New bill to help micro, small firms in Singapore wind up, restructure in a faster way

A NEW bill will be introduced in Parliament in October to establish a Simplified Insolvency Programme (SIP) to help micro and small companies restructure their debts or wind up their business in a quicker, simpler and cheaper way.

This comes as financially distressed companies may face potential insolvency as Covid-19 has hit many industries hard, with business conditions unlikely to return to pre-pandemic levels in the near future.

The proposed SIP will enable eligible micro and small companies to restructure their debts or wind up operations through two temporary and new processes adapted and modified from the existing framework in the Insolvency, Restructuring and Dissolution Act (IRDA).

As Singapore's insolvency laws generally provide processes for companies with substantial assets, the solutions offered may not be well-suited for distressed micro and small businesses, particularly those that have depleted their resources as a result of the pandemic, according to a statement from the Ministry of Law (MinLaw) on Monday.

Among the key features of the proposed SIP for simplified debt restructuring would be adapting the existing pre-packaged scheme of arrangement in the IRDA. Instead of two applications to the High Court required in a typical scheme of arrangement, the pre-packaged process requires only one.

The restriction on ipso facto clauses and moratorium against creditors' action will be automatically in place while the company is in simplified debt restructuring, providing breathing space for the firm to propose its restructuring plan.

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A lower creditor approval threshold of two-thirds in value than required in a typical scheme of arrangement (majority in number holding 75 per cent in value) is also proposed.

Meanwhile, the simplified winding-up process is a voluntary one instead of being court-ordered, removing the need for a court application.

Where the liquidator deems the assets of the company insufficient to meet the expenses of winding up, and its affairs do not require further investigation, the firm may be dissolved without the need to take more steps, such as further realisation of assets and distribution of dividends.

The scope of the liquidator's functions will be reduced, given the profile of companies in simplified winding up. This recognises that certain complex and costly aspects of a conventional winding up are not suitable for a simplified process, said MinLaw.

For instance, creditors' meetings will not be convened under the simplified winding-up programme, and the liquidator may only commence legal proceedings to preserve the rights of the company.

A company in the simplified winding-up programme - if subsequently viewed as unsuitable for it - may be placed into a court-ordered winding up on the application of the Official Receiver or an interested party.

To qualify for the proposed SIP, micro and small companies must have liabilities of S$2 million or less, and a maximum of 30 employees and 50 creditors. For simplified winding up, there is a cap of S$50,000 on realisable unencumbered assets.

The programme will be available for a period of six months from the commencement of the proposed legislation. It will be administered by the Official Receiver, who may assign private insolvency practitioners to administer the cases.

There will be a co-payment component - to be determined at a later date - for applicant companies under the proposed programme.

The SIP is part of the government's efforts to help businesses facing financial distress. Another relief scheme that complements the proposed SIP - which aims to help sole proprietors and partnerships (SPP) - is the SPP scheme.

Expected to be ready for applications by Nov 2, 2020, the SPP scheme will be administered by Credit Counselling Singapore, with the support of The Association of Banks in Singapore, the Monetary Authority of Singapore, Enterprise Singapore (ESG), and participating financial institutions under the ESG loan schemes.