The Insolvency, Restructuring and Dissolution Act (the IRDA) commenced on 30 July 2020. The IRDA is an omnibus legislation that consolidates Singapore's personal insolvency, corporate insolvency and debt restructuring laws into a single legislation. The IRDA will replace the Bankruptcy Act and the corporate insolvency and restructuring provisions in the Companies Act, each of which will be repealed. The IRDA also introduces new changes to the insolvency framework in Singapore.
Key changes to Singapore insolvency framework
A phased approach was taken to implement changes to Singapore's personal insolvency, corporate insolvency and debt restructuring laws.
Phase 1: In July 2015, the Bankruptcy Act was amended to create a more rehabilitative discharge framework for bankrupts and to encourage institutional creditors to exercise financial prudence when granting credit.
Phase 2: In May 2017, the Companies Act was amended to enhance corporate rescue and restructuring processes and position Singapore as a forum of choice for debt restructuring. Some of the key changes introduced in Phase 2 are set out below.
- For schemes of arrangement and judicial management, super-priority to rescue financing. That is, priority over all other debts or to be secured by a security interest that has priority over pre-existing security interests provided pre-existing interests are adequately protected.
Schemes of arrangements
- An automatic moratorium for a period of 30 days on filing an application. The moratorium may be extended to have worldwide effect and also to related entities relevant to the restructuring.
- The ability to cram down on dissenting creditor classes.
- Pre-negotiated restructurings between the company and its key creditors can be implemented.
- Companies can commence judicial management earlier by demonstrating that the company 'is likely to become unable to pay its debts' as opposed to 'will be unable to pay its debts'.
- Secured creditors opposing an application will be required show the judicial management is disproportionately more prejudicial to them than to unsecured creditors.
- Extending the availability of judicial management to foreign companies with a connection to Singapore.
- Ring-fencing is only required for specific financial institutions such as bank and insurance companies.
- The adoption of the UNCITRAL Model Law on Cross-Border Insolvency.
Final Phase: In this final phase, the IRDA replaces the Bankruptcy Act and the corporate insolvency and restructuring provisions in the Companies Act, each of which will be repealed, and enact further changes not enacted in the Bankruptcy Act and Companies Act. Below are some of the changes in force under the IRDA.
- Secured creditors must notify within 30 days of the intention to claim interest on the debt for the period between the order and enforcement of the security.
- The maximum debt threshold for the Debt Repayment Scheme is increased from $100,000 to $150,000.
Corporate debt restructuring
- A new out-of-court procedure to place a company in judicial management provided creditors agree to and support such an arrangement.
- New provisions to allow judicial managers to obtain third party funding for court action to unwind prejudicial transactions and avoid acts detrimental to creditors.
- New restrictions on the operation of ipso facto clauses in contracts. During the period of restructuring, contracting parties cannot terminate or amend or claim an accelerated payment or forfeiture of the term under any agreement with the company, or terminate or modify any right or obligation under any agreement the company, for the only reason that the company is insolvent or is undergoing restructuring proceedings.
- A new procedure for the early dissolution of a company in liquidation which may be utilised by the Official Receiver and by private liquidators who have obtained the prior consent of the Official Receiver.
- Appointment of private liquidator as the default position unless the applicant has taken reasonable steps but is unable to obtain the consent of a licensed insolvency practitioner to be appointed as liquidator, and the Official Receiver then consents to such nomination.
- New 'wrongful trading' provision that removes the requirement for a criminal conviction before civil liability can be imposed. A company 'trades wrongfully' if it incurs debts or liabilities without reasonable prospect of meeting them in full when the company is insolvent, or becomes insolvent as a result of the incurrence of such debt or liability.
- A new licensing and regulatory regime for insolvency practitioners in Singapore, who must be either an advocate or solicitor, a public accountant, a chartered accountant or possess such other qualifications as the Minister may prescribe.
The provisions under the IRDA will not affect existing or pending bankruptcy, insolvency or restructuring proceedings. The relevant provisions of the existing Bankruptcy Act and the Companies Act will continue to apply to existing cases and pending applications already before the courts prior to 30 July 2020.