Singapore Implements Simplified Insolvency Programme for Micro and Small Companies
08 February 202108 February 2021
The Simplified Insolvency Programme (the “SIP”), which was announced by the Ministry of Law on 5 October 2020, came into force on 29 January 2021. It is intended to apply to micro and small companies ("MSCs") which are seeking to either (a) restructure their debts and rehabilitate their businesses; or (b) enter into liquidation where they have ceased to be viable, all in an efficient and low-cost manner.
MSCs are defined as companies with (a) an annual sales turnover which does not exceed S$10 million; (b) not more than 30 employees; (c) not more than 50 creditors; and (d) liabilities (including contingent and prospective liabilities) which do not exceed S$2 million. To be eligible for the SIP, a company must also not be involved in any ongoing restructuring or winding up proceedings.
The SIP is a temporary programme, implemented to deal with the fallout of COVID-19. It is meant to sit alongside the existing insolvency regime under the IRDA. Where the statutory processes under IRDA are better suited to companies with substantial assets, the SIP is aimed at providing solutions for micro and small companies (as defined above). At first instance, the SIP is to last for 6 months, from 28 January 2021 to 28 July 2021.
The SIP comprises two components: (a) a Simplified Debt Restructuring Programme (the “SDRP”), which aims to allow the company to rehabilitate itself; and (b) Simplified Winding Up Programme (the “SWUP”), which ultimately leads to the dissolution of the company.
The application process for both programmes entails the company making an application to the Official Receiver ("OR"), who assesses the eligibility requirements. If the OR is satisfied on the face of the application, it will send a notice to the applicant company, all creditors named in the application, and in the case of liquidation, also to every contributory or officer named in the application. If there is any objection to the application (which must be made within 21 days of the notice), the OR will consider the same and decide whether to allow the company into the programme.
The SDRP is modelled on the existing pre-packaged scheme regime, as set out in Section 71 of the existing IRDA. Upon a company’s acceptance into the SDRP, a Restructuring Advisor will be appointed by the Official Receiver to assist the company to formulate a proposed compromise or arrangement. The Restructuring Advisor is usually an experienced insolvency practitioner, who will be able to guide the company through the restructuring process.
While a company is in the SDRP, it is protected by a moratorium which, inter alia, restrains the commencement of proceedings against the company, the appointment of a receiver or manager over any property or undertaking of the company, and the enforcement of security over any property of the company. No proceedings may be commenced or continued against the company, except with the leave of Court and subject to any terms the Court may impose. The exercise of ipso facto clauses against the company is also prohibited.
The SDRP is intended to be completed within a period of 90 days from the date on which the company is accepted into the programme (subject to any successful application for an extension of the default period). During this period, the company should present the terms of a scheme of arrangement to its creditors, seek to obtain the assent of at least two-thirds in value of the creditors, before applying to Court for sanction of the scheme. The application may be made by a duly authorised officer of the company, instead of through external counsel.
Unlike the traditional scheme of arrangement, which requires at least two applications to Court (one for leave to convene a creditors' meeting, and the second for sanction), under the SDRP, only one application to Court is required (for sanction of the scheme). Also unlike the traditional scheme, there is no specific number of creditors required to assent to the scheme under the SDRP (whereas in a traditional scheme, a majority in number of creditors must approve the scheme). However, in considering whether the threshold has been met under the SDRP, the Court must disregard the vote of any related party of the company.
An application fee of S$450 is payable by the company at the submission of each application for the SDRP, and a deposit of S$18,750 is payable by the company upon acceptance into the SDRP, which will be partly used to defray the costs of the Restructuring Advisor.
The SWUP is intended to be a simplified alternative to the usual voluntary winding up process under the IRDA for small businesses and is adapted from the existing creditors' voluntary winding up framework.
Applications to the OR to be accepted into the SWUP are to be made by the company, and accompanied by a special resolution of the shareholders authorising the making of the application and resolving that the company be voluntarily wound up upon being accepted into the SWUP, and a statement of affairs showing that the company will not be able to pay its debts in full.
Upon acceptance into the SWUP, the voluntary winding up of the company under the SWUP is to be treated as if it were a creditors’ voluntary winding up with some modifications to streamline the process. Amongst other things, the OR will be the liquidator of the company, with the power to appoint a qualified person to act as a special manager. There will not be any need to convene creditors' meetings, and the OR may only bring or defend actions or legal proceedings if it is necessary to preserve the rights of the company or to prevent prejudice to the company. If the company has insufficient realisable assets to cover winding up expenses, then it is to be put on the track for early dissolution.
An application fee of S$450 is payable by the company at the submission of each application for the SWUP, and a deposit of S$2,700 is payable by the company upon acceptance into the SWUP.