Singapore Parliament introduces Omnibus Bill to consolidate insolvency framework
On 10 September 2018, the Parliament of Singapore introduced the ‘Insolvency, Restructuring and Dissolution Bill’ (the “Bill”) which came after the Insolvency Law Review Committee’s (“ILRC”) recommendation in October 2013 for ‘a holistic upgrade of Singapore’s insolvency and restructuring laws through an omnibus legislation’ and will implement the remaining recommendations of the ILRC.
This Bill has been eagerly anticipated by insolvency practitioners as it is the third and final phase in the reforms emanating from the ILRC recommendations made in 2013.
One of the principle objectives of the Bill is to streamline the personal and corporate insolvency laws which are presently found in two separate statutes into a single piece of legislation. Upon coming into force, the Bill will see the repeal of the Bankruptcy Act (Cap. 20) and the deletion of the provisions in the Companies Act (Cap.50) in relation to insolvency and restructuring.
Amendments to existing provisions in relation to corporate insolvencies will serve to modernise the law and facilitate better use of resources in the administration of companies in liquidation.
What would be of particular interest to businesses is the introduction of a new restriction on ipso facto clauses (i.e. clauses which permit the termination or modification of the contract upon the occurrence of a specified trigger event such as insolvency or restructuring). Section 440 (1) read with Section 440 (3) of the Bill will restrict ipso facto clauses that are triggered upon the commencement of restructuring proceedings. This is intended to facilitate restructuring where a distressed company’s business relies on contracts that contain such ipso facto clauses and runs the risk of termination. Under Section 440(1), at any time after the distressed company commences restructuring proceedings and before they are concluded, no creditor may terminate or amend, claim an accelerated payment or forfeiture of the term under, or terminate or modify any right or obligation under, any agreement (including a security agreement).
Limited exceptions to the restriction on ipso facto clauses have been set out in Section 440(5). Charterers and shipowners can take comfort in the special carve out for commercial charters of ships.
Section 440 (4) of the Bill also provides that a party to a contract with an ipso facto clause may still make an application to Court for a declaration that Section 440 of the Bill does not apply or applies only to a certain extent as declared by the Court if said party can satisfy the Court that the operation of Section 440 will “likely cause the applicant significant financial hardship”. It remains to be seen the threshold of “significant financial hardship” which would satisfy the Court but this threshold is likely to be high.
Personal insolvency also sees changes geared towards a more efficient administration of the bankruptcy. The Bill proposes that secured creditors will not be entitled to any interests in respect of the secured creditors’ debt after the bankruptcy order unless they notify the trustee administering the bankruptcy within 30 days after the bankruptcy order. This change will allow the bankrupt’s assets and liabilities to be ascertained early. This will affect personal guarantees (e.g. by directors) provided as collateral to business contracts.
The Bill also introduces a new regulatory regime for ‘Insolvency Practitioners’ (e.g. liquidators, judicial managers, receivers, trustee of a bankrupt’s estate) that will impose requirements and conditions for the grant and renewal of practitioners’ licences and will also put in place a disciplinary framework for errant breaches in the Insolvency Practitioners’ conduct. While this is new in Singapore, this is not new to common law jurisdictions and is a welcome move by Parliament.