Individual bankruptcy applications at 18-year high in 2023; more applying for corporate insolvency

INDIVIDUAL bankruptcy applications stood at an 18-year high of nearly 4,000 in Singapore in 2023, while applications for companies to be compulsorily liquidated also climbed.

The number of individual bankruptcy applications made either by the individuals themselves or by their creditors over unpaid debt of more than S$15,000 reached 3,986 last year – the highest since 2005, when 4,078 applications were filed.

The latest figure is 9.3 per cent higher than the 3,648 individual bankruptcy applications made in 2022.

Meanwhile, bankruptcy orders stood at 1,096 last year, up from 958 in 2022 and 1,003 in 2021.

Corporate insolvency applications rose to 273 last year, up from 257 in 2022 and 260 in 2021. The number of companies that wound up stood at 201 in 2023, compared with 215 in 2022 and 191 in 2021.

Ng Yeow Khoon, restructuring and insolvency lawyer at Shook Lin and Bok, said Singapore’s sluggish economy and rising inflation rate in the past year could be the main contributors to the increase in individual and corporate insolvency applications.

“Essentially, this means that the borrowers, whether they are companies or individuals, will have difficulty servicing bank loans. The natural consequence of it is there will be a higher number of bankruptcy applications and winding-up applications,” he said.

In spite of a higher interest rate environment, he noted that individual bankruptcies stemming from failure to service mortgage payments were not common.

This is likely because property prices in Singapore have been stable, Ng said. “So it’s very seldom that you have a case whereby after you sell the mortgage property, there’s still a shortfall and the bank has to bankrupt the owner for the shortfall.”

Individual bankruptcy arising from personal guarantee for corporate loans, however, was a more common sight among the cases the lawyer handled – with quite a few from the construction industry.

The construction sector was badly hit in the past six months, observed Ng. Escalating costs of manpower and raw materials in the past two years threw cost budgeting for contracts into disarray.

Song Seng Wun, economic consultant at CGS-CIMB, said some sectors – such as wholesale trade, construction, and food and beverage – faced challenges in the form of higher costs of business and a decline in external demand post-pandemic.

In addition, he noted that there could be more risk-taking in Singapore as there is less stigma associated with business failures.

While the number of individual bankruptcy applications made in 2022 and 2023 exceeded 3,500 per year, Felicia Tan, dispute resolution litigator at TSMP Law, noted that these were close to the numbers in 2018 and 2019.

“This is unsurprising, as the Covid-related reliefs and moratoriums tapered off from 2021,” she said.

But she highlighted that, since 2018, two-thirds of bankruptcy applications have not resulted in bankruptcy orders.

“Creditors are motivated to negotiate commercial settlements rather than resign themselves to the paltry recovery from a negligible monthly payout once an individual is made bankrupt,” said Tan.

She does not expect any drastic increase in bankruptcy applications or orders in 2024, especially since creditors now need to take the extra step of appointing a private trustee when a bankruptcy application is made.

Institutional creditors were required to appoint a private trustee to handle their bankruptcy cases before September 2023, but the law has since been amended to extend this to all bankruptcy cases except those of public interest.

According to Shook Lin and Bok’s Ng, the number of bankruptcy applications this year will depend a lot on the state of the economy and the inflation level.

CGS-CIMB’s Song, however, expects that there will be more companies being compulsorily liquidated as it takes time for an application to be processed, while macroeconomic headwinds continue to persist. Some of these pressures include rising freight cost arising from diversions from the Red Sea to a longer route around Africa.