Speech by Minister for Culture, Community and Youth & Second Minister for Law, Mr Edwin Tong SC, on the Second Reading of the the Insolvency, Restructuring and Dissolution (Amendment) Bill

7 January 2025 Posted in Parliamentary speeches and responses

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

I. INTRODUCTION

(A) Rationale for the current Simplified Insolvency Programme

2. Sir, as the House may recall, the current Simplified Insolvency Programme (“SIP”), was first introduced in 2021 as a temporary measure as part of the larger package of measures to support companies during the pandemic. The SIP has since been extended thrice, and will end on 28 January 2026.

3. The SIP assisted eligible micro and small companies (“MSCs”) facing financial difficulties by helping them restructure their debts, rehabilitate their business or wind up via a simpler, faster and lower cost insolvency process.

• The SIP was scoped to assist MSCs because MSCs form a significant proportion of the enterprise eco-system in Singapore and are really the lifeblood of our economy and of our communities.

• In 2022, for instance, small enterprises accounted for about 94% of Singapore’s enterprise landscape.

4. The purpose, therefore, underpinning the SIP was thus to provide a simplified process that was tailor-made for MSCs that is simpler, faster and more cost-effective.

(B) Successes of current SIP

5. We have found in the time that we have introduced the SIP, that it was by and large useful in assisting MSCs in severe financial distress.

(a) To give members some indication of the numbers, as at 31 December 2024, a total of 116 applications for the existing SIP had been submitted, and 77 of them were accepted. Of these, 61 MSCs in severe financial distress were successfully assisted.

(b) For simplified winding up, the completion of cases was done within an average of nine months, and some as quickly as a few months. This compares very favourably to a typical process, which could take anywhere between three to four years, especially where there is a longer tail of transactions and contracts to resolve.

(c) This shorter process allowed non-viable companies to be liquidated quickly. The expedited process saves time and costs, and lessens the impact on the principals behind the business while preserving the value of the insolvency estate for distribution to creditors.

(d) For simplified debt restructuring, there are fewer cases compared to simplified winding up. A successful case was the restructuring of the Axis Group Asia Private Limited. This was done with court sanction in under six months, which was a very short period of time.

II. OBJECTIVE OF THE BILL

6. With the success of the SIP, this Bill now seeks to introduce a refined SIP – one which I shall call the SIP 2.0 – to make it a permanent feature of our corporate debt restructuring and insolvency regime in the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”).

• As there was merit in making the SIP permanent as part of the insolvency and restructuring ecosystem, we explored further over the course of the last couple of months how the current SIP could be suitably modified to allow companies that are not MSCs to also benefit from it.

7. We consulted with public agencies and stakeholders from the private sector, and the industry was generally supportive of having the SIP as a permanent programme and provided helpful feedback for us to refine the framework. We have taken this on board where possible to improve the current SIP.

8. SIP 2.0 seeks to provide a simpler and more cost-effective insolvency process, to benefit more companies.

9. The Bill will therefore modify two existing processes under the SIP, namely the Simplified Debt Restructuring Programme (“SDRP”) and the Simplified Winding Up Programme (“SWUP”).

10. Unlike the current SIP, the processes in SIP 2.0 will be fully administered by licensed insolvency practitioners in the private sector who are experienced and have the relevant expertise.

(a) This approach, Members may know, is consistent with other corporate insolvency processes, such as Court-ordered winding up and creditors’ voluntary winding up, which are administered by private liquidators who are also licensed insolvency practitioners.

(b) Members will also recall how our companies winding up regime became fully administered by private liquidators when the IRDA came into force in July 2020.

(c) The approach for the SIP is thus consistent with existing debt restructuring and insolvency processes where the private sector currently already takes the lead.

11. With that, Mr Speaker, let me take Members through the key changes to the SIP which this Bill proposes to implement.

III. KEY CHANGES TO THE SIP

12. Let me start with the changes relating to the eligibility criteria for the two programmes under the SIP, before explaining the key changes to each of the programmes. So the eligibility criteria apply to both the SDRP as well as the SWUP.

(A) Simpler eligibility criteria

13. Under Clauses 7 and 32 of the Bill, which amend sections 72F(2) and 250F(2) of the IRDA, the current list of five criteria will be streamlined to just one, which is the general eligibility requirement that the company’s total liabilities must not exceed $2 million.

(a) This will make it much easier for companies that are not MSCs to also benefit from the SIP.

(B) Simplified Debt Restructuring Programme (SDRP)

14. Under the SDRP, a company will draw up a debt restructuring proposal for its creditors, which provides for a compromise or otherwise an arrangement to resolve its debts.

15. The Bill will modify the existing SDRP in several key aspects.

16. To begin with, we will reduce the number of supporting documents accompanying the SDRP application to require only key supporting documents.

(a) A Restructuring Adviser, who is a licensed insolvency practitioner appointed by the company to advise the company in matters relating to its entry into the SDRP will assess whether the company reaches or matches the requirements for the SDRP, and request for further documents from the company if necessary.

(b) This simplifies the entry process.

17. Companies failing to successfully complete the SDRP (including the current SDRP) will be barred for five years before they can again apply for the SDRP. This serves to protect the interests of creditors, and also prevents errant companies from abusing the SDRP by making repeated entry applications to avoid its obligations to creditors.

18. Under Clause 6, the Restructuring Adviser has the discretion to assess whether the company meets both the requirements under section 72F(1) for entry into the SDRP. This refers to the general eligibility criterion that the company’s total liabilities must not exceed $2 million and that there is no circumstance in existence that would render the company unsuitable for acceptance into the SDRP.

19. To give members some colour into the second criterion, one such circumstance is prescribed in the amended section 72F(3)(h), which is when the company is unlikely to be able to formulate a proposed compromise with its creditors, or to obtain the agreement of two thirds majority (by value) of its creditors to the proposed compromise or arrangement, within the moratorium period after the company’s entry into the SDRP.

20. While the company is in the SDRP the company enjoys a statutory moratorium under the amended section 72K(1) of a period of 30 days, which is extendable once for a period of up to 30 days. So you get 30 plus 30 – a maximum of 60 days for a moratorium within which to frame the restructuring proposal.

21. This, Sir, balances the interests of the various stakeholders by providing reasonable breathing room to the company to propose a debt restructuring plan, whilst at the same time protecting the interests of the creditors. Members will know that during the moratorium period, there will be no enforcement against the corporate entity.

22. Once the company has entered into the SDRP, its Restructuring Adviser will provide assistance in drawing up the debt restructuring proposal to its creditors.

23. Unlike the current programme where the proposal requires Court sanction, Clause 16 of the Bill provides that the proposal will be approved out-of-court and by the company’s creditors at a meeting summoned by the Restructuring Adviser under the new section 72M.

24. The notice to summon the meeting must contain such information as is set out in section 72M(3) and I will just quickly summarise what they are.

• It must include —

- the details of the proposal;

- a statement of the effects of the proposal on creditors’ rights;

- a comparison of what the creditors will receive in the proposal and the most likely scenario if the compromise or arrangement pursuant to the proposal does not become binding on the company and its creditors; and

- it must also contain information on the Restructuring Adviser’s remuneration.

• This notice must be given to every creditor of the company.

• In practice, as Members would know how such restructurings take place, the Restructuring Adviser would have engaged in informal discussions and talks with the creditors prior to the meeting, and depending on the outcome of these discussions, the Restructuring Adviser would by then already have a keen sense of how the creditors would expect to receive the proposal, and whether any changes might need to be made, while the creditors would also have heard about the proposal’s terms before formally receiving the notice.

• Nevertheless, we believe that this is essential as the notice is a formal measure to provide substantive fairness to all creditors so that they are apprised of the terms of the proposal, and know ahead of the meeting what they are going in for prior to the meeting.

25. The proposal is approved by a majority of at least two-thirds in value of creditors present and voting at the meeting. This threshold remains unchanged from the existing programme.

26. There will be one voting class consisting of all unsecured creditors, ordinary and preferential (if applicable).

• Secured creditors will only be bound by the proposal if the value of the security interest is less than the value of the secured creditor’s admissible debts or claims, only to the extent of the difference between the values, and that means the undersecured portion. In other words, for Members’ clarity, the difference between the value of the security for a secured creditor and the unsecured portion. So the differential is the only portion that will apply; and

• Secured creditors will also be bound by the proposal if the value of the secured interest is equal to or more than the value of the secured creditor’s admissible debts or claims — but only to the extent that the creditor consents to be bound. So in some cases, the creditor might well have sufficient security, but might decide that the restructuring proposal makes sense and wants to participate and take part, in which case, the creditor can support the restructuring arrangement.

• This means, therefore, that a secured creditor is free to realise or deal with his security interest unless he has voted in favour of the proposal and consented to be bound, and the proposal’s terms prevent him from realising or otherwise dealing with his security interest.

27. Sir, there are judicial safeguards for creditors with legitimate concerns arising from the approved proposal.

• A creditor who is bound by the proposal can apply to Court to object to the proposal on specified grounds under section 72N(3), where —

- there is a material procedural irregularity in relation to the meeting of the company and its creditors to approve the proposal or in relation to the approval of the creditors at the meeting;

- for the proposal to be fair and equitable to all creditors bound by it, a substitution or splitting of classification of creditors is necessary; or

- the approved proposal is contrary to the interests of the creditors of the company as a whole.

• The Court hearing this application may make any order it thinks fit, including —

- revoking or suspending the compromise or arrangement in the proposal,

- and giving directions to the Restructuring Adviser, including a direction to put to the creditors for consideration any modifications to the compromise or arrangement, except the material commercial terms of the proposal may not be modified.

(C) Simplified Winding Up Programme

28. So that speaks to the SDRP. I will now touch on the key proposals for the simplified winding up programme or SWUP in short. This Bill modifies the existing SWUP in the following key aspects.

29. First, Clause 30 provides that if the company resolves to enter into the SWUP but has insufficient or incomplete financial records, the company may submit a Directors’ statement to the nominated liquidator that the eligibility criterion has been met. This new feature simplifies the application process, and encourages non-viable companies to be wound up instead of remaining dormant.

30. There may be situations where the members of the company are uncontactable or the company is thereby unable to pass a special resolution to enter into the SWUP.

• In these situations, a directors’ resolution can be accepted as long as the company satisfies that –

- despite exercising reasonable diligence, the company is unable to contact enough members who together hold the majority in value of its shares for at least 3 years prior to the date of the directors’ resolution;

- consequently, the company is unable to obtain the necessary quorum for the extraordinary general meeting to resolve to wind up the company; and

- finally, the company’s operations have been dormant for at least 3 years prior to the date of the directors’ resolution. All these are factors which speak to the company’s dormancy, and we believe it is in the interest to have these companies wound up, rather than remain on the books.

31. In the current SWUP, there are 4 platforms on which notices are published.

(a) The Official Receiver’s website;

(b) The Government e-Gazette;

(c) A local newspaper; and

(d) The Registrar of Companies’s Bizfile under the Accounting, Corporate and Regulatory Authority (“ACRA”).

32. To reduce the cost of administration, only two platforms will be used in the new SWUP for the publication of notices, namely, the OR’s website and Bizfile.

33. Clause 38 modifies sections 180 and section 210 of the IRDA to streamline the final or early dissolution processes of a company respectively,

• by requiring only one lodgment with ACRA to effect the dissolution of the company,

• and this will save time and costs.

34. Clause 42 provides that the liquidator may switch to other liquidation processes such as a Court-ordered winding up or a creditors’ voluntary liquidation if the liquidator’s assessment is that the company is unsuitable for simplified winding up.

35. Additionally, where a liquidator requires funding from creditors to conduct investigations to recover assets but no such funding is forthcoming, the liquidator may complete the simplified winding up of the company and dissolve the company without taking further investigative steps.

• This ensures that unviable companies, which will have no other assets and sometimes no other identifiable members, can be liquidated and dissolved efficiently without having to restart or unnecessarily protract the liquidation process.

IV. CONCLUSION

36. Sir, these are the key changes proposed to the SIP. The rest of the SIP, as I said at the outset, will remain unchanged. Sir, let me now conclude.

37. This Bill aims to modify the SIP and make it a permanent feature of our current insolvency regime in the IRDA, and modifying the existing processes in the current SIP.

38. This will make the SIP permanent, or the SIP 2.0, one which is simpler, more cost effective, and will also facilitate better access to insolvency processes, and with these changes benefit a larger group of companies.

39. With that, Mr Speaker, I beg to move.

Last updated on 7 January 2025