratorium on all legal actions taken against the company, it does not stop creditors from setting off the funds they hold for the company against the loans owed.

There should perhaps, be a compromise by allowing the company to utilise such funds if they are adequately secured, Mr Ang said.

While some fine-tuning of the regime would help, critics should know that JM is not a panacea for all corporate illnesses, insolvency experts say. There could be various factors complicating the JM process, such as cross-border issues and pull-out by potential investors.

A company under JM may also be stalled from entering liquidation because judicial managers need to complete the legal actions they have begun against certain creditors, said Tam Chee Chong, head of financial advisory services at Deloitte & Touche LLP for Singapore & Southeast Asia.

But there are safeguards against undue delays. A judicial manager is required to submit a proposal to the creditors within 60 days and a judicial management order lasts for 180 days. Requests for extensions need to be justified before the court.

'When a JM is slow, creditors and the court have a lot of say to speed up the process,' Mr Tam said.

Given the right factors and a viable business, it is easier to turn a company around. Some companies under JM are on their way to being resuscitated.

After two years of JM, Zhongguo Jilong is now working towards trading resumption on the Singapore Exchange via a share swap with Chinese firm Changjiang Fertilizer Holdings (CJFH). L & M Investment Group is on its way to an injection of new business in marine transportation of coal in Indonesia.

Tim Reid, partner at Ferrier Hodgson, felt that time is not the key essence in restructuring. Companies should ask if they are truly restructured and whether their creditors are adequately dealt with.

In the US, some companies simply 'move from Chapter 11 to Chapter 11', he noted. And in some cases, Chapter 11 can be just as lengthy and is too costly for small companies.

Various committees comprising members from the private and public sectors are on the drawing board for Singapore's omnibus Insolvency Act, an initiative that kicked off in late 2004. Among their considerations is the feasibility of introducing the Chapter 11 approach.

Hopefully, a more flexible regime would arrive in time for companies coping with the current tough times.

This article was first published in The Business Times.