Bill introduced to amend Insolvency, Restructuring and Dissolution Act 2018 to establish Simplified Insolvency Programme amid Covid-19 : Allen & Gledhill

26 October 2020

On 5 October 2020, the Insolvency, Restructuring and Dissolution (Amendment) Bill (“Bill”) was tabled for first reading in Parliament. The Bill will amend the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) to establish a Simplified Insolvency Programme (“programme”) to assist micro and small companies (“MSCs”) that require support to restructure their debts to rehabilitate the business, or wind up the company as the business has ceased to be viable. The programme will be available for a period of six months from the commencement of the proposed legislation. This application period may be extended or shortened for a period to be determined by the Minister for Law.

As the IRDA generally provides processes for companies with substantial assets, the solutions offered may not be well suited for distressed micro and small businesses, particularly those that have depleted their resources as a result of the Covid-19 pandemic. The Bill thus provides for temporary measures in the form of a simplified debt restructuring procedure and a simplified winding up procedure, respectively, for eligible companies in view of Covid-19.

The Official Receiver will administer the programme and may assign private insolvency practitioners to administer the cases accepted into simplified debt restructuring and simplified winding up. There will be a co-payment component for applicant companies under the programme.

The Bill also provides for the power to exempt persons from certain criteria in relation to insolvency practitioners’ licences.

Eligibility criteria

To qualify for the programme, MSCs must meet certain specified eligibility criteria. The eligibility criteria filter cases that are unsuitable for the streamlined and expedited insolvency proceedings. According to the Ministry of Law press release of 5 October 2020, the qualifying criteria for the programme include having 30 or fewer employees, 50 or fewer creditors and liabilities of S$2 million or less. For simplified winding up only, there is a cap of S$50,000 on realisable unencumbered assets.

Simplified debt restructuring

The Bill will insert a new Part 5A in the IRDA to provide for the simplified restructuring of debts of companies. Key features of the simplified debt restructuring process include a lower creditor approval threshold (two-thirds in value) than required in a typical scheme of arrangement (majority in number holding 75% in value) and the automatic application of the temporary restriction on (i) ipso facto clauses and (ii) moratorium against creditors’ action. Further, a pre-packaged scheme of arrangement in a simplified debt restructuring requires only one High Court application, instead of two High Court applications in a typical scheme of arrangement.

Simplified winding up

The Bill will insert a new Part 10A in the IRDA to provide for the simplified winding up of companies. The simplified winding up process will adapt the existing creditors’ voluntary winding up process in the IRDA and remove the necessity of a court application to wind up a company. Where the liquidator views the assets of the company are insufficient to meet the expenses of winding up, and its affairs do not require further investigation, the company may be dissolved thereafter without the need to take further steps for the administration of the winding up. Further, the scope of the liquidator’s functions will be reduced in view of the profile of companies in a simplified winding up and also that certain complex and costly aspects of a conventional winding up are not suitable for a simplified process. A company in the simplified winding up programme, if subsequently viewed as unsuitable for the programme, may be placed into a Court-ordered winding up on the application of the Official Receiver or an interested party.

Other support measures

The programme complements other customised restructuring assistance schemes and is just one part of the Government’s efforts to help businesses facing financial distress. There are also support measures proposed to help other entities that are experiencing difficulties due to Covid-19, including a relief scheme to help sole proprietors and partnerships facing financial distress to restructure their business debts (expected to be ready for application by 2 November 2020) (“SPP scheme”) and the Support Scheme - Standardised (ESS-S) to allow qualifying small and medium enterprises (“SMEs”) to temporarily defer 80% of principal payments on their secured term loans as well as loans granted under Enterprise Singapore’s Enhanced Working Capital Loan scheme and Temporary Bridging Loan Programme. There is also the Extended Support Scheme - Customised (“ESS-C”) to facilitate the restructuring of SMEs’ loans across multiple banks or finance companies. The ESS-C programme is open to SMEs for whom the programme and the SPP scheme are not suitable.

Reference materials

The following materials are available from the MinLaw website www.mlaw.gov.sg and Parliament website www.parliament.gov.sg:

Further information

Allen & Gledhill has a Covid-19 Resource Centre on our website www.allenandgledhill.com that contains knowhow and materials on legal and regulatory aspects of the Covid-19 crisis.

In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at covid19taskforce@allenandgledhill.com.