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5 October, 2018
A look at the Insolvency, Restructuring and Dissolution Bill ("Bill") which recently had its Second Reading in the Singapore Parliament
An Overview of the Bill
The Bill, which had its Second Reading in the Singapore Parliament on 1 October 2018 essentially consolidates the law relating to both personal and corporate insolvency into a single omnibus act, replacing the Bankruptcy Act as well as provisions relating to insolvency and restructuring in the Companies Act (which will be repealed). Although no date has been announced, the Bill is expected to come into force in several months' time.
One of the new provisions is a restriction on the enforcement of ipso facto clauses. Such clauses typically allow one party to terminate or modify an agreement based on a specified event occurring to the counter party – for example, the insolvency of the counterparty or the counterparty filing for restructuring. For certain types of contracts, this new provision will disallow termination based solely on the fact that a counter party is undergoing restructuring, thereby adding a new layer of protection for companies undergoing restructuring and allowing the company to continue with its business operations during the restructuring process without the risk of key contracts being unilaterally terminated or modified. It should be noted that this new provision will not apply to contracts for the commercial charter of a ship.
Another new provision requires that in an insolvent winding up or judicial management situation, should secured creditors wish to claim interest on the debt for the period between the order and enforcement of the security, they will have to realise their security within 12 months after the commencement of the winding up or will be disallowed from doing so. Insofar as bankruptcies are concerned, there is also a requirement that the trustee or Official Assignee be notified of the intention to claim interest on the secured debt within 30 days of the bankruptcy order.
Several other changes to the winding up regime include:
- that liquidators have to seek permission from court or a committee of inspection to bring or defend any legal proceeding;
- that to facilitate third-party funding, liquidators are empowered to assign proceeds of actions relating to transactions at an undervalue, unfair preference, fraudulent trading, wrongful trading and similar matters; and
- the introduction of a new wrongful trading provision for which a person may be declared by the court to be personally liable for a company trading wrongfully in the course of a judicial management or winding up without the need for criminal liability to be first established. A company trades wrongfully if it incurs debt or liabilities without reasonable prospect of meeting them or if it becomes insolvent as a result of the incurrence of such debt or liability.
As mentioned, with the passing of the Bill, the Bankruptcy Act and provisions relating to insolvency and restructuring in the Companies Act will be removed. The repeals however will not affect existing cases and pending applications commenced under both Acts before the date of commencement of the Bill and relevant provisions of both Acts will continue to apply.
The introduction of the Bill is the third phrase of action following from the Insolvency Law Review Committee's recommendations made in October 2013. The first phase came in the form of amendments to the Bankruptcy Act in 2015 and the second phase in the recently completed amendments to the Companies Act in 2017.
For information on the:
- changes to the Singapore scheme of arrangement regime please refer to here.
- DIP / rescue finance please refer to here.
- ipso facto clauses from a comparative perspective, an update on developments in the Singapore debt restructuring market and DIP/rescue finance considerations please refer to here.
For further information, please contact:
Lauren Tang, Partner, Stephenson Harwood (Singapore) Alliance
lauren.tang@shlegalworld.com
