Insolvency, Restructuring and Dissolution (Amendment) Bill

Order for Second Reading read.

11.30 am

The Second Minister for Law (Mr Edwin Tong Chun Fai): Mr Speaker, Sir, I move, "That the Bill be now read a Second time."

Sir, as the House may recall, the current Simplified Insolvency Programme (SIP) was first introduced in 2021 as a temporary measure as part of the larger package of measures to support companies during the pandemic. The SIP has since been extended thrice and will end on 28 January 2026.

The SIP assisted eligible micro and small companies (MSCs) facing financial difficulties by helping them restructure their debts, rehabilitate their business or wind up via a simpler, faster and lower cost insolvency process. The SIP was scoped to assist MSCs, because MSCs form a significant proportion of the enterprise ecosystem in Singapore and are the lifeblood of our economy and our communities. In 2022, for instance, small enterprises accounted for about 94% of Singapore's enterprise landscape.

The purpose underpinning the SIP was, thus, to provide a simplified process that was tailor-made for MSCs – simpler, faster and more cost-effective. We have found in the time that we have introduced the SIP, that it was, by and large, useful in assisting MSCs in severe financial distress. To give Members some indication of the numbers, as at 31 December 2024, a total of 116 applications for the existing SIP had been submitted and 77 of them were accepted. Of these, 61 MSCs in severe financial distress were successfully assisted.

For simplified winding up, the completion of cases was done with an average of nine months and some as quickly as a few months. This compares very favourably to a typical process, which could take anywhere between three to four years, especially where there is a longer tail of transactions and contracts to resolve.

This shorter process allowed non-viable companies to be liquidated quickly. The expedited process saves time and costs and lessens the impact on the principals behind the business while preserving the value of the insolvency estate for distribution to creditors.

For simplified debt restructuring, there were fewer cases compared to simplified winding up. A successful case was the restructuring of Axis Group Asia Private Limited. This was done with Court sanction in under six months, which was a very short period of time.

With the success of the SIP, this Bill now seeks to introduce a refined SIP, one which I shall call the SIP 2.0, to make it a permanent feature of our corporate debt restructuring and insolvency regime in the Insolvency, Restructuring and Dissolution Act 2018 (IRDA). As there is merit in making the SIP permanent as part of the insolvency and restructuring ecosystem, we explored further, over the course of the last couple of months, how the current SIP could be suitably modified to allow companies that are not MSCs to also benefit from it. We consulted with public agencies and stakeholders from the private sector and the industry was generally supportive of having the SIP as a permanent programme and provided helpful feedback for us to refine the framework. We have taken this on board, where possible, to improve the current SIP.

SIP 2.0 seeks to provide a simpler and more cost-effective insolvency process to benefit more companies. The Bill will, therefore, modify two existing processes under the SIP, namely the Simplified Debt Restructuring Programme (SDRP); and the Simplified Winding Up Programme (SWUP).

Unlike the current SIP, the processes in SIP 2.0 will be fully administered by licensed insolvency practitioners in the private sector who are experienced and have the relevant expertise. This approach, Members may know, is consistent with other corporate insolvency processes, such as the Court-ordered winding up and creditors' voluntary winding up, which are administered by private liquidators who are also licensed insolvency practitioners.

Members will also recall how our companies' winding up regime became fully administered by private liquidators when the IRDA came into force in July 2020. The approach for the SIP is, thus, consistent with existing debt restructuring and insolvency processes where the private sector currently already takes the lead.

With that, Mr Speaker, let me take Members through the key changes to the SIP, which this Bill proposes to implement.

Let me start with the changes relating to the eligibility criteria for the two programmes under the SIP, before explaining the key changes to each of the programmes. So, the eligibility criteria apply to both the SDRP as well as the SWUP.

Under clauses 7 and 32 of the Bill, which amend sections 72F(2) and 250F(2) of the IRDA, the current list of five criteria will be streamlined to just one, which is the general eligibility requirement that the company's total liabilities must not exceed $2 million. This will make it much easier for companies that are not MSCs to also benefit from the SIP.

Under the SDRP, a company will draw up a debt restructuring proposal for its creditors, which provides for a compromise or, otherwise, an arrangement to resolve its debts. The Bill will modify the existing SDRP in several key aspects.

To begin with, we will reduce the number of supporting documents accompanying the SDRP application to require only key supporting documents. A Restructuring Adviser, who is a licensed insolvency practitioner appointed by the company to advise the company in matters relating to its entry into the SDRP, will assess whether the company reaches or matches the requirements for the SDRP and request for further documents from the company, if necessary. This simplifies the entry process.

Companies failing to successfully complete the SDRP, including the current SDRP, will be barred for five years before they can, again, apply for the SDRP. This serves to protect the interests of creditors and prevents errant companies from abusing the SDRP by making repeated entry applications to avoid its obligations to creditors.

Under clause 6, the Restructuring Adviser has the discretion to assess whether the company meets both the requirements under section 72F(1) for entry into the SDRP. This refers to the general eligibility criteria that the company's total liabilities must not exceed $2 million and that there is no circumstance in existence that would render the company unsuitable for acceptance into the SDRP.

To give Members some colour into the second criterion, one such circumstance is prescribed in the amended section 72F(3)(h), which is when the company is unlikely to be able to formulate a proposed compromise with its creditors or to obtain the agreement of two-thirds majority by value of its creditors to the proposed compromise or arrangement, within the moratorium period after the company's entry into the SDRP.

While the company is in the SDRP, the company enjoys a statutory moratorium under the amended section 72K(1) of a period of 30 days, which is extendable once for another period of up to 30 days. So, you get 30 plus 30, a maximum of 60 days for a moratorium within which to frame the restructuring proposal.

This, Sir, balances the interests of the various stakeholders by providing reasonable breathing room to the company to propose a debt restructuring plan whilst, at the same time, protecting the interests of the creditors. Members will know that during the moratorium period, there will be no enforcement against the corporate entity.

Once the company has entered into the SDRP, its Restructuring Adviser will provide assistance in drawing up the debt restructuring proposal to its creditors. Unlike the current programme where the proposal requires Court sanction, clause 16 of the Bill provides that the proposal will be approved out-of-Court and by the company's creditors at a meeting summoned by the Restructuring Adviser under the new section 72M.

The notice to summon the meeting must contain such information as is set out in section 72M(3) and I will just quickly summarise what they are. It must include details of the proposal, a statement of the effects of the proposal on creditors' rights, a comparison of what the creditors would receive in the proposal and the most likely scenario if the compromise or arrangement pursuant to the proposal does not become binding on the company and its creditors. It must also contain information on the Restructuring Adviser's remuneration. This notice must be given to every creditor of the company.

In practice, as Members would know how such restructuring takes place is that the Restructuring Adviser would have engaged in informal discussions and talks with the creditors prior to the meeting. And depending on the outcome of these discussions, the Restructuring Adviser would, by then, already have a keen sense of how the creditors will expect to receive the proposal and whether any changes might need to be made, while the creditors would also have heard about the proposal's terms before formally receiving the notice.

Nevertheless, we believe that this is essential as the notice is a formal measure to provide substantive fairness to all creditors so that they are apprised of the terms of the proposal and know ahead of the meeting what they are going in for, prior to the meeting. The proposal is approved by a majority of at least two-thirds in value of creditors present and voting at the meeting. This threshold remains unchanged from the existing programme.

There will be one voting class consisting of all unsecured creditors, ordinary and preferential, if applicable. Secured creditors will only be bound by the proposal if the value of the security interest is less than the value of the secured creditor's admissible debts or claims, only to the extent of the difference between the values, and that means the undersecured portion. In other words, for Members' clarity, the difference between the value of the security for a secured creditor and the unsecured portion. So, the differential is the only portion that will apply.

The secured creditors will also be bound by the proposal if the value of the secured interest is equal to or more than the value of the secured creditor's admissible debts or claims, but only to the extent that the creditor consents to be bound. So, in some cases, a creditor might well have sufficient security but might decide that the restructuring proposal makes sense and wants to participate and take part, in which case, the creditor can support the restructuring arrangement. This means, therefore, that a secured creditor is free to realise or deal with his security interest unless he has voted in favour of the proposal and consented to be bound and the proposal's terms prevent him from realising or otherwise dealing with his security interest.

Sir, there are judicial safeguards for creditors with legitimate concerns arising from the approved proposal.

A creditor who is bound by the proposal can apply to Court to object to the proposal on specified grounds under section 72N(3), where there is a material procedural irregularity in relation to the meeting of the company and its creditors to approve the proposal or in relation to the approval of the creditors at the meeting; for the proposal to be fair and equitable to all creditors bound by it, a substitution or splitting of classification of creditors is necessary; or the approved proposal is contrary to the interests of the creditors of the company as a whole.

The Court hearing this application may make any order it thinks fit, including revoking or suspending the compromise or arrangement of the proposal and giving directions to the Restructuring Adviser, including a direction to put to the creditors for consideration any modifications to the compromise or arrangement, except, the material commercial terms of the proposal may not be modified. So, that speaks to the SDRP.

I will now touch on the key proposals for the SWUP. This Bill modifies the existing SWUP in the following key aspects.

First, clause 30 provides that if the company resolves to enter into the SWUP, but has insufficient or incomplete financial records, the company may submit a Directors' statement to the nominated liquidator that the eligibility criterion has been met. This new feature simplifies the application process and encourages non-viable companies to be wound up instead of remaining dormant.

There may be situations where members of the company are uncontactable and the company is, thereby, unable to pass a special resolution to enter into the SWUP. In these situations, a Directors' resolution can be accepted as long as the company is satisfied that: despite exercising reasonable diligence, the company is unable to contact enough members who, together, hold a majority in value of its shares for at least three years prior to the date of the Directors' resolution; consequently, the company is unable to obtain the necessary quorum for the extraordinary general meeting to resolve to wind up the company; and finally, the company's operations have been dormant for at least three years prior to the date of the Directors' resolution. All these are factors which speak to the company's dormancy and we believe it is in the interest to have these companies wound up rather than remain on the books.

In the current SWUP, there are four platforms on which notices are published: the Official Receiver's website; the Government's e-Gazette; the local newspaper; and the Registrar of Companies' BizFile under the Accounting, Corporate and Regulatory Authority or ACRA. To reduce the cost of administration, only two platforms will be used in the new SWUP for the publishing of notices, namely, the Official Receiver's website and Bizfile.

Clause 38 modifies section 180 and section 210 of the IRDA to streamline the final or early dissolution processes of a company, respectively, by requiring only one lodgement with ACRA to effect the dissolution of the company. This will save time and costs.

Clause 42 provides that the liquidator may switch to other liquidation processes, such as a Court-ordered winding up or a creditors' voluntary liquidation, if the liquidator's assessment is that the company is unsuitable for the SWUP.

Additionally, where a liquidator requires funding from creditors to conduct investigations to recover assets but no such funding is forthcoming, the liquidator may complete the simplified winding up of the company and dissolve the company without taking further investigative steps. This ensures that unviable companies, which will have no other assets and, sometimes, no other identifiable members, can be liquidated and dissolved efficiently without having to restart or unnecessarily protract the liquidation process. Sir, these are the key changes proposed to the SIP. The rest of the SIP, as I said at the outset, will remain unchanged.

Sir, let me now conclude. This Bill aims to modify the SIP and make it a permanent feature of our insolvency regime in the IRDA modifying the existing processes in the current SIP. This will make the SIP permanent, or as I call it, SIP 2.0. One which is simpler, more cost-effective and will also facilitate better access to insolvency processes and, with these changes, benefit a larger group of companies. With that, Mr Speaker, I seek to move.

Question proposed.

Mr Speaker: Mr Don Wee.

11.47 am

Mr Don Wee (Chua Chu Kang): Mr Speaker, Sir, I rise in support of the Insolvency, Restructuring and Dissolution Bill, which updates SIP. This programme has been an important lifeline to micro and small companies facing financial difficulties, helping them to restructure or wind up efficiently.

The amendment to reduce the general eligibility criteria to just one, which is a $2 million liability threshold, will make SIP accessible to more companies. However, I would like to raise some concerns on behalf of Singaporean business owners, creditors and employees who may be affected by these changes. Sir, in Mandarin.

(In Mandarin): [Please refer to Vernacular Speech.] Although the inclusion of larger companies in the SIP is well-intentioned, it can potentially disadvantage creditors and employees, particularly when the winding up process is expedited. For small creditors, this could mean reduced chances of recovering debts owed to them. Employees may also be left in limbo if unpaid salaries and benefits are deprioritised.

Can the Ministry clarify how these stakeholders will be protected, especially when the larger companies avail themselves of the scheme?

Sir, the proposed change to allow a Director's declaration of eligibility, especially when a company's records are incomplete, raises concerns about the potential for abuse. While enforcement measures exist to penalise false declarations, these may not adequately deter bad actors seeking to exploit the scheme to expedite winding up processes. I urge the Ministry to strengthen safeguards, such as requiring third-party audits or additional supporting documentation to ensure the integrity of the process.

(In English): The removal of the requirement to publish notifications in newspapers may also pose challenges. Local newspapers remain a trusted medium for many Singaporeans, particularly small and medium enterprise (SME) owners and sole proprietors, who may not closely monitor the digital channels. I appeal to the Ministry to retain this requirement or ensure alternative notification methods are as effective in reaching out to all the stakeholders.

Lastly, the proposed reduction of the grace period during which creditors cannot enforce their rights from 90 to 30 days may adversely impact businesses in financial distress. While protecting creditors' rights is essential, some businesses may require additional time to sort out their affairs, particularly for SMEs managing limited resources. Would the Ministry consider a compromise, such as a 60-day grace period, to balance the needs of creditors as well as distressed businesses?

Sir, the amendments to SIP are a positive step towards enhancing Singapore's insolvency framework. However, as we extend its accessibility, we must ensure that safeguards remain robust and that the interests of all stakeholders, creditors, employees and business owners, are adequately addressed. I urge the Ministry to take these considerations into account.

Mr Speaker: Assoc Prof Jamus Lim.

11.51 am

Assoc Prof Jamus Jerome Lim (Sengkang): Mr Speaker, I had previously spoken about our nation's bankruptcy regime in the context of the 2020 amendments to IRDA. The Bill that is currently being debated seeks to render permanent the centerpiece of the previous amendments, the SIP.

Along the way, it further streamlines two parts of the SIP, namely the SDRP and SWUP. As Minister Edwin Tong has already elaborated, these include a number of appealing and commonsensical refinements, such as shortening the moratorium period in SDRP, limiting the eligibility criteria to just one for SWUP and reducing the number of required supporting documents for both processes.

Today, in addition to touching on three elements in the present Bill, I will also address two broader concerns that align with the spirit of the issue: first, how much bang for the buck we are truly gaining by further simplifying corporate bankruptcy in this manner; and second, whether there is a pressing need to also consider whether individual bankruptcy proceedings can be simplified more as well.

On the present Bill, I will note, first, that clause 38 will now require the notification of the dissolution of the firm to be published on the designated website only, without also doing so in the Government's e-Gazette or newspapers. The permanent record will also be available on ACRA's Bizfile.

This move is, as I understand it, an effort to reduce the costs of the new SWUP. While I understand the motivation to reduce costs, especially for newsprint, I wonder why the publication on the e-Gazette, which should be the most complete official journal of the country's public and legal notices, is precluded. After all, notices there are already electronic in nature and a half-page entry costs a little more than $100. If this is prohibitive, perhaps, a waiver or fee reduction can be considered for such instances.

Second, clause 20 shortens the moratorium period from 90 to 30 days. The justification appears to be a desire to strengthen creditor rights. The natural question here is, if this "30 days" is reasonable and sufficiently balances creditor protection with debtor difficulties. Would the Government be willing to share with this House the historical mean and median times for restructuring plans to be completed in Singapore? If it does not have this information, how was the decision to reduce the moratorium from 90 to 30 days ultimately arrived at?

Third, clause 16 now requires only a supermajority vote of two-thirds of the creditors for SDRP to be approved and binding for all creditors. This is a seemingly simple but important step to ensure that restructuring can proceed expeditiously without one or two low-key creditors preventing an efficient resolution of the debt. This so-called holdout problem has been an affliction, especially in sovereign debt restructuring instances and has led to significant problems due to the presence of so-called vulture investors. This move essentially embeds a collective action clause as a means of ensuring post-default resolution and is one way to usher negotiations or renegotiations to a close.

While I do not necessarily disagree with the approach here, I would like to know if the two-thirds majority will be weighted by each creditor's exposure, since I believe that this would be fairer than a one-creditor-one-vote system.

I would also add that another way to try to bring about the outcome is through exit consents. These allow the majority to alter the non-financial terms of the debt in a way that would make the debt shares of holdouts effectively worthless. This strategy may be even more preferable insofar as ensuring that even initial holdouts ultimately deliver a consensual, even if acquiescent, vote, rather than one where a supermajority alone may ram through their preferred outcome.

In my earlier speech on the 2020 IRDA amendments, I had expressed my support for less onerous, appropriately designed resolution procedures since doing so would have helped bolster a more entrepreneurial mindset, especially in a knowledge and information-driven economy. This was especially important then, when the shadow of COVID-19 and the associated spike in business failures may have led to heightened risk aversion among small business owners.

Yet over the intervening four years, the record on the actual usage of SIP does not appear to suggest that the issues addressed by SIP were major binding constraints. The total number of applications for SIP, as at the end of October 2024, amounted to 116. Given the total number of bankruptcies since SIP came into force, this is a usage rate of about one in 10.

Admittedly, the SIP applies only to small and micro enterprises. But given how around two-thirds of companies in Singapore are actually small firms and how small firms are, typically, much more likely to fail, this does not seem to be too poor an estimate. If indeed the need for simplified insolvency is so pressing, why would the take-up rate be so limited?

This is a more general point. According to the World Bank, the strength of Singapore's insolvency framework scored 74.3 out of 100 in 2020, placing it 27th in the world. While this may suggest ample room for improvement, the reported weaknesses had little to do with speedy bankruptcy resolution or high costs, both of which our nation ranked among the best worldwide. Rather, they relate more to the management of debtors' assets, limited creditor participation and the poor involvement of creditors in re-organisation proceedings. Future revisions of the corporate bankruptcy framework may wish to bear these lessons in mind.

To be clear, any reduced costs of doing business for our small and medium enterprises are welcome. Still, one is left to wonder if we are focusing on meeting a genuine business need with SIP or dancing around other insolvency concerns that may matter more.

This is especially relevant when one considers how, over the same period, personal applications for bankruptcy were an order of magnitude higher, amounting to almost 15,000 cases. Applications hit an 18-year high in 2023 and are on track to significantly exceed that number in 2024.

This begs the question, then, of whether the resolution regime for individual bankruptcies can be further expedited and simplified, much like what we are doing here for companies in this Bill. Doing so may even improve our business climate, since the nature of entrepreneurship today is that many individuals take on personal debt to pursue their dreams of starting their own companies.

To be fair, there have been some advances on that front. The Debt Repayment Scheme (DRS), modelled after Chapter 13 of the United States (US) Bankruptcy Code, offers a debt resolution alternative that is more flexible and forgiving than traditional bankruptcy, at least for debts below a certain threshold. But after more than a decade and a half, DRS appears to be fraying at the edges.

As my Sengkang colleague Mr Louis Chua recently pointed out, third-party consultants are being engaged to help with the administration of the programme and the fees they charge may be a concern. Yet, the Ministry of Law (MinLaw) does not regulate third-party debt consultancies or the fees that they charge, which potentially allows such consultancies to take advantage of distressed Singaporean borrowers, thereby worsening their debt burden at a time where they least need it.

It is undeniable that there should be some nominal fee for the administrative costs incurred by the Official Assignee (OA). The 1.5% collection and 3% distribution fees by OA may be seen as punitive, especially if the debt amount turns out to be rather significant. The DRS hearings also, currently, exempt creditors from attendance, which may introduce inadvertent delays in the process of discharge, especially in instances where the repayment schedule also needs to be re-negotiated.

In addition, Singapore remains somewhat of an outlier among advanced economies where there is no automatic discharge from bankruptcy. The United Kingdom (UK) wrote this out in its Insolvency Act 1986 while Hong Kong did the same at the end of the 1990s; Germany and France followed a few years after and even neighbouring Malaysia started in 2017.

Moreover, even the elapsed duration before a discharge may even be considered by OA here, is a long three years. Contrast this to Canada, where the duration for automatic discharge is nine months for first timers with no surplus income, and 24 months for second timers; or the UK, where bankrupts only have to wait for a year after the order is first issued; or the US, where debts under Chapter 7 bankruptcy occurs four months after filing.

Sir, while automatic discharge and expedited exit from bankruptcy must not be regarded as a magical panacea for encouraging risk-taking and entrepreneurship, it, nevertheless, underscores how a more consumer-friendly regime seems to be warranted, especially since we are doing so for businesses. Surely, we do not wish to leave tens of thousands of Singaporeans in debt purgatory for longer than they need to be.

It may also be time to revisit the bankruptcy threshold, which is currently set at a fairly low level of $15,000. This was last raised in 2015 from $10,000. However, taking inflation into account means that that would be equivalent to about $18,000 in today's dollars. Notably, the threshold was also temporarily raised in the aftermath of the pandemic to $60,000 and accompanied by an increase in the eligibility threshold for the DRS to $250,000.

While we are here debating a permanent extension of the pandemic-era accommodations for corporate bankruptcy, I would urge the Ministry to also do the same for individual bankruptcy. The possibility that we face a tide of even more personal bankruptcies in the year ahead is very real. Rising cost of living have placed immense pressure on many households. Retrenchment spiked in 2023 and are likely to remain high for 2024. Interest rates on debt worldwide, including Singapore, have remained stubbornly high, even after the more recent rate cut cycle by the US Federal Reserve. This portends, yet, more challenges for Singaporeans who are struggling under the burden of debt.

Hence, while I support this Bill, I urge the Government to also consider analogous improvements to the insolvency regime that applies not just to firms, but also for our households.

Mr Speaker: Mr Neil Parekh.

12.03 pm

Mr Neil Parekh Nimil Rajnikant (Nominated Member): Mr Speaker, Sir, thank you for allowing me to speak on the Insolvency Restructuring and Dissolution (Amendment) Bill, a critical step in ensuring that our insolvency framework remains responsive to the needs of businesses, especially the micro and small enterprises that form the backbone of our economy.

This Bill builds upon the SIP which was introduced in 2021 as a lifeline during the challenging days of the COVID-19 pandemic. Over the years, this programme has proven its value, offering businesses a faster, simpler and more cost-effective way to restructure the debts or wind-up operations. With a focus on efficiency and fairness, the proposed changes are designed to provide businesses with the tools they need to navigate financial distress while preserving value for creditors. This simplified framework will be of great help to SMEs in some financial stress, while supporting others to wind down with dignity.

This amendment seeks to do more than just extend the programme. It aims to refine it. By consolidating eligibility criteria, streamlining processes and reducing costs, the Bill ensures that these mechanisms remain accessible to firms of all sizes, including our SMEs, which sends a powerful message that Singapore remains committed to supporting entrepreneurial risk-taking.

Sir, I have 12 clarifications for the Minister.

The Bill's provisions outline the eligibility criteria for businesses seeking to enter the simplified debt restructuring programme. I would seek the Minister's views on whether companies with complex ownership structures qualify for the programme, such as those with multiple layers of ownership or significant cross-border operations. SMEs with international operations face unique challenges, especially dealing with creditors across jurisdictions. Will the SIP framework accommodate the specific complexities these businesses face, especially regarding validating the debts or assets in multiple countries?

Number three, when a business faces financial distress due to factors beyond its control, such as global supply chain disruptions or international trade restrictions, will such companies be considered eligible for SIP assistance, even if their financial difficulties stem from external, non-operational factors?

Number four, given the current economic climate of relatively high inflation and interest rates, can the Minister please clarify, if the SIP's entry requirements will be sufficiently flexible to accommodate businesses facing these external challenges? Specifically, will the criteria consider the impact of these economic pressures on a company's financial position, ensuring that otherwise viable businesses are not unfairly excluded from accessing this crucial support?

This question is particularly pertinent, given the findings of the recent Singapore Business Federation's National Business Survey 2024/2025. The survey revealed that customer demand uncertainty has risen sharply from 30% in 2023 to 45% in 2024, becoming the second top challenge for businesses today. Additionally, 51% of businesses have had to implement cost-saving measures to offset rising costs. These statistics underscore the need for flexibility in our insolvency framework.

Number five, one of the key elements of the proposed amendments is the role of the Restructuring Adviser in guiding businesses through the simplified debt restructuring process. Given the importance of this role, does the Bill include safeguards to prevent conflicts of interest? Will there be clear guidelines for how Restructuring Advisers are selected and will there be a mechanism for businesses to challenge or request a change of advisors if they feel that the current advisors are not acting in their best interest?

Number six, I now turn to the compliance and penalties under clause 6, section 72E(4). The proposed amendments also introduce new compliance and penalty provisions. While these provisions will help ensure that businesses follow the proper procedures, I seek the Minister's clarification on what constitutes materially false or misleading statements under the Bill and how these will be assessed. It would also be helpful to understand whether businesses will have the opportunity to rectify any misstatements before penalties are imposed.

Number seven, will there be specific thresholds or guidelines for penalties and will there be proportionality between the nature of the offence and the consequences for the company involved?

Number eight, an important aspect of this Bill is the support for SMEs with limited access to restructuring professionals under its general provisions. Will there be financial assistance or subsidies for smaller businesses to help them engage professional advisors, such as restructuring specialists or legal counsel, during the insolvency process?

Number nine, how can the Government partner with industry bodies or trade associations to create awareness and provide training for SMEs on navigating the insolvency process? Would the Minister consider setting up a dedicated SME advisory panel to provide ongoing feedback and suggest improvements?

Number 10, will there be any provisions to protect employees and other stakeholders, such as suppliers, who may be affected by a company's closure? Since SMEs often rely on close personal relationships with local suppliers and employees, these parties must be treated fairly during a simplified winding process.

Finally, I touch on this Bill's emphasis on digital-first processes for filings and notifications. While this is a welcome development, how will the Government ensure that SMEs, particularly those without significant digital infrastructure, be able to adapt to this new approach? Will assistance or training be available for businesses that may face challenges in transitioning to these digital systems?

More broadly, what comprehensive plans are in place to educate our SME community about the SIP and its benefits, particularly on the new changes?

Sir, this Bill is a plus for SMEs, especially in battling the next major economic crisis whenever it happens. Mr Speaker, Sir, notwithstanding my clarifications, this Bill has my full support.

Mr Speaker: Minister Edwin Tong.

12.11 pm

Mr Edwin Tong Chun Fai: Sir, I thank the three Members who have spoken in support of the Bill and for their considered speeches as well as suggestions. I thought I would start with a few broad overarching points which underpin the proposed amendments – overarching in the sense that these are the purposes and the broad principles that underpin why we have decided to introduce SIP 2.0. They also answer some of the points that Members have raised.

First, I think we all agree, it is not economically viable or desirable for companies that are not operating, dormant for a period of time and not financially sustainable, to remain on the books. Technically alive, but, effectively, dormant and not operating. These amendments seek to lower the threshold for these companies to find it easier to exit. And, in some ways, there will be individual personalities behind these companies as well. So, the simplified process allows them to get out of a business that has failed, through perhaps no fault of theirs, in a straightforward manner and get on with a different business; an exit that is fair to all creditors, and find the business transactions under a different model and perhaps, one which may be more viable. So, it also helps the individuals behind each of these corporate entities.

Second, we all agree that, in reality, the practical challenges and realities facing smaller companies in financial distress would be very different from the larger companies. Here, I want to emphasise a few points. First, we are dealing with a scenario which is a small subset in terms of the type of cases. Although I said, at the start, that MSCs form the bulk of our enterprise landscape, but the type of cases that we are dealing with is a subset of the broader ones.

So, my first point to many of the issues raised by Assoc Prof Jamus Lim as well as by Mr Neil Parekh and Mr Don Wee, is that the parties have a choice. They can assess for themselves. In fact, they should assess for themselves how suitable their case is for a SIP 2.0 process and decide whether they fall under this framework. Otherwise, the entire framework in the IRDA is completely available to any of these companies as well. So, it is not as if they are locked into or pigeonholed into having to select SIP 2.0, if they qualify as an MSC. That is the first point I would make.

Secondly, to address Assoc Prof Jamus Lim's point about whether the SIP was "pressing", I think that was the word that the Member chose to use. The numbers speak to the cases that have come under SIP 1.0 in the immediate post-COVID-19 enactment of this Bill. But as I said, this is a choice that we are offering as an add-on to a corporate entity to decide whether they fit within this profile and, if so, whether they want to avail themselves of a shorter, more simplified process. Effectively, it is giving more options rather than taking away or requiring some companies to fit within this framework without having a choice.

The third point I would make is that we see, therefore, value in having insolvency processes that are in the context of these cases, simpler, more straightforward, more streamlined, easier to get entry into, not so document-intensive and allows the companies to decide: I fit within this framework, let us get onto this quickly so that I can simplify, reduce cost as well as use up less time to exit a failed business.

So, we envisage that SIP 2.0 will have this impact and overall, in these cases, translate into better returns for creditors, which is one of the key aims. Because sometimes, and Members might know that I have spent some time in practice doing restructuring, we see a very viable, very good restructuring plan, but it takes time. It takes a lot of effort. And at the end of the day, a lot of the cost would eat up the balance assets of the company after the restructuring is completed.

We hope that in these cases, for the MSCs in particular, that when they avail themselves of this framework, there will be bigger savings in time and costs. Therefore, resulting in better returns for creditors.

With this in mind, let me address some of the specific points that Mr Wee, Assoc Prof Lim as well as Mr Parekh had raised. As I said, I thank Members for the carefully considered speeches.

To Mr Wee's point, the proposed framework seeks to balance the various considerations, providing a streamlined insolvency process and also, we understand, the interests and expectations of the stakeholders. I think it is important, while this is streamlined, for Members to know that we are not compromising on rights that creditors will have and should have in any insolvency.

As mentioned in my opening speech, public agencies and private sector stakeholders have also been consulted widely as part of the design process. We will continue to engage them on an ongoing basis to ensure that this framework that we have proposed in SIP 2.0 remains accessible and evolves with the times to keep up with the needs of corporate entities in financial distress.

By taking into account industry feedback and streamlining the requirements and processes, we have also sought to reduce the cost and time burdens on companies.

The liability threshold of $2 million in many ways acts as a proxy to right-size the kind of companies that can use or benefit from the SIP. Broadly speaking, and I say this in the context of the fact that we have amended the requirements from just an MSC alone to looking at the nature of the insolvency itself, I would say that larger companies with a more sophisticated set-up and larger debt sizes where you have complexity in disputes across different jurisdictions would typically not be suitable for such a simplified process.

For all companies eligible for this SIP 2.0, there will be no changes to the existing priority of debts in section 203 of the IRDA. This applies to both simplified as well as non-simplified processes. The priority scheme amongst creditors, between creditors, will remain unchanged. To summarise, in a winding up, the costs and expenses of liquidation are paid out first, followed by employees' claims for wages or salary. Unsecured debts rank lower in terms of priority. This was the position when we first introduced the SIP as well and will continue to be so in SIP 2.0.

What is envisaged to change under SIP 2.0, however, is that we believe, as I mentioned earlier, the remaining pie for distribution is expected to be larger. This is because the costs and expenses of the liquidation should reduce. As such, rather than employees or creditors having to feel disadvantaged from this, if this is made out, then in fact, the distribution at the end of the process would be expected to be higher.

At the same time, various safeguards exist to prevent potential abuse as the directors' statement will facilitate more efficient entry into simplified winding up. For example, the nominated liquidator has the ultimate responsibility for assessing whether this company satisfies the eligibility requirements or not. In particular, if there is complexity or if there is a suggestion that there is wrongdoing or fraud, the company may be transited into a non-simplified insolvency process. If such fraud or wrongdoing is discovered only after the company has entered into simplified winding up, in other words, midstream and whilst the process has already started, then the liquidator can likewise transit the company into a non-simplified process. So, it facilitates the transfer between the schemes quite seamlessly.

Mr Wee, Assoc Prof Lim and I think Mr Parekh also talked about notifications. Let me say that as it is, notifications under the current SIP are already being published on the Official Receiver's website. Only one notice must also be published in at least one local English daily newspaper, namely, the notice of acceptance into the scheme itself under the current section 250J(c) of the IRDA.

To Assoc Prof Lim's point about notices, and I think he made an appeal whether we could consider other forms, at the end of the day, it is not our intention to deprive creditors and other stakeholders of notice. We felt that this would be the best balance between costs, time taken and the burden on the companies seeking the simplified process and notification.

In our feedback sessions with the industry, we felt that they were already familiar with the current process – publication on the website and so on. Having this as the sole mode of publication will reduce costs and not at the same time cause undue concern to stakeholders.

To Assoc Prof Lim's point, I will make two further responses. First, we will continue to study this. As I said, it is not the intention to deprive proper parties with stakeholder interest or any interest from knowing that this has commenced or has started. We will evaluate the efficacy of the notice and make changes where appropriate. The other, of course, as I said in my opening speech, if there is a process of procedural irregularity or defect, the party affected by that under the SDRP says, "Look, I wasn't aware there was a notice and now I find myself bound by the SDRP", that individual creditor can apply to Court. One of the grounds of relief, as I stated, is process irregularity, which includes notice.

Next, let me deal with the length of the moratorium period. I think all three Members spoke about that. I want to emphasise that, as I said in my opening speech, it has gone from 90 days, to 30 plus 30. Let me explain the rationale behind this.

First, these cases are self-selected and scoped. They are simplified, straightforward and ought to be dealt with quickly. I also mentioned in my speech that by and large, in many of these processes, one expects – in fact, it happens in practice – the Restructuring Adviser to already engage the parties, the stakeholders, the creditors, in particular, on the proposed plan and the scheme. Once that happens, you will trigger the process, you start the 30 days for you to work out the details, you might get a further extension if you are not able to satisfy that and then within this framework, you must find a solution.

We believe this to be a proper balance between the fact that you are dealing with a $2-million debt, probably in as much as these are MSCs, you probably also find that the countervailing parties, the creditors themselves, are probably also MSCs or perhaps individuals and there is an interest in ensuring that their rights are also not compromised. Because during the moratorium period, you are not able to enforce any of your rights against the debtor. We felt that this would balance the interests of the parties, moving from a 90-day blanket to a 30-day blanket plus if you need more time, a further 30 days, so 60 days in total.

One further point to Assoc Prof Lim is that this period will be prescribed in subsidiary legislation as set out in clause 20 of the Bill. So, if we find, as this evolves that it is actually insufficient time, we can make adjustments along the way quite easily.

Mr Parekh sought clarifications on various points. I think I have addressed some of them, so I will deal with the rest of Mr Parekh's considerations.

First, we made the eligibility criteria for SIP 2.0 simpler and more flexible so that more companies can participate. We moved from defining the eligibility from "Are you an MSC?" – in other words, looking at the identity of the applicant – to "Are you owing $2 million or less?", focusing on the nature of the insolvency at hand. The key consideration is that the insolvency should be straightforward and not something that is mired in complexity or disputes.

Depending on the circumstances, some types of companies that Mr Parekh has mentioned may be eligible for SIP 2.0. He mentioned a company may have complex ownership structures or international operations. But for those companies, if the circumstances surrounding the particular debt is straightforward and it is $2 million or under, then SIP 2.0 could apply. For more complicated cases – cross-border elements, disputes that are contentious, fraud, wrongdoing, fraud with disputes between parties, maybe challenges between creditors for priority and so on – then the non-simplified process is still available and in fact, would be more suitable.

To Mr Parekh's point on conflict of interest, Restructuring Advisers are professionals and they must deal with this issue in the course of their work, as they do all the time. In fact, as Mr Parekh knows, it is one topic that comes up from time to time. The introduction of SIP 2.0 does not take away that obligation to evaluate their personal position relative to any conflict of interest that they might have. Only licensed insolvency practitioners who are chartered or public accountants can be Restructuring Advisers. They are bound by their licensing conditions and regulated by their respective accountancy professional bodies. I think we all know that if they do not act professionally, complaints can be made and the Official Receiver or the Licensing Officer or the professional bodies can look into that. In addition, the law provides for the company to appoint Restructuring Advisers and does not restrict the companies to only one such appointment. In appropriate cases, the company may appoint a new Adviser but obviously, the company will have to balance that against the increase in time and cost that might bring about.

Next, Mr Parekh asked about the scope of the offences in the Bill. Like those in other laws, they will be determined by the Courts based on established principles. This includes the new section 72E(4), which is materially identical to the existing section 72E(5). We are not changing the threshold or, in fact, the substantive ingredients behind the offences proposed in section 72E(4). Based on the evidence and circumstances of the case, the Courts will determine whether a specific statement is "false or misleading in a material particular".

We put that framework and formula in – and I think Mr Parekh asked to give examples – because what is false and misleading in the context of a statement may well differ from case to case. They may differ in the context of one type of business or another or one form of representation or another. We wanted to keep it situational and contextual, so that the Court has the ability to evaluate, based holistically on the circumstances of each case, whether it is false or misleading in that particular circumstance.

The Court will also determine the applicable penalties to be imposed in the context of sentencing discretion, which is not unusual; while the Government will consider the circumstances of cases, including rectification by companies, before deciding whether to prosecute.

On Mr Parekh's concerns about digital filings and notifications, SIP 2.0 does not introduce any new processes that are not already part of the current SIP. As I mentioned earlier, publishing notifications on the Official Receiver's website already exists under the current SIP. While this process will be enhanced for the convenience of Restructuring Advisers and liquidators under SIP 2.0, significant digital infrastructure will not be required for that.

Before I conclude, let me also make two assurances.

One, to Mr Parekh, my Ministry will monitor the implementation of SIP 2.0 and, in due course, to his point about further education, work with the SME community on the features of SIP 2.0 and review how to partner industry stakeholders to provide better assistance downstream, if necessary. As I mentioned to Assoc Prof Lim, we will also continue to monitor the efficacy of the thresholds and the framework that we put in and make adjustments where necessary.

Finally, to Assoc Prof Lim's point about personal bankruptcy and the Debt Repayment Scheme, he would appreciate that this is not within the scope of this Bill. Nonetheless, the points are well made. I want to assure Assoc Prof Lim that this is something that my Ministry has already started looking into. We understand the points that he has made. We have in fact started work on this, consulted, internally, some stakeholders before going public subsequently. It is an issue that we are studying and we will come back to this House in due course.

Sir, the simplified regime proposed in this Bill is designed to provide tailor-made insolvency processes for smaller companies. As I said, this adds to and does not take away the options that are currently available in the IRDA for all companies – big, small, MSC or otherwise – and whatever is the threshold of the debt for that matter.

We believe that this Bill strengthens Singapore's restructuring and insolvency regime by giving additional options to support companies through financial distress. Besides benefiting stakeholders of the affected companies, this, we believe, will support the broader economy by facilitating the reallocation of resources towards more productive businesses. With that, Mr Speaker, I seek to move.

Mr Speaker: We have time for clarifications. Assoc Prof Jamus Lim.

12.28 pm

Assoc Prof Jamus Jerome Lim: Thank you, Speaker, and thank you to Minister Tong for his comprehensive responses.

Just a quick follow-up on the issue of educational efforts. I am wondering if there will be additional guidance or advisory by MinLaw that would at least usher MSCs that qualify for SIP to pursue this route when shareholders make the difficult decision to restructure or wind up? Or is this left to corporate bankruptcy lawyers? I ask because, of course, not to deprive legal practitioners such as Minister Tong in his previous life, but MSCs do not always have access to such expensive legal counsel.

Mr Edwin Tong Chun Fai: I am not sure if it is expensive legal counsel, but legal counsel.

Yes, we will work with professional bodies, trade associations, organisations and various business associations to make sure that this is something that is on their radar, in their frame of mind. We will also, of course, work with the insolvency professionals. As you know, there are about 150 to 160 odd insolvency professionals. They would be the ones who perform the role of the Restructuring Advisers. We will work through these different mediums and forum to get the message across.

But I also want to emphasise that, as I have said, this is a refinement of SIP 1.0. It is not as if it is a completely new creature. We have taken what we thought would work, modified it, and now, this is SIP 2.0 about four or five years on from the original SIP. So, it is something that has already been socialised with the relevant MSCs and business communities. But we will take further steps to enhance it, should there be a need to.

12.30 pm

Mr Speaker: Any other clarifications for the Minister? No.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Edwin Tong Chun Fai].

Bill considered in Committee.

[Mr Speaker in the Chair]

The Chairman: The citation year "2024" will be changed to "2025", as indicated in the Order Paper Supplement.

Clauses 1 to 48 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.