Bankruptcy applications hit 17-year high in 2022, after tapering of Covid-era support

BANKRUPTCY applications by individuals in Singapore rose to a 17-year high last year, but applications for companies to be compulsorily liquidated dipped – trends which lawyers and economists say could be due to business owners being included in the personal bankruptcy figures.

Data from the Ministry of Law’s Insolvency Office put 2022’s number of bankruptcy applications – made either by individuals on their own behalf or by their creditors – at 3,648. This was 15.4 per cent higher than the 3,160 applications in 2021.

Bankruptcy orders made by the courts, which declare individuals bankrupt, stood at 958 in 2022, down from 1,003 in 2021.

The number of bankruptcy applications was the highest since 2005, when 4,078 applications were filed.

There were 257 applications filed for compulsory liquidation in 2022, comparable to 260 the year before. While higher than the 2020’s 224 applications, it was still a far cry from the pre-pandemic peak of 406 in 2019.

The trends likely stem from the fact that many of the individuals who file for bankruptcy do so for business reasons, CIMB economist Song Seng Wun told The Business Times.

Tham Wei Chern, director at Fullerton Law Chambers, noted that that is especially the case for proprietors of small and medium-sized enterprises, many of whom find themselves bearing personal liability for, or are guarantors of, their company’s debts.

Creditors of a corporate entity, on the other hand, have little incentive to wind up a company, and liquidation is usually a last resort, noted TSMP Law Corporation partner Felicia Tan.

“A bankrupt can and ought to continue being employed, but if a company is wound up, it ceases to exist – which means it can no longer trade to improve the repayment to creditors,” she said.

CIMB’s Song said that the rise in individual applications for bankruptcy could also be due to the “time-lag” from when business owners started getting into difficulties during the Covid-era restrictions: “If you are going bankrupt in 2022, it means the problems started in 2020 or 2021.”

The subsequent tapering of Covid-related temporary support measures, such as the handouts and moratoriums on debt-recovery steps, could also help account for the rise in 2022’s figure, Tan said.

The support measures included the provisions in the Covid-19 (Temporary Measures) Act of 2020, designed to help financially distressed individuals and businesses. Under the Act, the monetary thresholds for bankruptcy proceedings were raised; the statutory period within which to respond to the demands of creditors was also extended.

These provisions were in force from April to October 2020.

Tan said that creditors who withheld or suspended their debt-recovery efforts beyond what was mandated by law would have seen their patience “worn thin” by 2022.

After the provisions expired in October 2020, some creditors may have reviewed their debtors’ financial situation and taken action, said Credit Counselling Singapore (CCS) general manager Tan Huey Min. The breakdown between self-declared bankruptcy applications and those that are filed by creditors is not publicly available.

A rise in self-initiated applications reflects “more opportunities for individuals to self petition, rather than creditor-initiated applications, which may indicate growing indebtedness”, said former CCS chairman Kuo How Nam.

Observers were split on the outlook for 2023. Fullerton Law Chambers’ Tham said: “We expect applications to remain high in 2023. This is due to the ending of the Covid support measures, as well as the current high interest rate and inflationary environment.”

Sumit Agarwal, a professor in the economics, finance and real estate departments at the National University of Singapore, agreed that the possibility of higher interest rates and inflation would play a part in keeping application numbers high.

But TSMP’s Tan noted that the 2022 figures were a culmination of pandemic-era pressures. She said: “The rise in bankruptcy applications did not happen overnight and does not represent any stark change in spending patterns or debt-recovery practices. As such, I do not expect the numbers to rise significantly in the year.”