New debt threshold among proposed changes to bankruptcy legislation

SINGAPORE — Fixed “exit points” for bankrupts to be discharged and a new bankruptcy debt threshold were among proposed changes to bankruptcy laws tabled in Parliament yesterday.

The Bankruptcy (Amendment) Bill proposes a new debt threshold of S$15,000, up from S$10,000, before someone may be made a bankrupt. This is to encourage debtors and creditors to resolve debts below the new threshold without resorting to the formal bankruptcy process. It will help some debtors avoid the social stigma associated with bankruptcy, said the Ministry of Law (MinLaw).

Under a new differentiated discharge framework, first-time bankrupts will generally be eligible for discharge in five to seven years, while repeat bankrupts will generally be eligible in seven to nine years.

There are no mandated exit points currently, with bankrupts generally discharged when ordered by the High Court or when issued a certificate of discharge from the Official Assignee, a public servant who realises the bankrupt’s assets for distribution.

A bankrupt’s eligibility for discharge will depend on his paying a target amount based on his earning potential. This has been practised since 2010, with bankrupts informed of the amount. Under proposed changes, creditors will also be informed of the targets. MinLaw said this new framework will give bankrupts clear time frames and an incentive to seek gainful employment, as they seek discharge from bankruptcy.

The proposed changes follow a public consultation in January and February that drew responses from lawyers, financial institutions and the public. Some gave feedback that fixed timelines for discharge may result in bankruptcy being an attractive option for a defaulting debtor. But the Ministry said the timelines under the differentiated discharge framework are “sufficiently long to prevent an increase in moral hazard”.

The Courts may also extend bankruptcies to deal with exceptional cases, and records of recalcitrant bankrupts will be kept permanently to inform prospective creditors.

Another proposed change to the law is that creditors that are banks or finance companies, which make up about half the petitioning creditors, or businesses with annual sales turnover exceeding S$100 million and with more than 200 employees, will be required to appoint private trustees to administer the process to make someone bankrupt. Currently, more than nine in 10 bankruptcies are administered by the Official Assignee, but MinLaw wants these creditors to play a more active role as they have the resources to do credit assessments, as well as to bear the costs of debt recovery.

“Government resources and taxpayer dollars should not be used to subsidise the costs of the recovery of such debts,” the ministry said, in response to the suggestion that private trustees be appointed only for institutional creditors owed more than S$200,000.

Private trustees are usually public accountants or lawyers, and MinLaw said costlier bankruptcy administration “may not be undesirable” if this means better risk assessments done before credit is granted, and if all avenues for repayment are explored before a creditor pursues bankruptcy proceedings. The Official Assignee will also get more powers under proposed laws to supervise private trustees.

During the public consultation, some warned of proposed changes that would drive up borrowing costs, but MinLaw replied that it was also possible that financial institutions would have to absorb costs to stay competitive.

If the proposed changes are passed, they will apply to bankruptcy applications filed after the new law takes effect. NEO CHAI CHIN