On 1 October 2018, the Singapore Parliament passed the Insolvency, Restructuring and Dissolution Bill (the "Bill"), an omnibus legislation which will consolidate Singapore's personal insolvency, corporate insolvency and restructuring laws, which are currently under separate legislative regimes.
The overhaul follows recent amendments to the corporate insolvency and restructuring provisions of the Singapore Companies Act, and is part of a wider effort to boost the debt restructuring ecosystem in Singapore.
Key provisions introduced by the bill
Restrictions on Ipso Facto Clauses
Taking a cue from the restructuring and insolvency regimes in Canada, the United States and Australia, the Bill introduces restrictions on the operation of ipso facto clauses in contracts. Under the existing restructuring and insolvency regime in Singapore, there are no restrictions on ipso facto clauses, i.e. contractual clauses which allow one party to terminate the contract upon the occurrence of specified insolvency-related trigger events affecting the other party. Distressed companies attempting to salvage their company as a going concern may therefore end up in the unfortunate situation where they are compelled to terminate or modify potentially valuable commercial contracts.
The Bill supports the rehabilitative restructuring efforts of companies by providing that such ipso facto clauses will not apply in certain specified circumstances. Section 440 provides that at any time after the commencement and before the conclusion of any judicial management or scheme of arrangement proceedings, no person may, by reason only that such proceedings are commenced against a company or that the company is insolvent:
- terminate or amend any agreement with the company;
- claim an accelerated payment under any agreement with the company;
- claim forfeiture of the term under any agreement with the company; or
- terminate or modify any right or obligation under any agreement with the company;
The Bill also expressly prohibits any 'contracting out' of the restrictions above.
At the same time, the Bill provides for safeguards including a provision for affected contractual counterparties to apply to court for relief on the basis of significant financial hardship. In addition, certain specified classes of contracts including government contracts, ship charters and eligible financial contracts will not be subject to the restrictions above.
Section 94 of the Bill allows for a company to place itself in judicial management, dispensing with the requirement of a court order, and the associated delays and costs, where creditors' consent is obtained. Provided a simple majority of creditors (in number and in value) present and voting is achieved at a meeting held at a time and place convenient to the majority in value of the creditors, the company may commence this new judicial management process without a court order. This is subject to a right of veto provided to any holder of a floating charge who is entitled to appoint a receiver and manager of substantially the whole of the company's property.
The Bill also widens the powers of judicial managers and liquidators, allowing them to assign proceeds of claims relating to transactions at undervalue, undue preferences, extortionate credit transactions, fraudulent or wrongful trading, or delinquent officers, in favour of third-party funders in exchange for them funding the action in the name of the company. The amendment seeks to increase the likelihood of such actions being pursued notwithstanding the company's lack of financial resources, and consequently, improve the prospects of recoveries being made.
The Bill replaces the existing insolvent trading regime with a new 'wrongful trading' provision in Sections 239. The current regime is limited by the requirement for criminal liability to be found as a prerequisite before an application can be made to impose civil liability against officers of the company. Under the Bill, however, a company 'trades wrongfully' if it incurs debt or liabilities without reasonable prospect of meeting them in full when the company is company is insolvent, or becomes insolvent as a result of the incurrence of such debt or liability, and the courts are empowered to declare that any person who was a knowing party to the company trading wrongfully shall be personally liable and responsible for those debts or liabilities of the company.
The Bill establishes a licensing and regulatory regime for insolvency practitioners in Singapore, to be administered by the Insolvency and Public Trustee's Office. Pursuant to the new regime, a person will only be able to act as a liquidator, judicial manager or receiver of a corporation if he is duly licensed. The Bill also sets out minimum qualifications and prescribed requirements for insolvency practitioners to obtain and renew their licences, as well as procedures for investigations and discipline against insolvency practitioners for breaches of their conduct.
Once in force, the Bill will replace the Bankruptcy Act and the corporate insolvency and restructuring provisions in the Companies Act, each of which will be repealed. However, the relevant provisions of the existing Bankruptcy Act and Companies Act will continue to apply to existing cases and pending applications already before the courts prior to the commencement date.
References and links
The Insolvency, Restructuring and Dissolution Act 2018 can be accessed at https://sso.agc.gov.sg/Acts-Supp/40-2018/Published/20181107?DocDate=20181107.
The Second Reading Speech by Senior Minister of State for Law, Mr Edwin Tong, on the Insolvency, Restructuring and Dissolution Bill can be accessed at https://www.mlaw.gov.sg/content/minlaw/en/news/parliamentary-speeches-and-responses/second-reading-speech-sms-edwin-tong-insolvency-omnibus-bill.html.