SINGAPORE — Changes to bankruptcy laws were passed in Parliament yesterday to raise the threshold for declaring a person bankrupt and make it easier for one to exit bankruptcy.

Five Members of Parliament (MPs) rose to speak on the changes, with some seeking clarification on the introduction of private trustees to administer the bankruptcy proceedings and others raising concerns that the amendments would encourage individuals to borrow more.

The amendments passed yesterday will require institutional creditors such as banks to appoint a private trustee to handle a bankruptcy application. The debt threshold for obtaining a bankruptcy order was raised from S$10,000 to S$15,000, while bankrupts can become eligible for discharge after three to seven years if they can pay a target contribution amount.

Currently, there are no mandated “exit points” for bankrupts, who usually can be discharged by a High Court order or by the Official Assignee (OA) only if their debts are less than S$500,000, on a case-by-case basis.

Mr Gan Thiam Poh (Pasir Ris-Punggol GRC) was worried the higher debt threshold might result in lenders encouraging individuals to borrow excessively, while lenders might also impose more costs. “Raising the limit may send a wrong signal to them (borrowers),” he said, suggesting that a separate body be set up instead for debtors owing smaller sums.

Echoing his concerns, Mr Zainal Sapari (Pasir Ris-Punggol GRC) also said creating exit points for bankrupts to be discharged could end up creating an easy option for debtors to delay repaying their debts, instead of doing so expeditiously.

In response, Senior Minister of State (Law and Education) Indranee Rajah disagreed that raising the debt threshold would result in creditors lending more. A creditor’s primary consideration is a debtor’s ability to pay, she said.

On whether the fixed exit points would create moral hazards, Ms Indranee said that, conversely, it would give bankrupts a strong incentive to cooperate with trustees.

Safeguards will also be in place, such as allowing creditors to object to a bankrupt’s discharge, while bankrupts who do not pay the target contribution — which is calculated based on their earning potential — in full will remain on publicly-available records permanently.

Ms Indranee also told the House that repeat bankrupts currently account for less than 4 per cent of all bankrupts. Asked by Ms Sylvia Lim (Aljunied GRC) about the difference in exit points for discharging repeat bankrupts — two years longer in general than a first-time bankrupt — Ms Indranee said this would help smaller creditors who are less able to conduct risk analysis, while holding repeat bankrupts to stricter standards.

Ms Lim also asked if the appointment of private trustees by institutional creditors to oversee bankruptcy proceedings (currently, most bankruptcies are administered by the OA) would lead to an extra burden for bankrupts because of costs incurred, and if there is a need to cap their fees.

Mr Hri Kumar Nair (Bishan-Toa Payoh GRC), meanwhile, spoke about having adequate oversight over the trustees to ensure they act fairly.

Ms Indranee gave the assurance that checks and balances are in place for private trustees, including supervision by the OA, while bankrupts can submit feedback at any time.

She reiterated the rationale for appointing private trustees, noting that 60 per cent of bankruptcy cases had been filed by institutional creditors, which should pay for the costs of bankruptcy administration. This would free up the OA to help smaller businesses that run into debtors.

Ms Indranee also clarified that a debtor’s target contribution is not calculated with reference to the fees of private trustees, and creditors would have to calculate whether it is cost-effective to go after debtors.

“The amendments will encourage institutional creditors to be more prudent in granting credit and recovering unpaid debts. This may reduce the rate of default, which in turn will help lower the overall cost of borrowing,” she said.