SINGAPORE — A new Bill to support smaller firms undergoing insolvency through a simplified, faster and cheaper process will be tabled in Parliament on Monday (5 October).
The simplified insolvency programme will help micro and small companies (MSCs) that require support to restructure their debts to rehabilitate the business, or wind up non-viable business, the Ministry of Law (MinLaw) said in a media release.
MinLaw noted that businesses are facing financial distress arising from the 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.”
The programme will be available for a period of six months from the commencement of the proposed legislation. It may be extended for a period determined by the Minister. The programme, to be administered by the Official Receiver, will involve a co-payment component for applicant companies.
To qualify for the simplified insolvency programme, MSCs must meet certain criteria such as 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 up.
For instance, the MSCs must have annual revenue of less than $1 million and $10 million respectively, with liabilities of up to $2 million.
In 2018, there were over 251,000 micro and small businesses in Singapore, comprising about 207,000 micro enterprises and 44,000 small enterprises.
Singapore’s insolvency laws in the Insolvency, Restructuring and Dissolution Act (IRDA) 2018 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,” MinLaw said.
The proposed programme will be done through two temporary and new processes adapted and modified from the IRDA.
For the process of debt restructuring, instead of two applications to the High Court required in a typical scheme of arrangement, the pre-packaged process requires only one.
In addition, the proposed creditor approval threshold is lower at two-thirds in value than required in a typical scheme of arrangement (majority in number holding 75 per cent in value).
The restriction on ipso facto clauses and moratorium against creditors’ action will also be in place while the company is in simplified debt restructuring to give breathing room for the company to propose its restructuring plan.
For simplified winding up, the proposed process is based on voluntary winding up instead of a court order.
Where the liquidator views the assets of the company are insufficient to meet the winding up expenses, and its affairs do not require further investigation, the company may be dissolved thereafter without the need for further steps.
The scope of the liquidator’s functions will be reduced, given the profile of companies in simplified winding up. For instance, creditors’ meetings will not be held under such a programme and the liquidator may only commence legal proceedings to preserve the rights of the company.
However, if a company in the simplified winding up programme is subsequently viewed as unsuitable for the programme, it may be placed into a court-ordered winding up.
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