Panel recommends insolvency laws be consolidated into Act

SINGAPORE — The Insolvency Law Review Committee has recommended that Singapore’s insolvency laws for both personal bankruptcy and corporate insolvency be consolidated into a new Insolvency Act, which it said would enhance clarity to insolvency laws.

It also recommended expediting bankruptcy procedures, excusing bankrupts from criminal liability if they have no knowledge or reason to believe they have been made bankrupts and enhancing the court’s power to examine discharged bankrupts to establish that any assets that should have been turned in have been done so, for the benefit of creditors.

In a 244-page report, which it submitted to the Ministry of Law on Friday, the committee also proposed improvements to the judicial management regime to better help companies in trouble.

The ministry said yesterday it will consider the committee’s recommendations and invited interested parties to provide their views and feedback to the ministry.

Currently, Singapore’s insolvency laws are mainly found in the Companies Act and the Bankruptcy Act, with certain aspects of bankruptcy laws — such as provisions relating to the proof of debts and avoidance of pre-bankruptcy transactions — made applicable to companies in judicial management and liquidation through provisions in the Companies Act.

Law Minister K Shanmugam, commenting on the review in March, had described current laws on this area as a “patchwork of legislation” inherited from the past.

In the report released yesterday, the committee said the need to update the laws was “driven not only by Singapore’s growth as a regional financial and business hub, but also the proliferation of complex credit and financing transactions”.

“The increased volatility of the global economy has also underscored the need to strengthen our corporate rescue mechanisms,” it said.

Hence, the committee wants the courts to be empowered to appoint a judicial manager even where there are objections by the creditor who holds a floating charge, to protect the interest of all creditors involved.

It also proposed that companies be enabled to enter into judicial management without having to make a formal application to the courts, and that the court be empowered to place a company into judicial management when it is likely to become unable to pay its debt, instead of only when insolvent.

This is to make the judicial management regime more accessible and “an efficient rescue mechanism”, the committee said.

Meanwhile, a system of summary liquidation similar to that in the United Kingdom should be introduced in Singapore, where the Official Receiver would be empowered to make an application to the Registrar of Companies to seek an early dissolution of a company.

And to enhance Singapore’s attractiveness as a corporate restructuring hub, the committee proposed extending the judicial management regime to cover all foreign companies, and abolishing “ring-fencing”, which requires foreign companies to pay local creditors before international ones.

The abolishment, however, should not be extended to industries where the interests of local creditors have to be protected, in particular the finance sector, the committee said.

It also recommended reforms to the regulation of insolvency practitioners. It suggested the Official Receiver take over the function of licensing insolvency practitioners from the Registrar of Public Accountants and called for qualifying requirements for insolvency practitioners to be homogenised.

The committee, which was formed in December 2010, was chaired by Senior Counsel Lee Eng Beng. It consulted stakeholders such as the Monetary Authority of Singapore, the Supreme Court, the Accounting and Corporate Regulatory Authority and the Association of Banks in Singapore.