Simplified Insolvency Programme

05 OCT 2020

05 Oct 2020 Posted in Press releases

  1. The Ministry of Law (“MinLaw”) will be introducing the Insolvency, Restructuring and Dissolution (Amendment) Bill (“Bill”) in Parliament in October 2020.
  1. Businesses are facing financial distress arising from the unprecedented and ongoing COVID-19 pandemic. In this context, the COVID-19 (Temporary Measures) Act provides temporary relief from legal action due to the inability to perform certain contracts arising from the COVID-19 pandemic, as well as increases monetary thresholds for bankruptcy and insolvency for financially distressed individuals and businesses.
  1. While business conditions are expected to improve for some industries, it is unlikely they will return to pre-pandemic levels in the near future. Financially distressed companies may thus face potential insolvency.
  1. Singapore’s insolvency laws in the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) generally provide processes for companies with substantial assets. Hence, the solutions offered may not be well suited for distressed micro and small businesses, particularly those that have depleted their resources as a result of the pandemic.
  1. The Bill will establish a Simplified Insolvency Programme to assist micro and small companies (“MSCs”)1 that require support to restructure their debts to rehabilitate the business, or wind up the company as the business has ceased to be viable. In 2018, across the enterprise landscape in Singapore, there were over 251,000 micro and small businesses, comprising approximately 207,000 micro enterprises and 44,000 small enterprises.

Key Features

  1. Developed in consultation with public agencies and stakeholders from the private sector, the proposed Simplified Insolvency Programme will provide simpler, faster, and lower-cost proceedings for eligible MSCs to restructure their debts or wind up the company in an orderly manner. This will be done through two temporary and new processes adapted and modified from the existing framework in the IRDA. Key features of the two processes include:

    a. For simplified debt restructuring –

    i. Adapting the existing pre-packaged scheme of arrangement2 in the IRDA: Instead of two applications to the High Court required in a typical scheme of arrangement, the pre-packaged process requires only one;

    ii. Temporary restriction on ipso facto clauses and moratorium: The restriction on ipso facto clauses and moratorium against creditors’ action will be automatically in place while the company is in simplified debt restructuring. This provides breathing room for the company to propose its restructuring plan; and

    iii. Lowered requirements for approval by creditors: A lower creditor approval threshold (two-thirds in value) than required in a typical scheme of arrangement (majority in number holding 75% in value) is proposed.

    b. For simplified winding up –

    i. Adapting the existing creditors’ voluntary winding up process in the IRDA: The process is based on the voluntary winding up process (instead of a Court-ordered winding up) and removes the necessity of a Court application to place the company into winding up;

    ii. Early dissolution: Where the liquidator views the assets of the company are insufficient to meet the expenses of winding up, and its affairs do not require further investigation, the company may be dissolved thereafter without the need to take further steps for the administration of the winding up, such as further realisation of assets and distribution of dividends;

    iii. Re-scoped functions of liquidator: The scope of the liquidator’s functions will be reduced, given the profile of companies in simplified winding up. This recognises that certain complex and costly aspects of a conventional winding up are not suitable for a simplified process. For instance, creditors’ meetings will not be convened under the simplified winding up programme and the liquidator may only commence legal proceedings to preserve the rights of the company;

    iv. Relationship with a Court-ordered winding up: A company in the simplified winding up programme, if subsequently viewed as unsuitable for the programme, may be placed into a Court-ordered winding up (i.e. existing “non-simplified” process) on the application of the Official Receiver or an interested party.

  1. To qualify for the Simplified Insolvency Programme, MSCs must meet certain specified eligibility criteria. The eligibility criteria will filter cases that are unsuitable for the streamlined and expedited insolvency proceedings. The eligibility criteria will include amongst others, limits on the aggregate total liabilities of the company, the number of creditors and employees, and the amount and value of realisable assets in winding up3.
  1. The programme will be available for a period of 6 months from the commencement of the proposed legislation. This application period may be extended for a period determined by the Minister. The programme will be administered by the Official Receiver, who may assign private insolvency practitioners to administer the cases accepted into simplified debt restructuring and simplified winding up. There will be a co-payment component for applicant companies under the programme.

Other Support Measures

  1. The Simplified Insolvency Programme complements other customised restructuring assistance schemes and is just one part of the Government’s efforts to help businesses facing financial distress. We have worked with the financial industry and other stakeholders to study and propose a range of support measures to help other entities that are experiencing difficulties due to COVID-19. These include:

    a. A relief scheme to complement the Simplified Insolvency Programme to help sole proprietors and partnerships facing financial distress to restructure their business debts (the “SPP scheme”). The SPP scheme will be administered by Credit Counselling Singapore, with the support of The Association of Banks in Singapore, Monetary Authority of Singapore (MAS), Enterprise Singapore (ESG) and the Participating Financial Institutions under the ESG loan schemes. The SPP scheme is expected to be ready for application by 2 November 2020. More details will be announced in due course.

    b. An extension of support by MAS and the financial industry for SMEs in need of further debt relief or restructuring in 2021. The Extended Support Scheme – Standardised (“ESS-S”) will allow qualifying SMEs to temporarily defer 80% of principal payments on their secured term loans, as well as loans granted under Enterprise Singapore’s Enhanced Working Capital Loan scheme and Temporary Bridging Loan Programme.

    In addition, the Extended Support Scheme – Customised (“ESS-C”) facilitates the restructuring of SMEs’ loans across multiple banks or finance companies. The ESS-C programme is open to SMEs for whom the Simplified Insolvency Programme and the SPP scheme are not suitable.

    For more details, please visit https://www.mas.gov.sg/news/media-releases/2020/MAS-and-Financial-Industry-Extend-Support-for-Individuals-and-SMEs.

MINISTRY OF LAW
05 OCTOBER 2020

1. Micro and small companies are companies with an annual revenue of less than $1 million and $10 million respectively. ↩

2. This refers to a debt restructuring scheme worked out among the company and its creditors out of Court, which is then submitted to Court for approval. ↩

3. MSCs with amount of liabilities ≤S$2m; number of employees ≤30; number of creditors ≤50; and for simplified winding up only, cap of $50,000 on realisable unencumbered assets. ↩

Last updated on 05 Oct 2020