30 October 2018
On 1 October 2018, the Insolvency, Restructuring and Dissolution Bill (“Bill”) was passed in Parliament. The Bill will introduce a new omnibus Act that consolidates the personal and corporate insolvency laws, and the laws relating to debt restructuring by individuals and companies, currently found in the Bankruptcy Act and the Companies Act, into a single statute. When in force, the Bankruptcy Act will be repealed and the relevant provisions in the Companies Act will be deleted.
Key changes under the Bill
Set out below are the key changes under the Bill as highlighted in the Second Reading Speech by Mr Edwin Tong, Senior Minister of State for Law.
Ipso facto clauses
- Restriction of ipso facto clauses: There will be a new restriction on the operation of certain types of ipso facto clauses. In the restructuring and insolvency context, such clauses typically allow one party to terminate the contract upon the occurrence of a specified insolvency-related event affecting the other party, such as an application for a judicial management order, or an application for a scheme under the Companies Act. To balance the interests of the counterparty and other stakeholders, the following safeguards have been included:
- Certain types of contracts are exempted from this provision. These include prescribed eligible financial contracts, and prescribed contracts that affect the national interest or economic interest of Singapore.
- A counterparty may apply to court nonetheless for relief on the basis of significant financial hardship.
- Secured creditor must notify of intention to claim interest on debt: Secured creditors must notify the trustee administering the bankruptcy, within 30 days after the bankruptcy order, if they intend to claim interest on the debt for the period after the making of the order.
- Nomination of Official Receiver as liquidator under limited circumstances: The Official Receiver may only be nominated to act as liquidator if the applicant for a winding up 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 procedure for early dissolution of company: There will be 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.
- New “wrongful trading” provision: A new “wrongful trading” provision will replace the current insolvent trading regime in sections 339 and 340 of the Companies Act.
Licensing and regulatory regime
- New licensing and regulatory regime for insolvency practitioners: There will be a new licensing and regulatory regime applicable to all persons acting as “insolvency practitioners”.
Schemes of arrangement
- Commencement or continuation of specified proceedings unaffected by moratoria: The current section 211B of the Companies Act on the power of the court to restrain proceedings against a company in a creditor scheme of arrangement will be re-enacted with a new sub-section which will provide that neither a court order restraining certain actions and proceedings against the company nor an automatic moratorium will affect “the commencement or continuation of any proceedings that may be prescribed by regulations.” This amendment empowers the Minister to prescribe by regulations that the commencement of specified proceedings, or the continuation of specified proceedings, or both, is not affected by the moratoria. The intention is to apply this power in a targeted manner where necessary, in particular, with respect to writs for an action in rem against a vessel.
- Clarification that cram-down provisions not concerned with adjustments to shareholder interests: Section 211H of the Companies Act will be re-enacted to empower the court to approve a scheme of arrangement despite there being dissenting classes of creditors, provided that the scheme is fair and equitable to the dissenting class. In the re-enacted provision, persons subordinate in priority to the dissenting class must not receive or retain any property “of the company”. The insertion of the words “of the company” clarifies and confirms the position outlined in Parliament previously when this provision was introduced - that the cram-down provisions introduced were “not concerned with adjustments to shareholder interests”.
- A company may place itself into judicial management without court order: A company may place itself into judicial management provided the creditors agree to it, and support it in doing so. Once the company is placed into judicial management, the judicial management process will then continue in the same manner and under the supervision of the court, regardless of how the judicial management was started.
- Judicial manager expressly empowered to seek third-party funding: In exchange for funding of a court action to unwind prejudicial transactions and avoid acts detrimental to creditors, judicial managers may assign proceeds from such an action to a third-party. This new avenue of funding may increase the likelihood of such an action being pursued, benefitting stakeholders by providing higher recoveries, if such actions are successful.This new power is similarly provided to liquidators.
- No personal liability will be imposed on a judicial manager of a company: Section 227I of the Companies Act which provides that the judicial manager of a company is deemed to be the agent of the company will be re-enacted but will omit the imposition of personal liability on the judicial manager.
Memoranda of understanding with two US bankruptcy courts
The Bill is part of a wider concerted effort to enhance Singapore’s debt restructuring ecosystem. On 24 September 2018, the Supreme Court of Singapore concluded two Memoranda of Understanding (“MOU”) with the US Bankruptcy Court for the District of Delaware and the US Bankruptcy Court for the Southern District of New York. The MOUs aim to improve the efficiency and effectiveness of transnational insolvency proceedings by encouraging cooperation between the Supreme Court of Singapore and these two US bankruptcy courts. Together with the first MOU signed with the Seoul Bankruptcy Court in May 2018, these MOUs demonstrate the Supreme Court’s commitment to efficient and effective judicial cooperation in cross-border insolvency matters.
For more details, please refer to the following materials available on the Singapore Parliament website www.parliament.gov.sg, the Ministry of Law website www.mlaw.gov.sg and the Supreme Court website www.supremecourt.gov.sg:
- Insolvency, Restructuring and Dissolution Bill
- Second Reading Speech by Senior Minister of State of Law, Mr Edwin Tong, on the Insolvency, Restructuring and Dissolution Bill
- Media release: Towards Greater Excellence in Cross-Border Insolvency
- Keynote address by Chief Justice Sundaresh Menon at the 18th Annual Conference of the International Insolvency Institute 2018