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21 August, 2016
Introduction
Following the passing of the Bankruptcy (Amendment) Bill by Parliament in July 2015, amendments to the Bankruptcy Act (Cap. 20 (“BA”) and Bankruptcy Rules (“BR”) were implemented recently and took effect from 1 August 2016.
The philosophy behind the amendments is to utilise public resources more efficiently and to create a more rehabilitative bankruptcy framework, while maintaining the objectives of the bankruptcy regime, which are to:
(a) provide an orderly regime for the resolution of unpaid debts;
(b) balance the interests of debtors, creditors and the wider society by ensuring that bankrupts are held accountable for their debts, while allowing them a fresh start in their financial matters after a reasonable period of time; and
(c)provide incentives for creditors not to over-extend credit and for debtors not to borrow more than they can repay.
The amendments can be categorised under four key areas:
(a) Raising of minimum debt threshold to apply for bankruptcy;
(b) Allowing a creditor to make an expedited bankruptcy application where there is a danger in dissipation or diminution of the debtor’s assets;
(c) Requiring the appointment of private trustees by institutional creditors under certain circumstances; and
(d) Introducing a differentiated discharge regime to allow bankrupts to be discharged within clear timeframes.
1. Raising of Minimum Debt Threshold
The new section 61(1)(a) of the BA raises the minimum debt threshold for a bankruptcy application to be made from $10,000 to $15,000.
This new threshold is based on income-related benchmarks and seeks to encourage both debtors and creditors to resolve debts falling below the threshold without going to Court. The new threshold is also reflective of inflation over the past 17 years, as the last revision of the threshold was in 1999.3
2. Expedited Bankruptcy Applications
Under the old bankruptcy regime, a creditor had to wait for 21 days after service of the Statutory Demand (“SD”) on the debtor before being able to file a bankruptcy application. The new section 63A of the BA allows a creditor to file a bankruptcy application against the debtor before the expiry of this 21-day period if the creditor can show that there is a serious possibility that the debtor’s property, or the value of all or any of the debtor’s property, will be significantly diminished during that period, and that the expedited application contains a statement to that effect.
This amendment will allow creditors to take steps to preserve assets available for distribution at an earlier stage, such as the appointment of interim receivers and/or activate other statutory restrictions against dispositions of and execution against the debtor’s property. However, even if an expedited application is made, the bankruptcy order will only be made upon the expiry of the 21-day period so as to allow sufficient time for the debtor to settle or set aside the SD.4
3. Appointment of Private Trustees
While the previous section 33(1) of the BA allowed for a trustee other than the Official Assignee (“OA”) to be appointed for the bankrupt’s estate, not many creditors made such applications due to the potential costs concerning a private trustee. However, the new section 33(1A) has mandated the appointment of a private trustee where the creditor making the bankruptcy application is an
institutional creditor or a subsidiary of an institutional creditor, or the debt when incurred was payable to an institutional creditor or its subsidiary.
Such institutional creditors are defined in section 33(3) of the BA as:
(a) a bank licensed under the Banking Act (Cap. 19);
(b) a finance company licensed under the Finance Companies Act (Cap. 108); or
(c) a business undertaking with an annual sales turnover of more than $100 million and at the date of the application for the bankruptcy order, has more than 200 employees.
In a creditor’s bankruptcy application, the new rule 101A of the BR compels the creditor to state in its supporting affidavit for the application whether it is an institutional creditor falling within the ambit of section 33(1A) of the BA. Where section 33(1A) applies, rule 53 of the BR now provides that an application for the appointment of a trustee must be included in the creditor’s bankruptcy application.
These new provisions seek to save considerable public resources as currently, the OA acts as trustee in over 99% of bankruptcies, notwithstanding that around 60% of bankruptcies are brought by institutional creditors who have the resources to bear the costs of the administration of the bankrupt’s estate.5
If the creditor initiating the bankruptcy is an individual, a small business, or the bankrupt himself, the OA will continue to be trustee in administration. Such a regime aims to incentivise institutional creditors to undertake better risk assessments before granting credit.6
A. Duties of the Private Trustee
The new amendments have also imposed more stringent requirements on the private trustees to fulfil their duties under the BA.
Under section 35 of the BA, a private trustee now has to give security to the satisfaction of the OA, to ensure that the trustee performs its duties and that the trustee duly observes all the requirements of the BA. The OA is allowed, pursuant to section 39(6) of the BA, to forfeit the security furnished where the private trustee fails to comply with the following duties:
(a) submit a copy of the bankrupt’s statement of affairs (“SOA”) to the Official Assignee within one month of receipt;
(b) issue a notice of determination regarding the bankrupt’s monthly contributions and target contributions within two months after the administration date (“AD”) of bankruptcy, which is the date of submission of the bankrupt’s SOA; or
(c) provide a report on the administration of bankruptcy, within one month after the fifth anniversary (for first time bankrupts) and every subsequent anniversary of the AD.
Further, pursuant to section 41(3A) of the BA, a private trustee cannot resign unless, inter alia, another private trustee who has consented to act is nominated, or if the OA consents in writing to being appointed trustee. This ensures that a private trustee will see through the administration of the bankruptcy, unless the OA consents to take over.7
4. Differentiated Discharge Regime
The amended section 125 of the BA now provides for a clearer differentiated discharge regime that provides all bankrupts with clear goals and timelines to meet, in order to become eligible for discharge.8
The eligibility of the bankrupt for discharge now depends on two factors:
(a) whether the bankrupt has paid the target contribution, which is the total amount contributed to the estate from the bankrupt’s income or from third parties. The trustee will calculate the target contribution after the SOA has been submitted to the trustee and is finalised, so that the bankrupt knows upfront the targets to be met in order to work towards discharge from
bankruptcy;9 and
(b) the prescribed time period has elapsed after the AD of the bankruptcy.
Details of the differentiated discharge regime are summarised in the table below:10
First-time Bankrupt
Repeat Bankrupt
Condition
Creditor Objections
3 – 5 years post-AD
5–7 years post- AD
Target contribution paid in full or extenuating circumstances exist (for example, the bankrupt has died or is prevented from earning a meaningful salary).
No discharge if >50% in number or >25% in value of the creditors oppose the discharge.
5–7 years post -AD
7–9 years post-AD
Target contribution paid in full or extenuating
circumstances exist.
Creditors may apply to Court to oppose
discharge.
7 years post-AD
9 years post-AD
Target contribution not paid in full.
Creditors may apply to Court to oppose discharge
The Court may, if satisfied that the reasons to oppose discharge are valid, extend the bankruptcy for a period not exceeding 2 years.11
Further, the OA will keep a public register containing a list of undischarged and discharged bankrupts. Bankrupts who pay their target contribution in full prior to discharge will have their records on the register for five years after discharge, which will be removed thereafter, whereas those who fail to do so will have their records permanently kept on the register, allowing prospective creditors to make informed decisions on extending credit to discharged bankrupts.12
5. Other Significant Reforms
Pursuant to a new section 88A, proofs of debt will now have to be filed by creditors within four months of the AD to be eligible for distribution from the bankrupt’s estate. Creditors who require an extension of time to file proof of debt will need to seek permission from the Court or OA/private trustee to do so.
Section 76 of the BA has also been amended to allow secured creditors to have twelve months, instead of six months, after the date of the Bankruptcy Order to realise and claim post-bankruptcy interest on the debtor’s assets.
Conclusion
The amended BA and BR provide a clearer bankruptcy framework and re-balances the risk of insolvency between debtors and creditors, and in particular, institutional creditors. Ultimately, creditors and debtors alike should benefit from the improved regime as they will be better placed to make more informed decisions on the giving of and applying for credit.
1 Ministry of Law, More Rehabilitative Bankruptcy Framework to Take Effect from 1 August , 27 July 2016
(https://www.mlaw.gov.sg/content/minlaw/en/news/press-releases/more-rehabilitative-bankruptcy-framework–to-take-effect-from-1-.html).
2 Ministry of Law, Second Reading Speech by Senior Minister of State for Law, Indranee Rajah SC, on the Bankruptcy
(Amendment) Bill 2015, 13 July 2015 (https://www.mlaw.gov.sg/content/minlaw/en/news/parliamentary-speeches-and-responses/second-reading-speech-by-senior-minister-of-state-for-law–indra.html).
3 See note 1.
4 See note 2.
5 Ministry of Law, Note on A More Rehabilitative Framework for Bankrupts , 21 July 2015 (https://www.mlaw.gov.sg/content/dam/minlaw/corp/
News/Note%20by%20SMS%20on%20A%20More%
20Rehabilitative%20Framework%20for%20Bankrupts.pdf).
6 See note 1.
7 See note 2.
8 Ibid.
9 Ibid.
10 See note 5.
11 Section 126(6)(b) of the BA.
12 See note 2
Vernon Voon, Partner, RHTLaw Taylor Wessing
