Singapore
Giving or taking guarantees
To be valid, a guarantee needs to be in writing, signed by the guarantor and provided for good consideration.
Consideration for a guarantee is subject to general contractual principles. In the case of a guarantee, the underlying obligations will usually be the consideration for the guarantee and so it is advisable to execute the guarantee at the same time as executing the underlying obligations to avoid any suggestion of past consideration. Often the guarantee is included in the loan agreement and so this should not be an issue. Also it can be difficult to establish consideration for a guarantee as the primary obligations are between the underlying obligor and beneficiary, for example between the borrower and lender. As a result guarantees are sometimes executed as deeds to avoid any argument about whether good consideration was provided. Deeds have particular execution requirements namely under seal under Singapore law which need to be observed.
Additionally, there is a risk that a guarantee may be set aside if it was procured by undue influence by a borrower or lender. A party being provided with a guarantee should be alive to this issue and take steps to avoid claims of undue influence by, for example, requiring the guarantor to take separate legal advice. Additionally, a guarantee can be vitiated by misrepresentation, unconscionability, mistake and other like factors such as duress.
Giving or taking security
A security document may need to be executed as a deed if it:
- contains a mortgage over land;
- confers a statutory power of sale and power to appoint a receiver; or
- contains a power of attorney.
Once granted, security needs to be properly perfected before it is valid against third parties. Perfection formalities can range from having the secured asset delivered to the security holder, registration of the security and notice being given to third parties. Most charges created by a Singapore company must be registered at the Accounting and Corporate Regulatory Authority of Singapore within 30 days of its creation. Failure to register within this time will typically mean that the charge will be void against the liquidator and any creditor of the company.
There are no notarization requirements for security documents under Singapore law.
Like guarantees, for a period after a new security interest has been granted, it is at risk of being set aside in certain circumstances under insolvency laws. Reviewable transactions include those conducted at an undervalue, unfair preferences and invalid floating charges.
Are there any restrictions on lending and borrowing?
Lending
Although lending itself is not regulated, the business of lending is regulated by the Moneylenders Act. Except for banks, finance companies, merchant banks, pawnbrokers, and cooperative societies, every person who carries on the business of moneylending must be licensed under the Moneylenders Act. Such lenders (including banks or moneylenders) will need to be authorized by the Monetary Authority of Singapore or the Ministry of Law to conduct such business.
There are no specific requirements around how the agreement is drafted and formatted and what information must be included.
There are no additional restrictions that apply to foreign lenders making loans to Singapore borrowers from a Singapore law perspective. However, banks in Singapore that lend Singapore dollars to non-resident financial institutions for any purpose whether in Singapore or elsewhere are subject to restrictions on the amount that they can lend.
Specific restrictions on lending apply to the purchase of real property, as follows:
- An absolute limit of 35 years on the tenure of all loans for residential property, applies to loans to both individual and non-individual borrowers, as well as refinancing loans, from 6 October 2012.
- The Monetary Authority of Singapore will lower the loan-to-value ratio (LTV) for new residential property loans to borrowers who are individuals if the tenure exceeds 30 years or the loan period extends beyond the retirement age of 65 years. For these loans, the LTV limit will be:
- 40% for a borrower with one or more outstanding residential property loans; and
- 60% for a borrower with no outstanding residential property loans.
- The LTV for residential property loans to non-individual borrowers from 50% to 40%.
Further, under the Total Debt Servicing Ratio framework, property loans extended by a financial institution should not exceed a Total Debt Servicing Ratio threshold of 60%. Property loans in excess of the Total Debt Servicing Ratio threshold of 60% should only be granted on an exceptional basis (or unless otherwise exempted under the Total Debt Servicing Ratio framework) and financial institutions should clearly document the basis for granting property loans in excess of the Total Debt Servicing Ratio threshold of 60%.
Borrowing
There are specific restrictions on borrowing for unsecured credit an individual:
- 24 times monthly income from 1 June 2015;
- 18 times monthly income from 1 June 2017; and
- 12 times monthly income from 1 June 2019.
Financial institutions will not be allowed to grant further unsecured credit to an individual whose unsecured borrowings exceed the prevailing borrowing limit for three consecutive months.
Further, the Monetary Authority of Singapore has issued a consultation paper on 30 September 2016 proposing to disallow financial institutions from granting new unsecured credit facilities or credit limit increases to individuals whose outstanding unsecured debt already exceeds 12 times their monthly income. The Monetary Authority of Singapore has stated in the consultation paper that it intends to implement the changes on a prospective basis from 1 June 2017.
What are common lending structures?
Lending in Singapore can be structured in a number of different ways to include a variety of features depending on the commercial needs of the parties.
A loan can either be provided on a bilateral basis (a single lender providing the entire facility) or syndicated basis (multiple lenders each providing parts of the overall facility).
Syndicated facilities by their nature involve more parties (such as agents and trustees which fulfill certain roles for the finance parties), are more highly structured and involve more complex documentation. Larger financings will typically be done on a syndicated basis with one of the syndicate taking the lead in coordinating and arranging the financing.
Loans will be structured to achieve specific objectives, eg term loans, working capital loans, equity bridge facilities, project facilities and letter of credit facilities.
Loan durations
The duration of a loan can also vary between:
- a term loan, provided for an agreed period of time but may sometimes come with a short availability period;
- a revolving loan, provided for an agreed period of time with an availability period that extends nearer to maturity of the loan and which may be redrawn if repaid;
- an overdraft, provided on a short-term basis to solve short-term cash flow issues; or
- a standby or a bridging loan, intended to be used in exceptional circumstances when other forms of finance are unavailable and often attracting a higher margin.
Loan security
A loan can either be secured, unsecured or guaranteed. For more information, see Giving and taking guarantees and security.
Loan commitment
A loan can also be:
- committed, meaning that the lender is obliged to provide the loan if certain conditions are fulfilled; or
- uncommitted, meaning that the lender has discretion whether or not to provide the loan.
Loan repayment
A loan can also be repayable on demand, on an amortizing basis (in instalments over the life of the loan) or scheduled (usually meaning the loan is repayable in full at maturity).
What are the differences between lending to institutional / professional or other borrowers?
For more information see Lending and borrowing – restrictions.
Do the laws recognize the principles of agency and trusts?
Yes, both principles are recognized as a matter of Singapore law.
For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lenders or secured parties.
Are there any other notable risks or issues around lending?
Generally
Loan agreements and other finance documents are subject to general contractual principles. For example, the Singapore courts will not enforce a penalty and so lenders have to be careful about the rate of default interest charged on a loan. It should be noted though that a contract by an unlicensed moneylender renders the borrower's obligation to repay unenforceable.
Specific types of lending
For more information see Lending and borrowing – restrictions.
Standard form documentation
Finance transactions are likely to be documented on bank standard form documentation prepared in-house which are then subject to negotiations between the bank and the borrower.
Are there any other notable risks or issues around borrowing?
There are no notable risks or issues around borrowing.
Vincent Seah
Partner
DLA Piper Singapore Pte. Ltd.
[email protected]
T +65 6512 9595
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