Micro and small companies will be able to use a “Simplified Insolvency Programme” to be introduced by proposed amendments to Singapore’s Insolvency, Restructuring, and Dissolution Act 2018 (IRDA).

The Insolvency, Restructuring, and Dissolution (Amendment) Bill was read in Parliament on 5 October. Among other things, the bill introduces temporary new prepackaged restructuring and liquidation options (the Simplified Insolvency Programme) for eligible micro and small companies in the current coronavirus (COVID-19) environment. The Simplified Insolvency Programme aims to provide simpler, faster, and lower-cost proceedings for eligible companies, and will be in place for three years after the bill is passed and becomes effective.

WHICH COMPANIES ARE ELIGIBLE?

A company is eligible under the Simplified Insolvency Programme if:

• its “annual sales turnover” (excludes gains from sales of fixed assets, goods purchased for resale, interest, dividends, and investment income) do not exceed SGD 10 million;
• it does not have more than 30 employees;
• it does not have more than 50 creditors;
• its liabilities do not exceed SGD 2 million; and
• (in the case of winding up only) the value of its realizable assets does not exceed SGD 50,000.

Applications for eligibility must be made to the Official Receiver. The bill provides for circumstances where the Official Receiver will deem applicants to be unsuitable for the Simplified Insolvency Programme. These include situations where the applicant company is already under an existing insolvency process (i.e., it is the subject of a winding up order), it is in judicial management, or it has already applied for and/or received moratorium protections under existing scheme of arrangement provisions.

In addition, the Official Receiver may also deny acceptance if:

• in its judgment, it deems that the administration of the Simplified Insolvency Programme is likely to require significant knowledge, specialized resources or expertise;
• any proposed restructuring is unlikely to garner the support of at least two-thirds in value of its creditors and therefore doomed to fail; and
• a receiver has been appointed over the company’s property, and the receiver objects to the company’s entry into the Simplified Insolvency Programme.

NEW SIMPLIFIED PREPACKAGED SCHEME OF ARRANGEMENT

The Simplified Insolvency Programme introduces several new initiatives aimed at making prepackaged schemes of arrangement more accessible and less costly to eligible companies. The Singapore Ministry of Law has issued a press release summarizing these new, streamlined, provisions as follows:

• An automatic moratorium comes into place when a company has been accepted into the Simplified Insolvency Programme.
• No requirement to convene a meeting of the company’s creditors. Instead, the court can move straight to approving the scheme, provided that the company can satisfy the court that if a meeting had been called, a majority representing at least two-thirds in value of the creditors would have approved the proposed scheme[1].
• The restriction on the operation of ipso facto clauses in the IRDA applies.[2]

NEW SIMPLIFIED WINDING UP PROGRAMME

The amendments also introduce a new simplified winding up programme.

• An eligible company may, at any time during the six-month period from the commencement of these new provisions, make an application to the Official Receiver to be accepted into the simplified winding up programme.

• No court application will be necessary because the winding up will be treated as a creditors’ voluntary winding up. The Official Receiver will be appointed as the liquidator of the company.
• Where the Official Receiver is of the view that the realizable assets in the winding up are insufficient to cover its expenses, and that there is no need for any further investigation into the company’s affairs, the Official Receiver may be expeditiously dissolved thereafter.
• The Official Receiver’s duties as a liquidator of a company under the simplified winding up programme have been reduced. For example, there is no obligation to call meetings of the company’s creditors when the company is being wound up under this initiative.

CURRENT STATUS OF THE LEGISLATION

The bill has been read for the first time in the Singapore Parliament. A second reading of the bill is scheduled for the next sitting of Parliament.

There is no indication when these amendments will go into force. However, given that the headnote to the bill specifically cites the ongoing economic distress caused in part by the COVID-19 pandemic, we expect the entry into force of these reforms to occur as a matter of priority, and sooner rather than later.

[1] As compared with the threshold for a regular scheme of arrangement of 75% in value and a majority in number of the company’s creditors.

[2] Ipso facto clauses are provisions that allow a party to terminate or modify the operation of a contract (including accelerating payment) upon the occurrence of a counterparty's insolvency, financial conditions, or restructuring.

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