On 14 July 2015, the Singapore Parliament passed the Bankruptcy Amendment Bill, which seeks to establish certain reforms in Singapore’s bankruptcy regime.
Senior Minister of State for Law Indranee Rajah said in Parliament that the changes address the striking of a balance between the need to hold bankrupts accountable and allowing them to have the opportunity to make a fresh start in their financial affairs after a reasonable period of time.
In this Update, we highlight key aspects of these reforms, which include:
- Increasing the debt threshold for bankruptcy;
- Introducing a differentiated discharge framework;
- The appointment of private trustees by institutional creditors; and
- Timelines for creditors.
The debt threshold for bankruptcy has been increased from S$10,000 to S$15,000, meaning that the minimum debt that must be owed by a person before he can be made bankrupt is now S$15,000.
The previous figure of S$10,000 was set in 1999, so the new threshold accounts for inflation over the intervening years. The increased figure also seeks to encourage debtors and creditors to resolve debts falling below this threshold without resorting to formal bankruptcy, so as to avoid the inconveniences and social stigma attached to bankruptcy.
This increase does provide some additional breathing room for debtors facing bankruptcy. Creditors should thus be aware of the level of debt required before bankruptcy proceedings may be initiated.
The new bankruptcy regime introduces a framework through which bankrupts may be discharged within certain time frames should they successfully meet their payment targets.
Previously, there were no such statutorily mandated exit points from bankruptcy, resulting in lengthy bankruptcy administrations with low debt recovery rate. The new framework provides a more rehabilitative system with clear time frames for discharge. This incentivizes payment on the part of the bankrupt, and also provides a greater degree of certainty.
The first stage is as follows:
- The differentiated discharge framework begins on the Administration Date, which is when the bankrupt submits his statement of affairs.
- The trustee in bankruptcy will then determine the bankrupt’s “Monthly Contribution”, which is the amount the bankrupt has to contribute monthly to the bankruptcy estate having regard to his income and necessary expenses.
- The trustee in bankruptcy will determine the “Target Contribution”, which is the total amount the bankrupt is obliged to pay into the bankruptcy estate. This will be equivalent to 52 monthly contributions for first-time bankrupts, and 76 monthly contributions for repeat bankrupts.
The Monthly Contributions will go towards fulfilling the Target Contribution. While there are no penalties for failing to make regular Monthly Contributions, the bankrupt can make additional payments to hit the Target Contribution sooner.
The timeline for discharge from bankruptcy for a first-time bankrupt is as follows:
- Between 3-5 years from the Administration Date if the Target Contribution is paid in full, and no creditors object;
- Between 5-7 years from the Administration Date if the Target Contribution is paid in full; and
- After 7 years from the Administration Date, if the Target Contribution is not paid in full.
For repeat bankrupts, each of these timelines is extended by 2 years.
Where a bankrupt is eligible to be discharged before 5 years, a creditor may halt the discharge process simply by objecting. For all other circumstances, creditors may object by applying to Court, which will then determine the application on its merits.
Further, the Official Assignee (“OA”) will maintain a record of every person who has been discharged from bankruptcy, which will be available for public search. Bankrupts who pay their Target Contribution in full will have their name and particulars removed from the register after 5 years. Otherwise, their records will be permanently kept on the register, which may then affect their future prospects for obtaining credit.
Large corporate institutional creditors are required under the new regime to nominate their own private trustee to administer a bankruptcy when bringing a bankruptcy application.
This requirement does not cover all corporate entities. Under this new legislation, an “institutional creditor” includes:
- Banks and finance companies regulated by the Monetary Authority of Singapore; and
- Business undertaking with annual sales turnover of more than S$100 million and more than 200 employees.
While this requirement does place additional duties on the institutional creditor, the private trustee’s costs will continue to be paid out of the bankrupt’s estate in priority to the claims of the bankrupt’s creditors. It should also be noted that the OA maintains the power to supervise private trustees and conduct investigations into the private trustee’s administration of a bankruptcy.
Timelines for Creditors
Creditors should be aware of the new timelines which have been introduced, which cover various stages of the bankruptcy process.
First, the amendments allow creditors to make an expedited bankruptcy application, under which they no longer have to wait 21 days after a statutory demand is made before making the bankruptcy application. However, creditors must show that there is a serious possibility that the debtor’s property or its value will be seriously diminished during that period.
Second, creditors must file their proofs of debt within 4 months of the Administration Date. If this deadline is not met, the creditor will be excluded from the benefit of any distributions made from the bankrupt’s estate. However, creditors may make an application to Court for an extension of time.
he new bankruptcy regime introduces some significant changes to the existing system.
Creditors should be aware of the new requirements and timelines when making a bankruptcy application, especially for institutional creditors. Creditors should also be aware of when and how they can object to any discharge from bankruptcy.