Singapore introduces Simplified Insolvency Programme for micro and small companies

Singapore
This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.

The impact of the Covid-19 pandemic has been severe for many businesses, with micro and small companies being more susceptible to the crisis. The Ministry of Law has recognised the need to adapt the existing framework under the Insolvency, Restructuring and Dissolution Act of 2018 (“IRDA”) to the needs of micro and small businesses by providing a less costly and more efficient restructuring process. With that goal in mind, the Insolvency, Restructuring and Dissolution (Amendment) Bill (“Bill”) was introduced in Parliament on 5 October 2020 to amend the IRDA and establish a Simplified Insolvency Programme (the “SIP”) to assist micro and small companies (“MSCs”) in (i) restructuring their debts to rehabilitate their businesses; or (ii) winding up their company where their business has ceased to be viable.

Qualifying Criteria

The SIP only applies to qualifying MSCs. MSCs are prima facie defined as micro and small companies with an annual revenue of less than SGD 1 million and SGD 10 million respectively. However, in order to qualify for the SIP, MSCs must also meet certain eligibility criteria, which includes among other things:

  • having an annual sales turnover for a relevant period that does not exceed SGD 10 million;

  • having aggregate liabilities (including contingent and prospective liabilities) that do not exceed SGD 2 million;

  • employing 30 or less employees;

  • having 50 or less creditors;

  • having realisable assets (not including any asset that is subject to a security) which do not exceed SGD 50,000 in value; and

  • any other criteria as may be prescribed.

Simplified Restructuring

The SIP has introduced amendments aimed at streamlining existing restructuring processes for MSCs.

  1. The SIP adapts the existing pre-packaged scheme of arrangement process under the IRDA. An MSC may, therefore, work out a debt restructuring proposal with its creditors out of Court. The restructuring proposal is then submitted to the Court for approval. This removes the need for the MSC to apply for leave of Court in order to conduct a creditors’ meeting to propose the scheme of arrangement, and reduces the number of applications to the Court from two (required under the regular scheme of arrangement process) to one.

  2. Once an MSC’s application to be placed into the simplified debt restructuring programme has been accepted by the Official Receiver, an automatic moratorium against creditors’ actions and restrictions on ipso facto clauses will apply to the MSC. This provides respite for the MSC from any proceedings against it and allows the MSC time and breathing space to focus on its restructuring plans.

  3. A typical scheme of arrangement process requires a creditor approval threshold of a majority in number holding 75% in value approving the scheme. Under a SIP scheme of arrangement, a lower creditor approval threshold of two-thirds in value (with no numerical majority condition) is required in order to approve a scheme.

Simplified Winding up

The SIP also seeks to establish a more efficient and less costly liquidation process for MSCs.

  1. Under the simplified winding up process, an MSC can make any application to the Official Receiver to be accepted into a simplified winding up process under the SIP. This dispenses with the need for a Court application to be made for an MSC to be wound up. If the MSC is later viewed by the Official Receiver as unsuitable for the SIP, such MSC may be placed into a regular Court-ordered winding up process (i.e. the existing “non-simplified” process) on the application of the Official Receiver or an interested party.

  2. The Official Receiver is the liquidator of an MSC that is wound up voluntarily under the SIP. Where the Official Receiver has reasonable cause to believe that the realisable assets of an MSC are insufficient to meet its winding up expenses, and its affairs do not require further investigation, the MSC may, subject to certain conditions, be dissolved without the need to take further steps for the administration of the winding up.

  3. The scope of the Official Receiver’s functions as a liquidator will be reduced under the SIP, given that certain complex and costly aspects of a conventional winding up will not be required for a simplified process. For example, legal proceedings may only be commenced by the Official Receiver to preserve the MSC’s rights, and creditors’ meetings will not be convened under the simplified winding up process.

Application and Validity

The SIP will be available for a period of 6 months from the commencement of the proposed legislation (such period subject to extension by the Minister of Law). An MSC must at any time during such 6-month period make an application to the Official Receiver in order to be considered for acceptance into the SIP. An application must include, among other things, a special resolution of the MSC at a general meeting authorising the making of the application, as well as a list containing the prescribed particulars of each creditor and amounts owed by the MSC to such creditor. The SIP will be administered by the Official Receiver. There will be a co-payment component for applicant companies under the SIP.

Conclusion

The SIP allows qualifying micro and small companies recourse to a winding up or restructuring process that is more expeditious and cost-effective, arguably a timely development in removing some of the procedural armoury that is less suited to the unprecedented impact of the Covid-19 pandemic. This is a welcome development for MSCs, who may not otherwise have the assets or resources to restructure their debts or wind up their businesses cost effectively using traditional methods.