Second Reading Speech by Second Minister for Law Edwin Tong on Insolvency, Restructuring and Dissolution (Amendment) Bill

09 JAN 2023

09 Jan 2023 Posted in Parliamentary speeches and responses

Mr Speaker,

I beg to move, “That the Bill be now read a Second time”.

Introduction

Sir, Singapore’s insolvency and debt restructuring laws have undergone a multi-phase reform process over the years, to ensure that we have both a progressive as well as modern insolvency framework.

Before 2016, it was not mandatory to appoint a private trustee to administer bankruptcy cases as the trustee in bankruptcy. As a result, private trustees were seldom appointed, and the Official Assignee, or the OA, was appointed to act as the trustee in over 99% of bankruptcies.

As part of the Ministry of Law’s ongoing review of the bankruptcy administration regime in Singapore, in 2016, the Government introduced two key initiatives:

(a) First, a requirement for Institutional Creditors (ICs) making bankruptcy applications to apply for Private Trustees in Bankruptcy (PTIBs) to be appointed as the trustee administering the bankruptcy, instead of the OA.

(b) Second, a Differentiated Discharge Framework was introduced. This serves to streamline the work processes, and create a more rehabilitative discharge process with clear timeframes and conditions for bankrupts to be discharged.

Sir, these changes have helped to streamline and improve the quality of bankruptcy administration, whilst at the same time ensuring that public resources can be better utilised.

As of end-2021, PTIBs administer about 40% of bankruptcy cases, with the OA administering the remaining 60%.

Based on feedback that we have gathered from the industry, the experience of PTIBs undertaking the administration of bankruptcy cases that are filed by ICs has generally been smooth.

This Bill will now seek to introduce changes to the bankruptcy regime to mandate that PTIBs now administer all bankruptcy cases, except those which the OA will decide to administer, having regard to public interest.

To support the shift towards a fully PTIB-administered bankruptcy regime, the Bill introduces an amendment to improve operational flexibility in determining PTIBs’ remuneration.

Finally, the Bill also contains miscellaneous amendments that seek to:

(a) Enhance protection of persons dealing with bankrupts in commercial transactions; and

(b) Extend the Simplified Insolvency Programme (SIP) for a further 2 years.

Let me now elaborate on the key amendments in this Bill.

Key PTIB-related amendments

(A) Mandate the appointment of PTIBs in all bankruptcy cases

Private debt recovery lies at the heart of bankruptcy administration. Bankruptcy typically involves:

(a) The creditor seeking redress for non-payment of a debt; or

(b) A debtor seeking relief from overwhelming debts.

A PTIB-administered bankruptcy regime aims to reduce the usage of public resources involved in private debt recovery, whilst ensuring that bankruptcy cases in Singapore continue to be managed in an orderly manner.

There are precedents for such a practice from overseas. For instance, in jurisdictions like the United States and Canada, the law mandates the appointment of the equivalent of PTIBs for every bankruptcy case.

Clause 2 of the Bill therefore amends sections 36(1) and (2) of the IRDA to mandate the appointment of PTIBs to act as trustees in all bankruptcy cases, save for cases where the OA consents to be appointed as the trustee in bankruptcy.

Moving forward, the OA will provide consent only in cases where the OA considers there to be public interest in the bankruptcy administration.

Let me give some examples of such public interest cases. Typically, they will include cases where public finances are affected, such as for instance:

(a) Cases involving the misuse of public funds; or

(b) Where there are debts owed to the Government. These are not meant to be exhaustive illustrations.

However, I would add that this does not mean that the OA will consent to act as the trustee in every case where there might be elements of public interest.

(a) The OA will continue to retain the discretion as to whether to take up these cases.

(b) The OA will consider whether the public interest element is sufficiently compelling vis-à-vis other considerations, giving the appropriate weight to each of these factors before deciding whether to give consent.

To complement these amendments, Clause 6 introduces a new section 318A to provide that the Court must not make a bankruptcy order if a PTIB or the OA has not consented to act as the trustee in bankruptcy.

Together, these amendments will result in a shift towards a fully PTIB-administered bankruptcy regime.

With this new regime, the OA will take on a more regulatory role to ensure the PTIBs’ competencies and legislative compliance in bankruptcy administration. Statutory duties, such as the powers of investigation and prosecution, will continue to reside with the OA.

We have assessed at present that there is sufficient capacity in the PTIB industry to take on the additional cases following these changes.

In other words, we have made an assessment as to what the likely caseload will be after these changes, looked at the amount of resources in the industry, and our assessment is that there is sufficient capacity in the PTIB industry.

The Ministry of Law has engaged industry stakeholders on these proposals. The stakeholders include insolvency practitioners who are eligible to handle, but are not yet currently handling, bankruptcy administration.

The Ministry of Law will continue to engage the industry to keep them abreast of the developments and provide the necessary support that might be required for them to take on this role.

(B) Improve operational flexibility for determination of PTIBs’ remuneration

The Bill also provides support to the PTIB industry by improving operational flexibility for determining PTIBs’ remuneration.

Currently, section 41(1) of the IRDA states that a trustee’s remuneration must be approved in the following manner:

(a) First, by agreement between the trustee and the creditors’ committee.

(b) If there is no such agreement or if there is no creditors’ committee, remuneration has to be determined by a special resolution of creditors at a meeting convened by the trustee.

(c) Where there is no determination under either of the previous two modes, then the Court has to determine the PTIBs’ remuneration.

In our consultation with industry players, they have pointed out that they face obstacles in forming a creditors’ committee for many cases.

(a) This includes unsuccessful attempts at convening a creditors’ meeting to vote on the trustee’s remuneration.

(b) There is also a lack of response from creditors on some cases. Those were the feedback that we received from industry players.

This has resulted in extra costs being incurred in bankruptcy administration, as the PTIBs will have to appoint solicitors to apply to Court to approve their remuneration.

This in turn, reduces the amount left available for distribution to creditors, as the costs and expenses of administration are given priority in the distribution of a bankrupt’s property.

Therefore, to simplify the process for determining PTIBs’ remuneration and keep the costs of bankruptcy administration low, Clause 3 amends section 41(1) and inserts new subsections (1)(b)(ii) and (4) to provide for an additional means of determining PTIB’s remuneration, via agreement between the PTIB and all the creditors.

(a) The creditors will be deemed to have agreed if they have not objected to the remuneration sought by the PTIB in the prescribed manner and within the prescribed time.

(b) I would stress that the creditors’ rights to object to such remuneration will be preserved.

(c) If indeed the creditors do object, PTIBs will still have to secure either a special resolution at a creditors’ meeting or they will have to go to Court for approval.

These amendments will help PTIBs’ fees remain affordable by keeping costs down even as they take on more cases and also, seek to improve returns for creditors.

Other Amendments

(A) Enhance protection of persons dealing with bankrupts in commercial transactions

Let me now touch on other amendments in this Bill. Apart from amendments that allow changes to the current bankruptcy regime, this Bill will also introduce measures to better protect persons dealing with bankrupts in commercial transactions.

These amendments address concerns where members of the public were not aware that they were dealing with a bankrupt person, especially when large sums of money are involved.

These measures will be introduced via two amendments.

First, Clause 10 introduces a new section 412(1)(d), which makes it an offence for an undischarged bankrupt to receive a deposit of at least S$10,000 from any such person, if he or she, the bankrupt, does not disclose his or her bankruptcy status to that person.

This will complement existing subsection 1(a), which makes it an offence for a bankrupt to obtain credit without first disclosing his or her bankruptcy status.

For this amendment, what do we mean by the taking of a “deposit”? What is a “deposit” in this case?

In the amendment, when we say “deposit”, it refers to an advance payment for the supply of goods or services. This can be in the form of money, or other in-kind consideration.

Let me illustrate:

(a) A bankrupt, who is an employee of a renovation company, collects a deposit of S$10,000 from a customer who has engaged the company to perform renovation works.

(b) The bankrupt, in this case, will have to disclose his bankruptcy status at the time he receives the S$10,000, even though he might have been authorised by the company to collect deposits.

Clause 10 also includes language which makes it immaterial whether the individual receives the deposit in his or her own account, or on the account of another person. So in the context of my example, the employee receiving it on the account of the company will also be obliged to make this disclosure. It is also immaterial whether the deposit is received as full or partial payment.

Whilst we set up this mechanism for protection, we recognise that there might also be circumstances:

(a) Where this new offence may unduly inconvenience some bankrupts performing certain job roles;

(b) Where they may have to receive and handle deposits of large sums on a frequent day-to-day basis.

Hence, Clause 10 also provides that the Minister for Law may exempt any person or class of persons from this new offence by order in the Gazette.

Next, Clause 11 will amend section 433(1) to allow the public to obtain information that undischarged bankrupts have submitted to the OA regarding their current employment status and employment history.

(a) This allows the public to conduct better due diligence when transacting with persons who are undischarged bankrupts.

(b) Such information will be available, along with other such existing information in the register of bankrupts that is already publicly searchable, upon payment of a prescribed search fee.

These two amendments will also apply and be in force against bankrupts whose bankruptcy orders were made under the repealed Bankruptcy Act by way of Clause 12 of the Bill.

(B) Extend the SIP for an additional 2 years

Let me move on to the final set of amendments within the Bill.

The final set deals with amendments which seek to extend the validity period of the Simplified Insolvency Programme (or SIP) for an additional 2 years, to 28 January 2026.

As Members might recall, the SIP was introduced on 29 January 2021 to help eligible micro and small companies, or MSCs, facing financial difficulties due to the COVID-19 pandemic.

This was part of the Government’s response to COVID-19, and comprises temporary insolvency processes which help eligible MSCs:

(a) By restructuring the debts of viable companies to rehabilitate the businesses; or

(b) In some cases, to wind up the company where the business has ceased to be viable.

These processes are meant to be simpler, faster, and low-cost in nature, to optimise resources and potentially maximise returns to creditors.

As at 31 December 2022, the Official Receiver has completed the liquidation of 27 companies under the SIP.

(a) Under the normal compulsory liquidation processes, the average time taken to complete the liquidation of a company will take roughly 3 to 4 years.

(b) In comparison, liquidations under the SIP have been completed within an average of 6 months from the date the case has been accepted into the SIP.

The validity period of the SIP lasts for only 3 years presently. Clauses 4 and 5 thus amend sections 72B(1) and 250B(1), extending the validity period for an additional 2 years, to 28 January 2026.

These amendments will allow the Ministry of Law to provide continued support for such MSCs, which may face operational challenges, particularly in the context of the current economic environment of rising inflation and interest rates.

In the meantime, my Ministry is also reviewing the SIP with a view to make certain features permanent.

(a) For example, my Ministry is looking at allowing insolvency practitioners (and not just the Official Receiver) to adopt some of the SIP’s simplified and expedited processes, for the restructuring or winding up of eligible companies that are under their administration.

(b) This would in turn benefit more MSCs going forward.

Conclusion

Sir, in conclusion, this Bill will:

(a) Ensure better utilisation of public resources in bankruptcy administration;

(b) Support the PTIB industry and MSCs; and also,

With that, Mr Speaker, I beg to move.

Last updated on 09 January 2023