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SECTION 1 INTRODUCTION TO SINGAPORE INSOLVENCY LAWS
 
30.1.1 Singapore accepts insolvency to be a corollary of a healthy entrepreneurial and risk-taking business culture. Its insolvency laws have been developed over the years providing a platform to manage the competing interests of corporate borrowers facing financial difficulties on one hand, and lenders seeking to recover their debts in an efficient and economical manner on the other. The early archetype of insolvency law in Singapore was strongly pro-creditor. In recent times, there has been a gradual shift towards creating a climate conducive to corporate rescue.
 
30.1.2 Our insolvency ecosystem comprises of both winding up procedures and rehabilitative procedures (namely, judicial management and schemes of arrangement). A company facing insolvency can either attempt to survive by using various mechanisms to deal with its creditors or accept dissolution as its fait accompli.
 
30.1.3 Corporate insolvency proceedings are exclusively heard by the Singapore High Court. Recently, the Court has introduced specialist commercial lists of judges, including one for company, insolvency and trusts.
 
30.1.4 The current legislative framework in Singapore in relation to insolvency procedures is adapted from England and Australia. These insolvency provisions are primarily encapsulated in the Companies Act (the “CA”) as well as in subsidiary legislation such as the Companies Regulations and the Companies (Winding up) Rules. Singapore has developed its own autochthonous legal system, establishing legislation and case law that are unique to its social and economic circumstances. While English and Australian insolvency decisions are relevant, the guidance offered must be construed against the backdrop of commercial practices and policy considerations in Singapore.
 
30.1.5 As part of the Singapore Government’s initiative to review its existing corporate and personal insolvency laws, the Insolvency Law Review Committee (the “IRLC”) was appointed in late 2010 to undertake a study. The IRLC issued its final report in 2013, wherein it recommended the enacting of a new omnibus Insolvency Act that would consolidate and update Singapore’s insolvency regime. Ultimately, the Committee’s recommendations are aimed at establishing an insolvency law regime that is progressive, effective, fair and efficient under local conditions and in the Singapore milieu. The draft of the omnibus Insolvency Bill is currently being prepared.
 
 
 
 
SECTION 2 WINDING UP
 
30.2.1 The winding up or liquidation of a company entails the debtor company’s assets being collected and sold off in order to pay its debts. Any monies remaining after all debts, expenses and costs have been paid off are then distributed amongst the shareholders of the company. After the completion of winding up, the company will then be formally dissolved and cease to exist.
 
A. Voluntary liquidation
 
30.2.2 Proceedings to wind up a company are either voluntary or compulsory. For voluntary liquidation, solvent companies may voluntarily liquidate by way of a members’ voluntary winding up, whereas insolvent companies must do so through a creditors’ voluntary winding up. A members’ voluntary winding up typically commences upon the passing of a special resolution by the members of the company. If before the passing of the winding up resolution, the directors lodge a declaration with the Registrar of Companies that the company cannot by virtue of its liabilities continue its business, the winding up commences at the time that the declaration is lodged (regardless of when the winding up resolution is passed).
 
30.2.3 For a members’ voluntary winding up, the company must be in a position to pay its debts in full within 12 months after the commencement of winding up. The directors of the company are required to file a declaration of solvency to the above effect. If this declaration is made without reasonable grounds, there are penal consequences. In a members’ voluntary winding up, the liquidator will be appointed by the company.
 
30.2.4 Where a company is unable to pay its debts and wishes to be wound up, it may do so by way of a creditors’ voluntary winding up. In addition to the requirement of a members’ resolution to wind up the company, the company must also convene a meeting of its creditors to consider the proposal for a voluntary winding up. The company will appoint a liquidator, subject to any preference the creditors may have as to the choice of liquidator.
 
30.2.5 If no declaration of solvency is filed or if the liquidator is satisfied that the company is unable to pay its debts within 12 months after the commencement of winding up, the winding up will proceed as a creditors’ voluntary winding up.
 
30.2.6 From the commencement of winding up, the company shall cease to carry on its business. However, the corporate powers of the company shall continue until the company is dissolved. During the winding up process, the company’s shareholders cannot transfer their shares in the company without the approval of the liquidator.
 
B. Compulsory Winding Up
 
30.2.7 The following parties can apply to wind up a company compulsorily:
  1. The company itself;
  2. A creditor of the company;
  3. A shareholder of the company;
  4. A liquidator;
  5. A judicial manager; or
  6. Various Ministers on grounds specified under the law.
30.2.8 There are certain grounds upon which a company can be wound up compulsorily. A company’s inability to pay its debts is a common ground for presenting an originating summons for compulsory winding up (section 254(1)(e)). A company is deemed to be unable to pay its debts if:
  1. A creditor having a claim against the company for more than S$10,000 has served a statutory demand requiring payment, and the debt is not paid or secured or compounded to the reasonable satisfaction of the creditor within 3 weeks;
  2. Execution of a judgment obtained by a creditor against the company remains unsatisfied in part or in whole; or
  3. It is proved to the Court’s satisfaction that the company is unable to pay its debts.
30.2.9 There is no prescribed form for the statutory demand save that it be signed by the creditor or by his authorised agent. The demand should also be served by leaving it at the company’s registered office. The debt must be a liquidated sum and should not be in respect of a claim that is genuinely disputed by the company. There should also not be in existence a genuine cross-claim against the creditor.
 
 
30.2.11 Under section 257(1) of the CA, the Court may adjourn the hearing of a winding-up application conditionally or unconditionally, or make any interim or other order that it thinks fit. Where a company is temporarily insolvent, the Court might grant an adjournment or an injunction of limited duration to allow the company to resolve its issues.
 
 
 
 
30.2.15 Section 325 of the CA also provides that the Court may have regard to the wishes of creditors or contributories in matters relating to the winding up of companies. The Courts will ordinarily attach little weight to the wishes of the contributories in comparison with the weight it attaches to the wishes of any creditor, who proves that he is unpaid and that the company is unable to pay its debts (Re Hong Huat Realty (M) Sdn Bhd [1987] 2 MLJ 502).
 
 
30.2.17 A winding up application is typically heard within 6 weeks from the date of its filing. The filing of the application and the hearing date must be advertised in the newspapers.
 
C. Main Effects of a Compulsory Winding Up Order
 
30.2.18 When a company is compulsorily wound up by the Court, the winding up is deemed to have commenced at the time the Originating Summons for winding up was filed. Upon the commencement of winding up, the company’s officers have no power to carry on the business of the company. The Official Receiver or private liquidator (where one is appointed) takes over control of the company but has very limited powers to carry on the company’s business.
 
30.2.19 Within 14 days of the winding up order, the directors and the secretary of the company must deliver a statement of the company’s affairs to the liquidator, who must then make a report to the Court. The statement of affairs contains details of the company’s assets and liabilities, and enables the liquidator to carry out investigations into the affairs of the company.
 
 
30.2.21 After the winding application has been filed, the company, its creditors or its shareholders may apply to restrain any pending proceedings against the company. Once the winding up order is made, no action against the company may be commenced or continued without the leave of the Court. Any deposition of the company’s property and/or any transfer of its shares after the commencement of winding up shall be void unless the Court orders otherwise.
 
D. Distribution of Assets
 
30.2.22 In all modes of liquidation, the pari passu principle applies and provides that all unsecured creditors share ratably in the assets of the company. This is subject to exceptions for secured and preferential debts.
 
30.2.23 The anti-deprivation rule provides that contractual provisions, which are designed to remove assets held at the commencement of the winding up from the estate of an insolvent company, are void for contravening public policy. The Singapore High Court in Joo Yee Construction Pte Ltd v Diethelm Industries Pte Ltd [1990] SLR 278 applied the anti-deprivation rule as set out in British Eagle International Airlines v. Air France [1975] 2 All ER 390.
 
30.2.24 Secured creditors stand outside the liquidation, and their entitlement to realise their security is unaffected by the appointment of a liquidator. If the security is inadequate, they may prove as unsecured creditors for the balance.
 
30.2.25 Certain debts as set out in section 328 of the CA have priority over a floating-charge holder and unsecured creditors. If there are insufficient assets to pay any class of preferred debts, the debts within the class abate in equal proportions. Thereafter, the debts attributable to subsequent classes and other unsecured creditors will not be paid.
 
30.2.26 Any residual assets of the company remaining after payment of all secured, preferred and unsecured creditors will be divided amongst the company’s shareholders. Where there are preference shares, their entitlements or preferences will be honoured in accordance with the terms of their issue as set out in the memorandum and articles of association of the company. Finally, the ordinary shareholders will participate equally in all remaining assets.
 
30.2.27 Upon completion of the liquidation, the liquidator will apply to Court for an order that he be released and the company dissolved. The company will then cease to exist from the date of the order of the dissolution.
 
E. Directors’ Duties
 
30.2.28 There are various duties and liabilities concerned with increasing directors’ accountability to a company’s creditors, particularly during the twilight period of financial difficulty where such company is insolvent or close to it.
 
F. Fraudulent Trading
 
30.2.29 Section 340(1) of the CA applies where, in the course of winding up or any proceedings against a company, it appears that any business of the company has been carried on with an intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose. On the application of the liquidator or any creditor or contributory of the company, the Court may, if it thinks proper to do so, declare that any person, who was knowingly a party to the carrying on of the business in that manner, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company. Such a person may also be guilty of the commission of an offence under section 340(5) of the CA.
 
30.2.30 Civil liability can be imposed on an officer of a company for fraudulent trading under section 340(1) of the CA without the need for any criminal conviction. Under section 340(1) of the CA, applicants are required to prove the carrying on of business with an intent to defraud and that the respondent was a knowing party to the carrying on of such business. This attracts a stricter degree of proof than would usually be required in civil cases not involving fraud.
 
30.2.31 A person has to actively participate in the management of a company for him to be said to be a party to carrying on a company’s business with an intent to defraud. Positive steps taken by such a person are a key element of active participation, and the director must be shown to have taken such steps in order for liability to attach.
 
G. Wrongful Trading
 
30.2.32 Section 339(3) of the CA provides that if, in the course of the winding up of a company or in any proceedings against a company, it appears that an officer of the company who was knowingly a party to the contracting of a debt had, at the time the debt was contracted and after taking into consideration the other liabilities (if any) of the company, no reasonable or probable ground of expectation of the company being able to pay the debt, such officer shall be guilty of an offence. If found guilty, that person can also be made personally liable for the whole or part of the debt pursuant to section 340(2) of the CA.
 
30.2.33 Wrongful trading can be contrasted with fraudulent trading in that it requires no dishonesty or fraud; the offence is constituted on the basis of an officer knowingly contracting a debt on behalf of the company when he had no reasonable or probable ground of expectation that the company would be able to pay the debt. In principle, the contracting of debts in a reckless or unreasonable manner may be sufficient to establish the offence.
 
30.2.34 However, wrongful trading requires a criminal conviction of the delinquent officer before civil liability, to pay the whole or part of the debt incurred by the company, can be triggered. Wrongful trading must be established on a criminal standard of proof.
 
H. Breach of directors’ duties affecting creditors
 
30.2.35 Ordinarily the directors of a company are not personally liable for the debts of the company since the company is a separate legal entity. Further, the directors of a company generally do not owe any duties to creditors of the company. Their principal concern is the interests of the company and shareholders as a whole. However, if a company has become insolvent, the directors may be in breach of their duties to the company if they prejudice the interests of the creditors. This is so even if the shareholders of the company have no objections to their actions or where the shareholders may actually have benefited.
 
 
I. Voidable Transactions
 
30.2.37 The avoidance provisions found principally in the CA and Bankruptcy Act (the “BA”) are of great importance in the management of the insolvent estate in winding up or judicial management. These enable the unwinding of certain transactions that would, but for the winding up or judicial management, have remained binding on the company. If successfully invoked, they mandate the clawing-back of property transferred by the transactions or a reversal of their effects.
 
30.2.38 There are some avoidance provisions that apply in liquidation, but do not expressly apply in judicial management. That said, such powers may be conferred on judicial managers pursuant to section 227X(b) of the CA.
 
 
30.2.40 A liquidator or a judicial manager has the power to set aside transactions at an undervalue, where such transaction(s) was given when a company was insolvent, or became insolvent as a result of the transaction(s) in question. A transaction at an undervalue can be impugned if it took place within five years before the commencement of winding up or judicial management. There is a presumption of insolvency if the transaction is entered into with an “associate” as defined under section 101 of the BA.
 
 
30.2.42 A liquidator or a judicial manager has the power to set aside an unfair preference given when a company was insolvent or, as a result of which, the company became insolvent. An unfair preference, which is not a transaction at an undervalue, and which is given to an associate of the company, can be challenged if it took place within two years before the filing of a winding up application. Any other unfair preference can be challenged if it took place within six months before the filing of the winding up application.
 
 
 
 
 
30.2.47 Credit transactions are extortionate if either the terms are such as to require grossly exorbitant payments be made in respect of the provision of the credit, or it is harsh and unconscionable or substantially unfair ((section 103 of the BA Read with section 329 / section 227T of the CA). Such transactions may be set aside or varied by the Court if they are entered into within a period of three years before the commencement of winding up or judicial management. It has to be demonstrated that not only were the transactions unfair, but were oppressive and reflecting an imbalance in bargaining power of which the other party took improper advantage.
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30.2.48 Section 332 of the CA empowers the liquidator to disclaim property or contractual obligations of the company if they impose onerous burdens, are unprofitable or not readily realisable. The liquidator can exercise the power of disclaimer only with the leave of the Court or the committee of inspection.
 
30.2.49 Lastly, the liquidator or judicial manager has the right to recover dissipated assets in respect of certain sales to or by a company (section 331 / section 227X of the CA).
 
 
 
SECTION 3 RECEIVERSHIP
 
30.3.1 Private receivership, strictly speaking, is a mode of enforcement of a secured creditor’s rights; it is neither a collective process nor a court-administered insolvency proceeding. It originated as an equitable remedy for the enforcement of a charge over real property but is now contractually provided for in security documentation. While private receivership was abolished in the UK in 2002, it has been retained in Singapore as a sacrosanct security right.
 
30.3.2 Receivers, or receivers and managers, may be appointed privately pursuant to a right granted under an instrument, or by the Court through invoking certain statutory provisions. However, private receivers have since outstripped court-appointed receivers in practical importance.
 
30.3.3 The appointment of a private receiver is essentially contractual and can be effected with relative ease and speed, obviating the need for an application to the Courts. The security documents typically provide for the circumstances in which the appointment of a receiver may be made, and the powers of the receiver. A secured creditor typically appoints a receiver for the primary purpose of realising the security and applying the proceeds of sale towards the discharge of the debts owed to it. Where the security is a floating charge over the undertaking of the company, the receiver is also given powers of management in respect of the company’s undertaking and is known as a receiver and manager.
 
 
30.3.5 The appointment of a receiver crystallises any floating charge given by a company and the company can no longer deal with the property that is subject to such a charge. The effect of receivership on the powers of the board of directors depends on the scope and extent of the receivership. Where the receiver has control over substantial assets, directors will be effectively functus officio until the end of the receivership. The duration of the receivership depends on how long the receivers take to realise the assets. The appointment of the receiver does not affect the existence of the company. At the end of a receivership, the company theoretically still exists and may continue its business, at least in theory. However, in practice, the onset of receivership more often than not foreshadows liquidation proceedings.
 
 
 
 
SECTION 4 JUDICIAL MANAGEMENT
 
30.4.1 In 1987 following the Pan-Electric crisis, judicial management was introduced in Singapore and is based on the English administration regime. Its objective is to give viable companies in financial trouble breathing space to be rehabilitated and restored to profitability. Another of its purposes is to enable insolvent companies be liquidated in a more orderly manner, by allowing economic rationality to prevail and pre-empting the self-interested scramble for assets. The superstructure of Singapore’s judicial management regime is set out in Part VIIIA of the CA and the rules found in Part V of the Companies Regulations.
 
30.4.2 A judicial management application may be brought by the company (pursuant to a members’ resolution), its directors (pursuant to a board resolution) or its creditors (including contingent and prospective creditors) either together or separately. Section 227B(1) of the CA provides that the Court may make a judicial management order if the Court is satisfied that the company is or will be unable to pay its debts. Additionally, the Court must be satisfied that the order, if made, would be likely to achieve one or more of the following purposes, namely:
  1. the survival of the company, or the whole or part of its undertaking as a going concern;
  2. the approval under section 210 of the CA of a compromise or arrangement between the company and any such persons as are mentioned in that section; or
  3. the more advantageous realization of the company´s assets than would occur in a winding up.
 
30.4.4 The Court will dismiss the application where a receiver and manager have been appointed over the whole or substantially the whole of the company’s property under a debenture of the company secured by a floating charge. The application will also be dismissed by the Court if it is opposed by a creditor entitled to appoint a receiver and manager.
 
 
 
 
30.4.8 An interim judicial manager can be appointed with such functions, duties and powers as may be specified (see section 227B(10)(b) of the CA). The Report of the Select Committee on the Companies (Amendment) Bill [Bill No. 9/86] suggests that an interim judicial manager should be appointed in the following instances:
  1. Where the assets or business of the company are at risk of being dissipated or deteriorated;
  2. To 'bridge the gap' between the application for judicial management and the hearing of the judicial management application; and
  3. To safeguard the interests of the company as well as its creditors, in particular where the interim judicial manager will be in a better position to continue the business affairs of the company in the meantime.
30.4.9 The judicial manager is an officer of the Court who is conferred broad managerial and investigatory powers. He has to present, at creditors’ meeting to be called, a statement of proposals to the creditors within sixty days of appointment. He has the duty to manage the company’s affairs in accordance with approved proposals. He has to take into custody or under his control all the property to which the company is or appears to be entitled. Furthermore, in addition to all the powers and duties of the directors, he assumes the powers specified in the Eleventh Schedule of the CA.
 
30.4.10 The judicial manager is the agent of the company and is personally liable on any contract entered into or adopted by him in the carrying out of his functions, unless such liability is excluded. He is however entitled to be indemnified out of the property of the company in his custody or control. A judicial manager is not deemed to adopt a contract entered into by a company if he does (or omits to do) any act within 28 days after the making of the judicial management order. Thereafter, the judicial manager would be deemed to have adopted any contract entered into by the company.
 
30.4.11 Once a judicial management order is made and while it remains in force, the board of directors becomes functus officio and its functions and powers are transferred to the judicial manager. The directors will have to submit a statement of affairs within 21 days of receiving notice of the judicial management order. The making of a judicial management order has no effect on the rights of shareholders.
 
 
30.4.13 The judicial manager also has the power to dispose of secured assets in accordance with section 227H of the CA. Assets secured by a floating charge may be disposed of at the judicial manager’s discretion. However, the floating charge holder must be accorded the same priority in respect of the proceeds. For other secured assets, a court order is needed to authorise the judicial manage to dispose of the assets.
 
30.4.14 Under section 227B(8) of the CA, a judicial management order will be discharged after a hundred and eighty days unless extended by the Court. This provision does not specify a limit on the number of extensions which the Court may grant. The test the Court should apply on an application for an extension should be similar to that applied on the making of a judicial management order.
 
30.4.15 The judicial management order may also be discharged under section 227N(4) of the CA if (i) the creditors decline to approve the judicial manager´s proposals; or (ii) under section 227Q(1) of the CA it appears on the application of the judicial manager that the purposes specified in the judicial management order cannot be achieved; or (iii) under section 227R of the CA the judicial manager has acted or will act in a manner that would be unfairly prejudicial to the interests of creditors or members of the company.
 
 
 
SECTION 5 SCHEMES OF ARRANGEMENT
 
30.5.1 A scheme of arrangement is a versatile process that is used not only in the context of insolvency, but also for takeovers, mergers and the reorganisation of share capital and shareholders’ rights in a company. However, the focus here is on the use of the scheme of arrangement procedure as a compromise arrangement between the company and its creditors, under which the creditors agree to forgo all or part of their claim against the company, or simply to reschedule their debts, while allowing the company to continue to trade. Such arrangements may be privately arranged or Court sanctioned.
 
A. Consensual Workouts
 
30.5.2 It is possible for company to attempt to enter into private arrangement with its creditors without the assistance of the Court. The Association of Banks in Singapore’s Principles and Guidelines for Restructuring of Corporate Debt is indicative in this regard. In doing so, all of the creditors would have to agree to the arrangement. However, obtaining the unanimous consent of all affected creditors is no easy task since the creditors might have diverse expectations. Some may want a quick exit from the company while others might not be averse to a longer-term solution. A deed is usually executed detailing the agreed arrangement. However, problems may arise when a creditor breaches the deed or if creditors that are not parties to the deed subsequently surface.
 
B. Court Sanctioned Schemes of Arrangements
 
30.5.3 As it may be difficult to obtain the unanimous consent of all creditors and members, the legislation provides for a cram-down mechanism to enable the corporate debtor to implement a debt restructuring plan.
 
30.5.4 The provisions on schemes of arrangement were introduced in 1967 and are based on English legislation formulated in the 19th Century. The entire procedure is set out in sections 210 and 211 of the CA. This basic and open-ended legal framework has, especially in the past decade, seen a gradual articulation by local case law of its contours and doctrinal underpinnings.
 
30.5.5 According to statistics based on the cases filed with the Courts from 2002 to July 2009, out of 48 schemes which were sanctioned by the Court in that period, a majority of the companies (77.1%) remained live as at December 2009. The scheme of arrangement has emerged as the favoured restructuring vehicle in Singapore.
 
 
 
 
C. The Scheme Moratorium
 
 
30.5.10 Typically, companies will be able obtain a blanket moratorium on all action (present and future). As a matter of strict interpretation of the legislation, this is outside the moratorium jurisdiction given to the Court as that extends only to existing actions. But as a practical matter, judges take an expansive view of the jurisdiction and will grant such blanket moratoriums.
 
30.5.11 Any moratorium which the Singapore Court grants has local effect only and does not operate as an injunction. As such, a creditor who commences proceedings against the company abroad will not be in contempt of court. Typically, where there are overseas assets and creditors, the company will apply to foreign courts for insolvency protection.
 
D. The Scheme Meeting(s)
 
30.5.12 For a scheme of arrangement to take effect, it will be necessary to first of all to make an application to the Court under section 210(1) of the CA for an order summoning one or more meetings of the creditors or members of the company. If the Court is minded to make such an order, a proposal must then be tabled before the relevant meetings and approved by the requisite majority of the creditors or members.
 
 
30.5.14 For voting purposes, section 210(3) of the CA requires the creditors to be divided into separate classes if their rights are so dissimilar that they cannot sensibly consult together with a view to their common interest (Wah Yuen applying UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin [2001] 3 HKLRD 634 at 647).
 
 
30.5.16 Ultimately, the classification of creditors for the purpose of voting is protective of minority creditors whose rights might be crammed down upon if they are outvoted. By allowing them to vote separately, from creditors whose rights are so different from theirs such that the latter have additional non-private interests in voting for the scheme, these minority creditors are less likely to be overwhelmed and their votes thereby given the appropriate significance. The Court will take a broad, practical and objective approach in the analysis of creditor relationships (TT International at [141]).
 
 
E. Court Sanction
 
 
30.5.19 In TT International, the Court of Appeal set out the three considerations in respect of which a Court must be satisfied:
  1. That the statutory provisions of the CA have been complied with;
  2. That those who attended the meeting were fairly representative of the class of creditors or the class of members, and that the statutory majority did not coerce the minority in order to promote interests adverse to those of the class whom the statutory majority are purported to represent;
  3. That the scheme is one which a man of business or an intelligent and honest man, being a member of the class concerned and acting in respect of his interest, would reasonably approve.
30.5.20 The scheme document will usually provide for the scenario under which the scheme will conclude or terminate. If after a certain amount of time, it appears that the scheme is not going to achieve its objectives, then assuming the appropriate terms have been incorporated in the scheme document, the scheme could be terminated either by a vote at a meeting of creditors/members or on the decision of the scheme administrator.
 
 
 
 
SECTION 6 CROSS-BORDER INSOLVENCY
 
30.6.1 Presently, Singapore law has limited statutory provisions that deal with cross-border insolvencies. The ILRC’s report recommended the adoption of the UNCITRAL Model Law on Cross-Border Insolvency (the “Model Law”). Introduced in 1997, the Model Law remains the leading international initiative to deal with cross-border insolvencies. The Model Law reflects a universalist approach to insolvency and provides an established framework which will allow Singapore Courts to recognise and assist foreign insolvency proceedings. Until the Model Law is adopted, the Singapore Courts will have to avail to common law doctrines to address cross-border insolvency issues.
 
30.6.2 Even though Singapore has yet to adopt the Model Law, it is possible to apply for overseas recognition of Singapore insolvency proceedings in jurisdictions which have adopted the Model law. See for instance in the matter of CNA Group Ltd v CNA Group Ltd [2015] FCA 1148, where Singapore judicial managers applied for recognition of the judicial management order in Australia pursuant to the Australian Cross-Border Insolvency Act which enacted Model Law.
 
30.6.3 Section 377(3)(c) of the CA provides for the ring-fencing of the Singapore assets of a foreign company in Singapore undergoing liquidation. Essentially, the Singapore assets of the foreign company have first to be allotted to pay off locally-incurred debts before the net amount is remitted to the liquidator of the foreign company. The ring-fencing provision applies to foreign companies which have registered in Singapore and foreign companies which intend to have a place of business or carry on business in Singapore.
 
 
30.6.5 The Court of Appeal also noted that whether and how the Singapore Court will render assistance to foreign winding up proceedings, through the regulation of its own proceedings, will depend on the circumstances of each case.
 
 
The availability of other restructuring vehicles to foreign companies
30.6.7 Section 351(1)(b) of the CA provides that a foreign company may only be wound up by the Court and that it cannot be voluntarily wound up by members or creditors in Singapore. It should also be noted that the judicial management regime is currently not available to foreign companies.
 
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SECTION 7 PERSONAL BANKRUPTCY
 
A. Introduction
 
30.7.1 Singapore's Bankruptcy laws are aimed at encouraging risk-taking and entrepreneurial enterprise, through reducing the negative impact of failure, while striking a careful balance at preserving commercial morality and financial discipline.
 
30.7.2 All bankruptcy proceedings take place in the Singapore High Court. Personal insolvency laws are encapsulated in the Bankruptcy Act (Cap 20) (the "BA") while the rules of procedure are set out in relevant subsidiary legislation including the Bankruptcy Rules. On 14 July 2015, the Bankruptcy (Amendment) Bill 2015 was passed in Parliament. On 1 August 2016, these amendments came into effect, creating a more rehabilitative environment for bankrupts as well as seeking to incentivise institutional creditors to undertake better risk assessments before granting credit.
 
30.7.3 Section 60 of the BA provides that the High Court has jurisdiction if the debtor:
  1. is domiciled in Singapore;
  2. is ordinarily resident or has had place of residence in Singapore within one year prior to the bankruptcy application;
  3. carried on business in Singapore within one year prior to the bankruptcy application; or
  4. has property in Singapore.
30.7.4 The law adopts a presumption against a change of domicile (Algemene Bank Nederland v Loo Choon Yao [1989] 2 MLJ 258). Hence, the burden of proving any change of domicile rests upon the person alleging it. Mere frequent travel abroad will therefore not constitute a change of domicile.
 
B. The process of a bankruptcy application
 
30.7.5 An application for a bankruptcy order may be made by either a creditor or the debtor. A creditor’s application is made pursuant to section 57 of the BA, whereas a debtor’s application is taken out under section 58 of the BA.
 
30.7.6 A debtor (who is an individual) may file an application to make himself a bankrupt. A statement of affairs must be filed together with the Bankruptcy Application. If a partnership firm wishes to take out a Bankruptcy Application, the application must be presented jointly by all the partners of the firm or by a majority of such partners who are residing in Singapore at the time of the making of the application.
 
30.7.7 A creditor may only file a Bankruptcy Application against a debtor if, amongst other things, the debt owed is not less than S$15,000 (this was increased from S$10,000) and the debtor is unable to pay the debt. Under the law, a debtor is presumed to be unable to pay a debt if he does not comply with or apply to set aside a Statutory Demand. After a Statutory Demand demanding payment is served on a debtor and the debtor does not make payment within 21 days or apply to the Court to set aside the Statutory Demand within the same period, the creditor may proceed to file a creditor’s Bankruptcy Application against the debtor. With the 2016 amendments, a creditor is not required to wait for 21 days prior to filing a bankruptcy application if it can demonstrate that there is a serious possibility that the debtor’s property or its value will be significantly diminished before the end of the 21-day period.
 
30.7.8 At the first instance, creditors ought to endeavour to serve the relevant bankruptcy papers on the debtor personally. Where such personal service is unsuccessful, it is possible to apply for substituted service under Rule 111 of the Bankrupt Rules. The most common modes are:
  1. by posting the statutory demand at the door or some other conspicuous part of the last known place of residence or business of the debtor or both; or
  2. by forwarding the statutory demand to the debtor by prepaid registered post to the last known place of residence, business or employment of the debtor.
30.7.9 If a debtor wishes to set aside the Statutory Demand served on him, an Originating Summons must be filed within 14 days (or if the Statutory Demand was served outside Singapore, within 21 days) from the date of service of the Statutory Demand. In the Affidavit filed in support of the Originating Summons, the debtor can:
  1. state reasons for not admitting the debt;
  2. admit the debt, but state reasons why it is not immediately payable;
  3. admit the debt and offer to secure or compound it to the creditor’s satisfaction;
  4. inform the Court that the debt is a secured debt and provide full details of the security and its value;
  5. present a counterclaim or cross-demand;
  6. (where the debt arises from a judgment) prove that execution on the judgment of the Court has been stayed;
  7. state reasons why the statutory demand does not comply with the Bankruptcy Rules; and/or
  8. state personal grounds or other reasons why the statutory demand should be set aside.
30.7.10 A debtor can also oppose the creditor’s Bankruptcy Application by filing a Notice of Objections specifying his/her objections not later than 3 days before the scheduled hearing date of the Bankruptcy Application. The Notice of Objections is to be served on the creditor and the Official Assignee (the administrator of the bankrupt’s affairs).
 
30.7.11 The hearing of a Bankruptcy Application is fixed approximately 4 to 6 weeks from the date of filing of the Bankruptcy Application. After a Bankruptcy Order has been made against a person, this will be published in the Government Gazette accordingly, and the Official Assignee or the Private Trustee (if one is appointed) will then administer the bankrupt’s affairs in bankruptcy. The Official Assignee or his representatives will contact the bankrupt for him to come to their office for an interview.
 
30.7.12 With the 2016 amendments, institutional creditors are required to nominate private trustees to be appointed to administer the bankrupt’s estate when applying for a bankruptcy order. For this purpose, institutional creditors are either banks or finance companies regulated by MAS, or business undertakings with annual sales turnover of more than $100 million and more than 200 employees.
 
C. Effects of a bankruptcy order and duties of the official assignee
 
30.7.13 Immediately upon the making of a Bankruptcy Order, all property belonging to the bankrupt vests in the Official Assignee. The bankrupt is therefore no longer allowed to deal with his property. Also, any purported transfer of the bankrupt’s property is void (unless made with the consent of the court), as the bankrupt no longer possesses any good title to give.
 
30.7.14 After the Court grants the application, the bankrupt must submit a statement of his assets, liabilities and creditors within 21 days from the making of the Bankruptcy Order. Failure to do so can result in imprisonment or a fine. The Official Assignee will then sell off the bankrupt’s assets and the dividends will be paid by the Official Assignee to the creditors who have provided proof of the debts.
 
30.7.15 The bankrupt is also subject to various statutory duties under section 29 of the BA. A general duty is imposed on him to assist the Official Assignee in identifying and recovering the property of his estate. Under section 6(2) of the BA, the Official Assignee may apply for a court order to force the bankrupt to comply with the Official Assignee’s directions and the bankrupt’s own duties.
 
30.7.16 A moratorium will also be imposed under section 76(1)(c) of the BA, such that creditors will not be able to commence proceedings for debts incurred prior to bankruptcy except with leave of court. The right of any secured creditor to realise or otherwise deal with his security is unaffected.
 
30.7.17 The bankrupt will also be subject to various statutory restrictions and disabilities, including being unable to leave Singapore without the Official Assignee’s permission. Also, pursuant to section 148(1) of the Companies Act, a bankrupt cannot be a director of a company without the Official Assignee’s approval.
 
30.7.18 With the 2016 amendments, a secured creditor shall not be entitled to any interest in respect of his debt after the making of a bankruptcy order if he does not realise his security within 12 months (previously this was 6 months) from the date of the bankruptcy order or such further period as the Official Assignee may determine.
 
30.7.19 A bankrupt may exit bankruptcy in the following three ways:
  1. Annulment of the Bankruptcy Order by full settlement or Offer of Composition or a Scheme of Arrangement;
  2. Discharge by the High Court; or
  3. Discharge by Certificate of the Official Assignee.
30.7.20 The new differentiated discharge framework set out in the 2016 amendments introduces a regime whereby bankrupts can be discharged at fixed exit points. First-time bankrupts will generally be eligible for discharge in five to seven years. Repeat bankrupts will generally be eligible for discharge in seven to nine years.
 
30.7.21 This seeks to create a more rehabilitative regime that sets out fixed exit points for bankrupts to be discharged. Clear timeframes will give bankrupts an incentive to adhere to their payment plan, their conditions of bankruptcy, and seek gainful employment as a means of achieving their discharge.
 
30.7.22 A bankrupt’s eligibility for discharge will depend on his paying a “Target Contribution”. The Target Contribution is determined based on the bankrupt’s earning potential.
 
D. Alternatives to bankruptcy
 
30.7.23 After a Bankruptcy Application has been filed, a debtor may explore debt settlement with its creditors by way of an individual voluntary arrangement. Under this scheme, if the Court grants an interim order, all proceedings against the debtor would be stayed. The objective is to accord the debtor a respite from legal proceedings in order to give him an opportunity to put forth debt settlement proposals to his creditors. The Court may make an interim order if it thinks that the debtor’s proposal is serious and viable and that it would be appropriate to do so for the purposes of facilitating the consideration and implementation of the debtor’s proposal. The debtor would be able to avoid bankruptcy if a majority of his creditors (and holding at least three-fourths in value of debts owed) accept the debtor’s proposal. However, such an arrangement is not available to undischarged bankrupts.
 
30.7.24 The Debt Repayment Scheme (DRS) was introduced in the 2009 iteration of the Bankruptcy Act. It is a repayment scheme to assist debtors who have a regular income and debts not exceeding $100,000, to avoid bankruptcy.
 
30.7.25 The DRS is triggered by a Bankruptcy Application. When such an application is made to the High Court and the debt owed does not exceed S$100,000, the High Court may refer the debtor to the Official Assignee for an assessment of the debtor’s eligibility and suitability to enter into the DRS. If the debtor satisfies the relevant criteria, an administrator will devise a repayment plan requiring regular debt repayments to the creditors over a fixed period of time. Debtors who do not comply with the conditions of the scheme will be failed from the DRS. These debtors may subsequently face another Bankruptcy Application filed against them and be made bankrupt by the High Court.
 
 
 
Updated as at 15 September 2016
 
By: Debby Lim
Partner
Shook Lin & Bok LLP