Knowledge Highlights 3 February 2021
With effect from 29 January 2021, the Insolvency, Restructuring and Dissolution (Amendment) Act 2020, which was gazetted on 7 December 2020, amended the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) to establish the Simplified Insolvency Programme (“SIP”). As the IRDA generally provides processes for companies with substantial assets, 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 Covid-19 pandemic. The SIP aims to provide simpler, faster, and lower-cost proceedings to assist micro and small companies (“MSCs”) in need of winding up or restructuring as follows:
- Simplified Debt Restructuring Programme (“SDRP”): Where there is a ready investor prepared to come into the business or where the company is in a position to re-negotiate with its creditors, MSCs can restructure their debts to rehabilitate their businesses. The Inland Revenue Authority of Singapore (“IRAS”) has issued a statement on its website www.iras.gov.sg about the tax treatment of debts forgiven under MinLaw’s SDRP. While various aspects will be addressed in the debt restructuring scheme, it is envisaged that forgiveness of debt and extension of time for repayment, will feature heavily. It is expected that the debts of such MSCs will be largely made up of loans from banks (including under Enterprise Singapore’s Covid-19 loan programme), and trade debts. According to IRAS, debts forgiven (including trade debts and loans) under the SDRP will be regarded as capital in nature and hence not subject to income tax.
- Simplified Winding Up Programme: Where the business has ceased to be viable, MSCs can wind up the company in a quick, efficient and low-cost manner.
MSCs may apply for either one of the programmes under the SIP between 29 January 2021 and 28 July 2021.
To qualify for the SIP, MSCs must not be in the midst of any other debt restructuring or some other form of insolvency process. Further, MSCs must meet the following eligibility criteria:
- Annual sales turnover not exceeding S$10 million;
- Has not more than 30 employees;
- Has not more than 50 creditors;
- The liabilities of the company (including prospective and contingent liabilities) do not exceed S$2 million; and
- Not a foreign company (i.e. the MSC is incorporated in Singapore).
For simplified winding up only, there is a cap of S$50,000 on realisable unencumbered assets.
For more, please read our previous article titled “Insolvency, Restructuring and Dissolution Act to be amended to establish Simplified Insolvency Programme amid Covid-19”.
The Ministry of Law (“MinLaw”) Insolvency Office has put up an SIP FAQ page on its website io.mlaw.gov.sg to provide information on, among others, the eligibility criteria and application process. MinLaw has also issued a press release on its website mlaw.gov.sg.
The following related subsidiary legislation which is available on Singapore Statutes Online sso.agc.gov.sg has been gazetted and took effect on 29 January 2021:
- Insolvency, Restructuring and Dissolution (Simplified Winding Up) Regulations 2021
- Insolvency, Restructuring and Dissolution (Simplified Debt Restructuring) Regulations 2021
- Insolvency, Restructuring and Dissolution (Voluntary Winding Up) (Amendment) Regulations 2021
- Insolvency, Restructuring and Dissolution (Late Lodgment Penalties) (Amendment) Regulations 2021
- Insolvency, Restructuring and Dissolution (Prescribed Companies for Purposes of Sections 72A and 250A) Order 2021
- Insolvency, Restructuring and Dissolution (Prescribed Criteria and Circumstances under Sections 72F and 250F) Order 2021
- Insolvency, Restructuring and Dissolution (Prescribed Periods for Parts 5A and 10A) Order 2021
- Insolvency, Restructuring and Dissolution (Modifications to Specified Acts under Section 72U) Order 2021
The Insolvency, Restructuring and Dissolution (Amendment) Act 2020 (Commencement) Notification 2021 which sets out the effective date of the amendments to the IRDA relating to the SIP is also available on Singapore Statutes Online.
In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at firstname.lastname@example.org.