Closing Speech by Second Minister, Ministry of Law, Mr Edwin Tong on the Second Reading of the Insolvency, Restructuring and Dissolution (Amendment) Bill
7 January 2025 Posted in Parliamentary speeches and responses
1. Sir, I thank the three Members who have spoken in support of the Bill and for their considered speeches as well as suggestions. I thought I would start with a few broad overarching points which underpin the proposed amendments – overarching in the sense that these are the purposes and the broad principles that underpin why we have decided to introduce SIP 2.0. This also answers some of the points that Members have raised.
I. INTRODUCTION
2. First, I think we all agree it is not economically viable or desirable for companies that are not operating, dormant for a period of time and not financially sustainable, to remain on the books. Technically alive, but, effectively, dormant and not operating.
3. These amendments seek to lower the threshold for these companies to find it easier to exit. And, in some ways, there will be individual personalities behind these companies as well.
4. So, the simplified process allows them to get out of a business that has failed, through perhaps no fault of theirs, in a straightforward manner and get on with a different business; an exit that is fair to all creditors, and find the business transactions under a different model and perhaps one which may be more viable. So, it also helps the individuals behind each of these corporate entities.
5. Second, we all agree that, in reality, the practical challenges and realities facing smaller companies in financial distress would be very different from the larger companies. Here, I want to emphasise a few points.
6. First, we are dealing with a scenario which is a small subset in terms of the type of cases. Although I said, at the start, that micro and small companies (“MSCs”) form the bulk of our enterprise landscape, but the type of cases that we are dealing with is a subset of the broader ones.
7. So, my first point to many of the issues raised by Associate Professor Jamus Lim as well as to Mr Neil Parekh and Mr Don Wee, is that the parties have a choice. They can assess for themselves. In fact, they should assess for themselves how suitable their case is for a SIP 2.0 process and decide whether they fall under this framework. Otherwise, the entire framework in the IRDA is completely available to any of these companies as well. So, it is not as if they are locked into or pigeonholed into having to select SIP 2.0, if they qualify as an MSC. That is the first point I would make.
8. Secondly, to address Assoc Prof Jamus Lim’s point about whether the SIP was “pressing”. I think that was the word that the Member chose to use.
9. The numbers speak to the cases that have come under SIP 1.0 in the immediate post-COVID-19 enactment of this Bill. But as I said, this is a choice that we are offering as an add-on to a corporate entity – to decide whether they fit within this profile and, if so, whether they want to avail themselves of a shorter, more simplified process. Effectively, it is giving more options rather than taking away or requiring some companies to fit within this framework without having a choice.
10. The third point I would make is that, we see, therefore, value in having insolvency processes that are in the context of these cases, simpler, more straightforward, more streamlined, easier to get entry into, not so document-intensive and allows the companies to decide: I fit within this framework, let us get onto this quickly so that I can simplify, reduce cost as well as use up less time to exit a failed business.
11. So, we envisage that SIP 2.0 will have this impact and overall, in these cases, translate into better returns for creditors, which is one of the key aims. Because sometimes, and Members might know that I have spent some time in practice doing restructuring, we see a very viable, very good restructuring plan, but it takes time. It takes a lot of effort. And at the end of the day, a lot of the cost would eat up the balance assets of the company after restructuring has completed.
12. We hope that in these cases, for the MSCs in particular, that when they avail themselves of this framework, there will be bigger savings in time and costs. Therefore, resulting in better returns for creditors.
13. With this in mind, let me address some of the specific points that Mr Wee, Assoc Prof Lim as well as Mr Parekh had raised. As I said, I thank Members for the carefully considered speeches.
14. To Mr Wee’s point, the proposed framework seeks to balance the various considerations, providing a streamlined insolvency process and also, we understand, the interests and expectations of the stakeholders. I think it is important, while this is streamlined, for Members to know that we are not compromising on rights that creditors will have and should have in any insolvency.
15. As mentioned in my opening speech, public agencies and private sector stakeholders have also been consulted widely as part of the design process. We will continue to engage them on an ongoing basis to ensure that this framework that we have proposed in SIP 2.0 remains accessible and evolve with the times to keep up with the needs of corporate entities in financial distress.
16. By taking into account industry feedback and streamlining the requirements and processes, we have also sought to reduce the cost and time burdens on companies.
17. The liability threshold of $2 million in many ways acts as a proxy to right-size the kind of companies that can use or benefit from the SIP. Broadly speaking, and I say this in the context of the fact that we have amended the requirements from just an MSC alone to looking at the nature of the insolvency itself, I would say that larger companies with a more sophisticated set-up and larger debt sizes where you have complexity in disputes across different jurisdictions would typically not be suitable for such a simplified process.
18. For all companies eligible for this SIP 2.0, there will be no changes to the existing priority of debts in section 203 of the IRDA. This applies to both simplified as well as non-simplified processes. The priority scheme amongst creditors, between creditors, will remain unchanged. To summarise, in a winding up, the costs and expenses of liquidation are paid out first, followed by employees’ claims for wages or salary. Unsecured debts rank lower in terms of priority. This was the position when we first introduced the SIP as well and will continue to be so in SIP 2.0.
19. What is envisaged to change under SIP 2.0, however, is that we believe, as I mentioned earlier, the remaining pie for distribution is expected to be larger. This is because the costs and expenses of the liquidation should reduce. As such, rather than employees or creditors having to feel disadvantaged from this, if this is made out, then in fact, the distribution at the end of the process would be expected to be higher.
20. At the same time, various safeguards exist to prevent potential abuse as the directors’ statement will facilitate more efficient entry into simplified winding up. For example, the nominated liquidator has the ultimate responsibility for assessing whether this company satisfies the eligibility requirements or not. In particular, if there is complexity or if there is a suggestion that there is wrongdoing or fraud, the company may be transited into a non-simplified insolvency process.
21. If such fraud or wrongdoing is discovered only after the company has entered into simplified winding up, in other words, midstream and whilst the process has already started, then the liquidator can likewise transit the company into a non-simplified process. So, it facilitates the transfer between the schemes quite seamlessly.
22. Mr Wee, Assoc Prof Lim and I think Mr Parekh also talked about notifications. Let me say that as it is, notifications under the current SIP are already being published on the Official Receiver’s website. Only one notice must also be published in at least one local English daily newspaper, namely, the notice of acceptance into the scheme itself under the current section 250J(c) of the IRDA.
23. To Assoc Prof Lim’s point about notices, and I think he made an appeal whether we could consider other forms, at the end of the day, it is not our intention to deprive creditors and other stakeholders of notice. We felt that this would be the best balance between costs, time taken and the burden on the companies seeking the simplified process and notification.
24. In our feedback sessions with the industry, we felt that they were already familiar with the current process – publication on the website and so on. Having this as the sole mode of publication will reduce costs and not at the same time cause undue concern to stakeholders.
25. To Assoc Prof Lim’s point, I will make two further responses. First, we will continue to study this. As I said, it is not the intention to deprive proper parties with stakeholder interest or any interest from knowing that this has commenced or has started. We will evaluate the efficacy of the notice and make changes where appropriate.
26. The other, of course, as I said in my opening speech, if there is a process of procedural irregularity or defect, the party affected by that under the SDRP says, “Look, I wasn’t aware there was a notice defect and now I find myself bound by the SDRP”, that individual creditor can apply to Court. One of the grounds of relief, as I stated, is process irregularity, which includes notice.
27. Next, let me deal with the length of the moratorium period. I think all three Members spoke about that. I want to emphasise that, as I said in my opening speech, it has gone from 90 days, to 30 plus 30. Let me explain the rationale behind this.
28. First, these cases are self-selected and scoped. They are simplified, straightforward and ought to be dealt with quickly. I also mentioned in my speech that, by and large, in many of these processes, one expects – in fact, it happens in practice – the Restructuring Adviser to already engage the parties, the stakeholders, the creditors, in particular, on the proposed plan and the scheme. Once that happens, you will trigger the process, you start the 30 days for you to work out the details, you might get a further extension if you are not able to satisfy that and then within this framework, you must find a solution.
29. We believe this to be a proper balance between the fact that you are dealing with a $2 million debt, probably in as much as these are MSCs, you probably also find that the countervailing parties, the creditors themselves, are probably also MSCs or perhaps individuals and there is an interest in ensuring that their rights are also not compromised.
30. Because during the moratorium period, you are not able to enforce any of your rights against the debtor. We felt that this would balance out the interests of the parties, moving from a 90-day blanket to a 30-day blanket plus if you need more time, a further 30 days, so 60 days in total.
31. One further point to Assoc Prof Lim is that this period will be prescribed in subsidiary legislation as set out in clause 20 of the Bill. So, if we find, as this evolves, that it is actually insufficient time, we can make adjustments along the way quite easily.
32. Mr Parekh sought clarifications on various points. I think I have addressed some of them, and I will deal with the rest of Mr Parekh’s considerations.
33. First, we made the eligibility criteria for SIP 2.0 simpler and more flexible so that more companies can participate. We moved from defining the eligibility from “Are you an MSC?” – in other words, looking at the identity of the applicant – to “Are you owing $2 million or less?”, focusing on the nature of the insolvency at hand. The key consideration is that the insolvency should be straightforward and not something that is mired in complexity or disputes.
34. Depending on the circumstances, some types of companies that Mr Parekh has mentioned may be eligible for SIP 2.0. He mentioned a company may have complex ownership structures or international operations. But for those companies, if the circumstances surrounding the particular debt is straightforward and it is $2 million or under, then SIP 2.0 could apply.
35. For more complicated cases – cross-border elements, disputes that are contentious, fraud, wrongdoing, fraud with disputes between parties, maybe challenges between creditors for priority and so on – then the non-simplified process is still available and in fact, would be more suitable.
36. To Mr Parekh’s point on conflict of interest, Restructuring Advisers are professionals and they must deal with this issue in the course of their work, as they do all the time. In fact, as Mr Parekh knows, it is one topic that comes up from time to time.
37. The introduction of SIP 2.0 does not take away that obligation to evaluate their personal position relative to any conflict of interest that they might have. Only licensed insolvency practitioners who are chartered or public accountants can be Restructuring Advisers. They are bound by their licensing conditions and regulated by their respective accountancy professional bodies. I think we all know that if they do not act professionally, complaints can then be made and the Official Receiver or the Licensing Officer or the professional bodies can look into that.
38. In addition, the law provides for the company to appoint Restructuring Advisers and does not restrict the companies to only one such appointment. In appropriate cases, the company may appoint a new Adviser but obviously, the company will have to balance that against the increase in time and cost that might bring about.
39. Next, Mr Parekh asked about the scope of the offences in the Bill. Like those in other laws, they will be determined by the Courts based on established principles. This includes the new section 72E(4), which is materially identical to the existing section 72E(5). We are not changing the threshold or, in fact, the substantive ingredients behind the offences proposed in section 72E(4). Based on the evidence and circumstances of the case, the Courts will determine whether a specific statement is “false or misleading in a material particular”.
40. We put that framework and formula in – and I think Mr Parekh asked to give examples – because what is false and misleading in the context of a statement may well differ from case to case. They may differ in the context of one type of business or another or one form of representation or another. We wanted to keep it situational and contextual, so that the Court has the ability to evaluate, based holistically on the circumstances of each case, whether it is false or misleading in that particular circumstance.
41. The Court will also determine the applicable penalties to be imposed in the context of sentencing discretion, which is not unusual; while the Government will consider the circumstances of cases, including rectification by companies, before deciding whether to prosecute.
42. On Mr Parekh’s concerns about digital filings and notifications, SIP 2.0 does not introduce any new processes that are not already part of the current SIP. As I mentioned earlier, publishing notifications on the Official Receiver’s website already exists under the current SIP. While this process will be enhanced for the convenience of Restructuring Advisers and liquidators under SIP 2.0, significant digital infrastructure will not be required for that.
II. CONCLUSION
43. Before I conclude, let me also make two assurances.
44. One, to Mr Parekh, my Ministry will monitor the implementation of SIP 2.0 and, in due course, to his point about further education, work with the SME community on the features of SIP 2.0 and review how to partner industry stakeholders to provide better assistance downstream, if necessary. As I mentioned to Assoc Prof Lim, we will also continue to monitor the efficacy of the thresholds and the framework that we put in and make adjustments where necessary.
45. Finally, to Assoc Prof Lim’s point about personal bankruptcy and the Debt Repayment Scheme, he would appreciate that this is not within the scope of this Bill. Nonetheless, the points are well made. I want to assure Assoc Prof Lim that this is something that my Ministry has already started looking into. We understand the points that he has made. We have in fact started work on this, consulted internally some stakeholders before going public subsequently. It is an issue that we are studying and we will come back to this House in due course.
46. Sir, the simplified regime proposed in this Bill is designed to provide tailor-made insolvency processes for smaller companies. As I said, this adds to but does not take away the options that are currently available in the IRDA for all companies – big, small, MSC or otherwise – and whatever is the threshold of the debt for that matter.
47. We believe that this Bill strengthens Singapore’s restructuring and insolvency regime by giving additional options to support companies through financial distress. Besides benefiting stakeholders of the affected companies, this, we believe, will support the broader economy by facilitating the reallocation of resources towards more productive businesses. With that, Mr Speaker, I seek to move.
Last updated on 7 January 2025