The impact of the novel coronavirus on economies has led governments to hasten the rethinking and revision of legislation in areas such as employment, contract, and insolvency/restructuring/dissolution laws. Singapore recently introduced an insolvency framework that replaces the Bankruptcy Act and the corporate insolvency and restructuring provisions in the Companies Act, each of which have been repealed.
Singapore’s Insolvency, Restructuring and Dissolution Act (IRDA), which commenced on 30 July 2020, is an omnibus legislation that consolidates Singapore’s personal insolvency, corporate insolvency and debt restructuring laws into a single legislation. The IRDA also introduces new changes to the insolvency framework in Singapore.
A phased approach was taken to implement changes to Singapore’s personal insolvency, corporate insolvency and debt restructuring laws.
In July 2015, the Bankruptcy Act was amended to create a more rehabilitative discharge framework for bankrupts, and to encourage institutional creditors to exercise financial prudence when granting credit.
In May 2017, the Companies Act was amended to enhance corporate rescue and restructuring processes, and position Singapore as a forum of choice for debt restructuring. Some of the key changes introduced include that, for schemes of arrangement and judicial management, “super-priority” goes to rescue financing, which means priority over all other debt, or to be secured by a security interest that has priority over pre-existing security interests, provided pre-existing interests are adequately protected.
Schemes of arrangements measures include:
- An automatic moratorium for 30 days on filing an application. The moratorium may be extended to have worldwide effect, and also to related entities relevant to the restructuring;
- The ability to crack down on dissenting creditor classes; and
- Pre-negotiated restructurings between the company and its key creditors can be implemented.
Judicial management measures include:
- Companies can commence judicial management earlier by demonstrating that the company “is likely to become unable to pay its debts”, as opposed to “will be unable to pay its debts”;
- Secured creditors opposing an application will be required to show the judicial management is disproportionately more prejudicial to them than to unsecured creditors; and
- Extending the availability of judicial management to foreign companies with a connection to Singapore.
Cross-border insolvency measures include:
- Ring-fencing is only required for specific financial institutions such as bank and insurance companies; and
- The adoption of the UN Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.
The final phase
In this final phase, the IRDA replaces the Bankruptcy Act and the corporate insolvency and restructuring provisions in the Companies Act, and enacts further changes not enacted in the Bankruptcy Act and Companies Act. Some of the changes in force under the IRDA are listed below.
Personal bankruptcy measures include:
- Secured creditors must notify within 30 days of the intention to claim interest on the debt for the period between the order and enforcement of the security; and
- The maximum debt threshold for the debt repayment scheme has been increased to SG$150,000 (US$ 109,000) from SG$100,000.
Corporate debt restructuring measures include:
- A new out-of-court procedure to place a company in judicial management, provided creditors agree to and support such an arrangement;
- New provisions to allow judicial managers to obtain third-party funding for court action to unwind prejudicial transactions and avoid acts detrimental to creditors; and
- New restrictions on the operation of ipso facto clauses in contracts. During the period of restructuring, contracting parties cannot terminate, or amend, or claim an accelerated payment, or forfeiture of the term under any agreement with the company, or terminate or modify any right or obligation under any agreement the company, for the sole reason that the company is insolvent or is undergoing restructuring proceedings.
Liquidation measures include:
- A new procedure for the early dissolution of a company in liquidation, which may be utilised by the official receiver and by private liquidators who have obtained the prior consent of the official receiver;
- Appointment of a private liquidator as the default position unless the applicant has taken reasonable steps but is unable to obtain the consent of a licensed insolvency practitioner to be appointed as liquidator, and the official receiver then consents to such nomination; and
- New “wrongful trading” provision that removes the requirement for a criminal conviction before civil liability can be imposed. A company trades wrongfully if it incurs debts or liabilities without reasonable prospect of meeting them in full when the company is insolvent, or becomes insolvent, as a result of the incurrence of such debt or liability.
Regulatory measures include:
- A new licensing and regulatory regime for insolvency practitioners in Singapore, who must be either an advocate or solicitor, a public accountant, a chartered accountant, or possess such other qualifications as the minister may prescribe.
The provisions under the IRDA generally will not affect existing or pending bankruptcy, insolvency or restructuring proceedings. The relevant provisions of the existing Bankruptcy Act and the Companies Act will continue to apply to certain existing cases and pending applications already before the courts prior to 30 July 2020.
Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by emailing John McGuinness at [email protected].