Second Reading Speech by Ms Indranee Rajah, Second Minister for Finance, on the Companies (Amendment) Bill 2018, at The Parliament, 6 August 2018

1. Mr Speaker, I beg to move, “That the Bill be now read a second time.”

Introduction

2. The Bill introduces two amendments to the Companies Act:

a) The first amendment seeks to exempt Shipowners’ Liens from the requirement of registration as a charge under the Companies Act.

b) The second amendment seeks to clarify the categories of persons bound by a compromise or scheme of arrangement when a company is in the course of being wound up.

3. Mr Speaker, let me now take the members through the details of the two amendments in the Bill.

Shipowners’ Liens

4. First is on Shipowners’ Liens. Clause 2 of the Bill seeks to preserve the ease of doing shipping business in Singapore. 

5. Specifically, this clause exempts Shipowners’ Liens from the requirement of registration as a charge under section 131 of the Companies Act.

6. A Shipowner’s Lien is a standard feature in ship charterparties. A charterparty is a maritime contract, typically between a shipowner and a charterer (or hirer) of the shipowner’s vessel. 

7. The Shipowners’ Lien in such a contract gives the shipowner the right, in the event of the charterer’s default, to claim payment from monies owing to the charterer by third parties. In other words, should the charterer be unable to pay the shipowner, the lien allows the shipowner to directly recover payment of sub-hire, sub-freight or in certain instances, bill of lading freight, from a sub-charterer.

8. The term “Shipowner’s Lien” is the term of art used by the shipping community to refer to liens provided to others, beyond the registered owner of the ship. These include a disponent owner, bareboat charterer or other charterer, in addition to the registered owner. 

(I) Diablo Fortune

9. In 2017, the status of an unregistered Shipowner’s Lien vis-à-vis a liquidator of the charterer and its interaction with section 131 of the Companies Act was litigated in Singapore for the first time. 

10. The High Court in Duncan, Cameron Lindsay v Diablo Fortune Inc recognised a Shipowner’s Lien as a charge that is required to be registered under section 131 of the Companies Act. In March 2018, the Court of Appeal affirmed the High Court’s decision. 

11. As a consequence of non-registration under section 131, the lien in that case was not enforceable against the liquidator of the charterer and the shipowner who would otherwise have had the benefit of the lien, ranked together with the unsecured creditors of the charterer instead. 

(II) Rationale for the amendment 

12. The effect of the Diablo case gives rise to several practical difficulties for the shipping industry in connection with section 131 of the Companies Act and Shipowners’ Liens.

a) First, leaving aside the long standing industry custom and practice where shipowners do not habitually register Shipowners’ Liens, the registration of Shipowners’ Liens is particularly difficult from a practical perspective. This is because each ship is typically subject to a continual series of charterparties, each entered into as quickly as possible, to ensure that the ship is continually gainfully employed. Often, charters are for periods as short as a few days. This means that many charterparties may have been completed before a charge can even be registered.

b) Second, given the volume of charterparties, there would likely be significant administrative and cost implications for shipping companies. 

As a result, compliance with section 131 of the Companies Act in relation to Shipowners’ Liens would be particularly burdensome for the shipping industry.

13. Furthermore, the underlying rationale of section 131 of the Companies Act, which is to protect third parties who deal with companies, by disclosing charges against a company’s property, is less applicable in the shipping context. As observed by the Court of Appeal in its grounds of decision in the Diablo case, “[n]otice…may not be necessary in the [shipping] context since all parties who deal with charterers are aware that such liens are standard in charterparties^[1]”.

(III) The Exemption

14. Moving to the specifics of the amendment, there is precedent for the introduction of a statutory exemption from registration under section 131 of the Companies Act. Similar exemptions exist within the Companies Act. For example, section 131(3A) of the Companies Act exempts charges over securities issued by the Government.

15. There is international precedent for excluding Shipowners’ Liens from registration requirements. In Hong Kong for example, the Hong Kong Companies Ordinance stipulates that a Shipowners’ Lien does not amount to a charge, and consequently Shipowners’ Liens are excluded from the requirement of registration.

16. We have taken a different approach. In our case, the Bill, while exempting such Shipowners’ Liens from registration requirements under section 131 of the Companies Act, maintains the Singapore Courts’ characterisation in the Diablo case of such liens as charges.

17. The effect of this is that the Shipowner’s Lien retains its essential nature as a security but without the need for registration. As a result, the Shipowner’s Lien will take priority over other charges created subsequent to it, as well as over unsecured creditors. This is unlike Hong Kong where, given that a Shipowner’s Lien is not a charge to begin with, it will not take priority over other charges and will rank pari passu with unsecured claims.

18. This will be the position for all Shipowner’s Liens that are created on or after the date that the amendments in this Bill come into effect.

19. With regard to Shipowner’s Liens that are already in existence or which are created before the effective date of these amendments, the position is as follows.

20. Clause 2 contains a saving provision that preserves, where possible, the validity of unregistered Shipowners’ Liens existing prior to this amendment coming into force. 

21. Specifically, such unregistered Shipowners’ Liens would generally remain valid, unless: 

a) the relevant company is already in winding up; or 

b) a creditor has already obtained proprietary rights or interests in the subject matter of the charge.

Compromise and Schemes of Arrangement

22. Clause 3 of the Bill seeks to clarify the categories of persons bound by a compromise or scheme of arrangement when a company is in the course of being wound up. 

23. Section 210 of the Companies Act provides the mechanism for a compromise or arrangement to rearrange the rights of the company, its creditors or members. In 2014, the provision was amended to clarify that holders of units of shares in a company can be parties to a compromise or scheme of arrangement. However, creditors and members, who were bound by a compromise or scheme of arrangement before the amendments in 2014, were inadvertently excluded from the amended provision, in respect of a company which is in the course of being wound up. Thus, clause 3 is a technical amendment to reinstate these categories of persons.

24. Mr Speaker, I beg to move.

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^[1] Diablo Fortune v Duncan, Cameron Lindsay [2018] SGCA 26 at [4] citing A L Diamond, A Review of Security Interests in Property (Her Majesty’s Stationery Office, 1989) at para 23.4.15