The Bankruptcy (Amendment) Act 2015 came into effect on August 1, 2016. The Insolvency Law Review Committee had submitted a report in 2013 with specific recommendations on the changes needed in Singapore’s bankruptcy law. The amended bankruptcy law is in line with the committee’s recommendations.
According to the Ministry of Law in Singapore, the new framework of the bankruptcy law will create a “rehabilitative environment” for bankrupts in the country.
Here are the key changes to the bankruptcy law in Singapore
Key Changes to the Act
Higher Threshold Debt Amount
A person needs to owe at minimum an amount of $15,000 before he or she is declared bankrupt. Earlier, the threshold amount for bankruptcy was $10,000. The new threshold will encourage debtors and creditors to resolve their issues instead of taking the bankruptcy route.
Timeline for filing application
Now, a creditor after issuing a payment demand to the debtor does not have to wait for 21 days to lapse before filing a bankruptcy application. However, a creditor, before such filing must justify the immediacy by showing the possibility that the debtor’s property value could significantly diminish before the end of the 21 day period. The changes will facilitate the bankruptcy application process.
Administration of Bankruptcies
Prior to the changes, an Official Assignee (OA) was in charge of the administration of all bankruptcies in Singapore. Now, institutional creditors have to nominate a private trustee for the administration of the bankruptcy estate. Such trustees can be accountants as well as lawyers.
The law deems the following to be “institutional creditors”:
- Banks and finance companies regulated by the Monetary Authority of Singapore (MAS) or
- Business undertakings having an annual sales turnover of more than $100 million and with more than 200 employees.
The Ministry of Law stated that with the new law coming into force, the Official Assignee will administer bankruptcy cases of individuals or small businesses. This new provision aims at reducing the burden of the Official Assignees.
Differentiated Discharge System
The new regime outlines a clear timeframe for the discharge of a debt by bankrupts as follows:
- First-time bankrupts are eligible for discharge within a five to seven year period.
- Repeat bankrupts are eligible for discharge within seven to nine years.
A bankrupt’s discharge will depend on the “Target Contribution” which relies on the earning capacity of the bankrupt. The amended act outlines the contribution amount payable by the debtor and the amount depends on whether the bankrupt is a first-time bankrupt or a repeat bankrupt.
The Ministry of Law stated that the new provision is designed to provide an incentive to bankrupts to follow their payment plan and look for employment.
Proof of Debt
The new law imposes a deadline of four months from the administration date for creditors to submit a proof of their debt. The administration date for this purpose is either:
- The date the bankrupt submits the statement of his or her affairs or
- The date the bankrupt submits any supplementary information as directed by the Official Assignee.
An extension of the deadline is possible with the permission of the court. If the creditors do not submit the proof within the deadline, they are not entitled to any distribution from the bankruptcy estate.
If the bankrupt fails to pay off his or her debts, the public register records the bankrupt’s status (of bankruptcy). This helps creditors exercise caution when extending credit to the bankrupt in future. However, on payment of the entire amount of target contribution, the bankrupt’s name will no longer appear in the register after 5 years.
Benefits of the New Law
Put simply, the amendment will create a more rehabilitative environment in the country for bankrupts and will also encourage creditors to exercise prudence when extending credit.
The changes bring about speed and certainty to the bankruptcy process. They are not biased in favour of any party and judiciously balance the interests of all parties involved. The new law will strengthen Singapore’s legal system.
With the recent implementation of the new bankruptcy law in Singapore, it will be interesting to see how the law affects this area of practice in Singapore and the number of bankruptcy filings.