Singapore Court Issues First Decision on Classification of Creditors in Lock-Up Agreements for Schemes of Arrangement

In a scheme of arrangement, scheme companies may incentivise the creditors to commit to the proposal at an early stage by entering into a lock-up agreement, in which the creditor provides an undertaking to vote in favour of the scheme in exchange for certain benefits. While lock-up agreements are advantageous tools in the hands of a scheme company, the principles underlying such agreements have so far not been considered in detail by the Singapore Court. In Re Brightoil Petroleum (S’pore) Pte Ltd [2022] SGHC 35, the Singapore High Court, for the first time, issued the grounds of its decision on whether creditors who enter into lock-up agreements should be placed in a separate class from the other creditors for the purpose of voting on a scheme of arrangement.

The Court’s decision provides some much-welcome clarity on this topic. In this Update, we provide a summary of the Court’s decision and highlight the key principles of law regarding lock-up agreements.