March 20 2000 Bankruptcy (Amendment) Act 1999 Drew & Napier LLC | Insolvency & Restructuring - Singapore Insolvency & Restructuring Introduction Bankruptcy (Amendment) Act 1999 Conclusion Introduction During the launch of Technopreneurship 21 Initiative, designed to "build up a critical mass of technopreneurial talent", Singapore's deputy prime minister said: "We need to infuse in our people a culture of innovation and enterprise, and a readiness to take calculated risks. We also need to infuse in our society a willingness to accept failure as a learning process so as to encourage those who do not succeed in the first instance and give them the chance to succeed."One of the critical pillars of the initiative is centred on the need for a supportive regulatory environment. The recent changes in the bankruptcy laws form part of this pillar and are in-line with the initiative.Bankruptcy (Amendment) Act 1999 The bankruptcy laws have experienced significant change as a result of the enacted Bankruptcy (Amendment) Act 1999. This act makes changes to the bankruptcy regime in order to: encourage technopreneurial activity; create a climate conducive to entrepreneurship and responsible risk-taking, while preserving commercial morality and financial discipline; and prepare Singaporeans to take advantage of the emerging knowledge-based economy.The following areas were targeted for significant amendment.Voluntary arrangements When introduced in 1995, the voluntary arrangements were to provide an avenue for negotiated debt settlement as an alternative to bankruptcy. It put in place a framework for a bankrupt to make a general offer to his or her creditors. However, these arrangements were seldom used. The amendments seek to encourage debtors to use voluntary arrangements in two ways.First, the deadline for the debtor to finalize the terms of his or her proposal for voluntary arrangement is extended from 28 to 42 days. This enables the debtor to properly organize his or her affairs, and prepare a fully considered proposal (Section 45(4)).Second, the minister of finance is allowed to make rules prescribing the scale of fees chargeable by nominees assisting debtors in arrangements, to ensure that efforts made by the debtors are not hindered by exorbitant fees charged by nominees (Section 46(3)). The act has also been amended to extend the class of persons who may be appointed nominees, which originally required a nominee to be a public accountant or lawyer, to include other persons appointed by the minister. Continued economic activity Bankrupts who are economically active and productive during bankruptcy not only continue to contribute to society, they also have the means to settle their debts more expeditiously. Amendments have been made to both the Companies Act and the Business Registration Act to facilitate economic activity by a bankrupt. The official assignee is now able to grant permission to bankrupts to be either directors of companies (Section 148 of the Companies Act) or to engage in the management of any business (Section 22 of the Business Registration Act). As individuals who are made bankrupt no longer need apply for leave from the court for permission, it is hoped that they will be more inclined to apply to the official assignee, as the process is cheaper, simpler and more accessible.Allowing the official assignee to hold a discretionary rein allows differentiation between individuals who became bankrupts through misfortune, and those who became so through malpractice.Speeding-up and streamlining procedures A scheme was introduced in 1995 to empower the official assignee to discharge deserving bankrupts. The advantages were twofold; (i) the creation of an inexpensive way of discharging bankrupts quickly, and (ii) the provision of incentives for bankrupts to work towards their discharge. Section 125(2) of the act has now been amended so that the official assignee can consider discharging the bankrupt after a minimum period of three years instead of five years. Prior to the act, the Bankruptcy Rules 1999 had increased the maximum debt level for a discharge from $250,000 to $500,000, thereby increasing the scope for discharge.The procedures for debt settlement and application for discharge by bankrupts have also been streamlined to save time and costs by (i) allowing creditors to accept a scheme by passing a special resolution by post, instead of at a general meeting of creditors (Section 95), and (ii) removing the need for an application to be made to the court, by granting the official assignee power to issue a certificate when the scheme has been accepted (Sections 95A and 96), or when the bankrupt has fully paid his debts (Section 123A). Increased debt limit It was recognized that previous levels of debt allowing insolvency proceedings to begin were unrealistically low. As a result, in July 1999, amendments were made to provide a minimum debt level of $10,000 before insolvency proceedings could begin against an individual. Similarly, for companies, the significant amendment has been to Section 254(2)(a) of the Companies Act. This has been amended to increase the minimum debt for a winding up petition to be presented, from $2,000 to $10,000. These amendments prevent companies or individuals from being wound up or made bankrupt in respect of small claims, as there are other options, and winding up remains the last resort. Conclusion The changes in bankruptcy law have sought to strike a balance between the interests of debtors and creditors. It is hoped that these changes will herald the beginning of many more exciting changes in other areas of law, fulfilling the vision of the Technopreneurship 21 Initiative. For further information on this topic contact Sushil Nair of at Drew & Napier by telephone (+65 531 2410) or by fax (+65 533 0693) or by e-mail ([email protected]). The Drew & Napier web site can be accessed at www.drewnapier.com . 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