Singapore’s Debt Restructure – Micro and Small Businesses
The Simplified Insolvency Programme aims to streamline Singapore’s debt restructuring for micro and small businesses.
The Insolvency, Restructuring and Dissolution (Amendment) Bill was recently introduced in Parliament to streamline Singapore’s debt restructuring for micro and small businesses. The amendment proposed a Simplified Insolvency Programme to enable such firms to restructure debts or wind up business speedily and economically.
Smaller enterprises numbered a quarter million in 2018, of which 207,000 where micro-businesses. Such businesses had annual revenue of less than $10 million and $1 million, respectively. Existing insolvency laws in Singapore currently tend to address the needs of larger companies with substantial assets. As such, smaller companies have limited recourse to viable solutions.
The Simplified Insolvency Programme proposes to address this issue. This is especially of relevance now as the global pandemic has exhausted the resources of many micro and small businesses.
The Ministry of Law stated that the Programme would be available for approximately six months from the commencement of the proposed legislation. However, this may be extended for a determined period at the discretion of the Minister.
The Ministry also clarified the qualifying criteria for the Programme. Amongst others, requirements include liabilities of $2 million or less and 50 or fewer creditors. Businesses must also have 30 or fewer employees. Companies will also have to co-pay a fee, to be announced later, to avail themselves of the benefits of the Programme.
A prominent proposal of the Programme deals with the debt restructuring scheme agreement and seeks to establish a lower creditor approval threshold. The existing point requires 50% of the creditors in agreement to the scheme with a minimum of 75% debt claims. The new proposal would require only creditors in agreement to the scheme with debt claims totalling two-thirds in value.
The Programme also addresses non-viable businesses’ winding-up processes. To simplify the process, it is proposed that the liquidator’s functions be reduced in scope. This includes doing away with the need to convene creditors’ meetings. The liquidator is only empowered to begin legal proceedings in pursuit of preserving the rights of the company.
It is also proposed that the liquidator be allowed to use his discretion in deciding company dissolution without further administrative stages. Such discretion would be used in two instances. Firstly, if the company’s assets are insufficient to meet the expenses of winding up the company. Secondly, the company’s affairs do not need to be further investigated. This will serve to expedite the winding-up process and keep costs at a minimal.
The introduction of support measures, including the Simplified Insolvency Programme, is the Government’s initiative to help financially challenged business. The Ministry of Law stated that the Programme would be complemented by a relief scheme administered by CCS or Credit Counselling Singapore.
CCS will be supported by the Association of Banks in Singapore and the Monetary Authority of Singapore (MAS). Further support will also be offered by Enterprise Singapore (ESG) and all participating financial institutions under ESG loan schemes.
The relief scheme, which will be ready for application by 2nd November 2020, assists sole proprietors and partnerships in restructuring debts. The Ministry of Law will announce more details at a later date.