Tuesday, 1 Dec 2020

Parliament: Lower-cost, simplified insolvency processes for firms part of new legislative changes

SINGAPORE – Distressed micro and small companies will be able to restructure their debts quickly and deal with the economic impact arising from the coronavirus pandemic, with a scheme available from Tuesday (Nov 3).

The Simplified Insolvency Programme (SIP), which also comprises processes to help companies which are no longer viable to wind up efficiently and maximise returns to creditors and company stakeholders, was introduced as part of the changes to the Insolvency, Restructuring and Dissolution Act.

Presenting the Bill for debate in Parliament, Second Minister for Law Edwin Tong said the proposed amendments provide temporary processes that benefit company stakeholders such as employees, creditors and shareholders, by reducing the time needed for both restructuring and liquidation, and that maximises potential recoveries.

The programmes under the SIP will better suit the needs of micro and small companies, which may find it financially challenging to apply the current Act’s provisions, he added.

Micro and small companies are defined as having annual revenue of less than $1 million and $10 million respectively, and they account for about 95 per cent of enterprises in Singapore.

Mr Tong highlighted that a successful restructuring will allow a company to continue operating, thereby saving jobs, and result in better outcomes for employees, creditors and investors as a whole. An effective liquidation process will also enable the reallocation of resources to more productive business activities, and maximise the return to company stakeholders.

For instance, civil engineering contracting firm Swee Hong was granted an order by the High Court to give super-priority status to over US$2 million (S$2.7 million) of rescue financing in February. This allowed the company to continue operating while attempting to restructure, and its proposed scheme of arrangement was approved around seven months later.

“If sanctioned by the court, the restructuring would allow Swee Hong, which was insolvent, to continue as a going concern and avert a winding-up. This in turn helps to save the business (and) keeps jobs, not only for Swee Hong but also for many of its counter-parties and sub-contractors,” Mr Tong said.

But while the current Act has facilitated positive results such as for Swee Hong, Mr Tong said it was not designed with the effects of a global pandemic like Covid-19 in mind. The SIP seeks to fill this gap by addressing the needs of micro and small companies, which are likely to be badly hit by the pandemic.

The simplified debt restructuring programme includes several measures which will help troubled firms save costs and time, such as allowing an authorised officer of the company to represent it in court proceedings instead of having to engage legal counsel. A restructuring advisor will also be appointed to assist the firm in the process.

Companies will also only need to make one court application, as compared to at least three typically.

For non-viable firms looking to dissolve operations, the simplified winding up programme will be a more streamlined process, commenced through an application to the Official Receiver without having to nominate a liquidator, which creditors may disagree with.

Under the simplified process, the Official Receiver steps in to be the liquidator.

The SIP and the Re-Align Framework, which was introduced on Monday, are a necessary part of the suite of measures that the Government is providing to help businesses and the Singapore workforce emerge stronger from the Covid-19 pandemic, Mr Tong said.

In addition, the Bill also introduced an amendment which will empower the minister to allow individuals to hold an insolvency practitioner’s licence without being a “qualified person”, such as for professionals who act for companies or creditors in cross-border transactions or restructuring.

Participating in the debate on Tuesday, Mr Vikram Nair (Sembawang GRC) said that while the simplified insolvency processes may seem “rough and ready” compared to the current processes in court, it is a fair trade-off for lower costs and improved efficiency.

Noting that the main driver for the changes to the Act is the Covid-19 crisis and the need for urgent measures to help firms survive this period, he suggested that these amendments could be made a permanent feature of Singapore’s legislation should the simplified processes prove to be effective.

Mr Louis Ng (Nee Soon GRC) noted that the Bill will see the threshold vote from creditors required to commence restructuring lowered from 75 per cent to two-thirds.

This threshold is important because a company which is able to keep going should not be forced to undergo restructuring because of a small number of creditors, he said.

Replying to Mr Ng’s question on what guidance and assistance is provided to distressed companies and their creditors, Mr Tong said that the restructuring adviser and Official Receiver will continually evaluate if the company can continue to maintain its eligibility for either the debt restructuring or winding up programme, and whether they are in a position to carry out the functions stipulated by either process.

Meanwhile, labour MP Patrick Tay (Pioneer) pointed out that the SIP does not significantly improve the position of workers with owed salaries or retrenchment benefits. In the event that a company survives, an unpaid worker would need to go through a protracted enforcement process to recover unpaid salary and retrenchment benefits if applicable, with no guarantee of success, Mr Tay noted.

“In any event, there is little or no recourse for both workers and unions as a moratorium of sorts prohibits the enforcement of rights under a collective agreement or any other due process,” he added.

He called for more direct assistance to support workers who seek to recover their unpaid wages or salaries by simplifying and expediting enforcement of recovery proceedings, as well as protection for consumers and vendors which have business with companies undergoing insolvency proceedings.

In response, Mr Tong pointed out that the costs and expenses of liquidation and the expenses incurred by the applicant for winding up are paid off first before any other debts, and removing priority for such claims would undermine an orderly liquidation.

Employee claims come next after those priority claims have been paid off, he said.

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