Bill passed in Parliament to revamp and make permanent Simplified Insolvency Programme to support financially distressed companies
On 7 January 2025, the Insolvency, Restructuring and Dissolution (Amendment) Bill (“Bill”) was passed in Parliament to revamp the Simplified Insolvency Programme (“SIP”) and to make it a permanent feature of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”). The revamped SIP under the Bill seeks to provide a simpler and more cost-effective insolvency process, to benefit more companies.
By way of background, the SIP was established on 29 January 2021 to provide simpler, faster, and lower-cost proceedings to assist micro and small companies (“MSCs”) in need of winding up or restructuring through either a Simplified Debt Restructuring Programme (“SDRP”) or a Simplified Winding Up Programme (“SWUP”). The SIP has since been extended thrice and will end on 28 January 2026.
The Bill will modify two existing processes, namely the SDRP and SWUP. Licensed Insolvency Practitioners (“IP”) in the private sector who are experienced and have the relevant expertise will administer the key changes to the two processes.
Set out below is a summary of the key revisions under the Bill as highlighted by Minister for Culture, Community and Youth and Second Minister for Law, Edwin Tong, SC, in his speech delivered at the second reading of the Bill.
Simpler eligibility criteria
- To allow companies that are not MSCs to also benefit from the SIP, the current list of five criteria applicable to the SDRP and SWUP will be streamlined to just one, which is the general eligibility requirement that the company’s total liabilities must not exceed S$2 million.
Simplified Debt Restructuring Programme
- The number of supporting documents accompanying the SDRP application will be reduced to require only key supporting documents. The IP, when assessing whether the company meets the requirements for entry into the SDRP, may request for more documents.
- Companies failing to successfully complete the SDRP (including the current SDRP) will be barred for five years before they can again apply for the SDRP.
- The IP will have the discretion to assess whether the company meets the two requirements under the amended IRDA for entry into the SDRP, i.e. the general eligibility criterion that the company’s total liabilities must not exceed S$2 million and that there is no existing circumstance that would render the company unsuitable for acceptance into the SDRP. In terms of the second criterion, one such circumstance is prescribed in the amended section 72F(3)(h) of the IRDA, which is when the company is unlikely to be able to formulate a proposed compromise with its creditors, or to obtain the agreement of two thirds majority (by value) of its creditors to the proposed compromise or arrangement, within the moratorium period after the company’s entry into the SDRP.
- While the company is in the SDRP, the company will enjoy a statutory moratorium under the amended section 72K(1) of the IRDA of a period of 30 days, which is extendable once for a period of up to 30 days.
- Once the company has entered into the SDRP, the debt restructuring proposal will be approved out-of-court and by the company’s creditors at a meeting summoned under the new section 72M of the IRDA.
- The notice to summon the meeting must be given to every creditor of the company and contain the following information as will be set out in section 72M(3) of the amended IRDA:
- Details of the proposal;
- A statement of the effects of the proposal on creditors’ rights;
- A comparison of what the creditors will receive in the proposal and the most likely scenario if the compromise or arrangement pursuant to the proposal does not become binding on the company and its creditors; and
- Must also contain information on the relevant IP’s remuneration.
- The proposal is approved by a majority of at least two-thirds in value of creditors present and voting at the meeting. This threshold remains unchanged from the existing programme.
- There will be one voting class consisting of all unsecured creditors, ordinary and preferential (if applicable).
- Secured creditors will only be bound by the proposal if the value of the security interest is less than the value of the secured creditor’s admissible debts or claims, and only to the extent of the difference between the values, i.e. the undersecured portion. In other words, the difference between the value of the security for a secured creditor and the unsecured portion. So, the differential is the only portion that will apply; and
- Secured creditors will also be bound by the proposal if the value of the secured interest is equal to or more than the value of the secured creditor’s admissible debts or claims - but only to the extent that the creditor consents to be bound. So, in some cases, the creditor might well have sufficient security, but might decide that the restructuring proposal makes sense and wants to participate and take part, in which case, the creditor can support the restructuring arrangement.
- This means, therefore, that a secured creditor is free to realise or deal with his security interest unless he has voted in favour of the proposal and consented to be bound, and the proposal’s terms prevent him from realising or otherwise dealing with his security interest.
- There will be judicial safeguards for creditors with legitimate concerns arising from the approved proposal. A creditor who is bound by the proposal can apply to court to object to the proposal on specified grounds under section 72N(3) of the amended IRDA. The court hearing the application may make any order it thinks fit.
Simplified Winding Up Programme (SWUP)
- If the company resolves to enter into the SWUP but has insufficient or incomplete financial records, the company may submit a directors’ statement to the nominated liquidator that the eligibility criterion has been met. This new feature simplifies the application process, and encourages non-viable companies to be wound up instead of remaining dormant.
- In situations where members of the company are uncontactable or the company is thereby unable to pass a special resolution to enter into the SWUP, a directors’ resolution can be accepted if the company satisfies certain conditions.
- To reduce the cost of administration, only the Official Receiver’s website and the Registrar of Companies’s Bizfile under the Accounting, Corporate and Regulatory Authority (“ACRA”) will be used in the new SWUP for the publication of notices.
- Sections 180 and 210 of the IRDA will be amended to streamline the final or early dissolution processes of a company respectively, by requiring only one lodgment with ACRA to effect the dissolution of the company.
- The liquidator may switch to other liquidation processes such as a court-ordered winding up or a creditors’ voluntary liquidation if the liquidator’s assessment is that the company is unsuitable for simplified winding up.
- Where a liquidator requires funding from creditors to conduct investigations to recover assets but no such funding is forthcoming, the liquidator may complete the simplified winding up of the company and dissolve the company without taking further investigative steps.
Reference materials
The following materials are available on the Parliament website www.parliament.gov.sg and the Ministry of Law website www.mlaw.gov.sg.
