Insolvency, Restructuring and Dissolution Bill

Order for Second Reading read.

4.39 pm

The Senior Minister of State for Law (Mr Edwin Tong Chun Fai) (for the Minister for Law): Mr Deputy Speaker, on behalf of the Minister for Law, I beg to move, "That the Bill be now read a Second time."

Sir, Singapore's debt restructuring and insolvency laws have undergone significant changes in the last three years, guided by the recommendations of two expert committees: firstly, the Insolvency Law Review Committee in 2013, which conducted a holistic study of Singapore's insolvency and restructuring landscape; and secondly, the Committee to Strengthen Singapore as an International Centre for Debt Restructuring in 2016, which focused on strengthening Singapore's debt restructuring ecosystem.

The Committees together made close to 150 recommendations. On top of these recommendations, the Ministry of Law also conducted further studies and received extensive stakeholder feedback proposing other reforms.

In view of the large number of complex legislative changes required to give effect to the recommendations and other reforms, a phased approach to implementation was adopted.

Prior to this Bill, in 2015, the Bankruptcy Act was amended to create a more rehabilitative discharge framework for bankrupts, encourage institutional creditors to exercise financial prudence when granting credit, and facilitate better utilisation of public resources by requiring institutional creditors to appoint private trustees in bankruptcy.

In 2017, the Companies Act was amended to enhance our corporate rescue and debt restructuring processes to strengthen Singapore as a forum of choice for debt restructuring. The reforms introduced features adapted from Chapter 11 of the United States Bankruptcy Code, and the UNCITRAL Model Law on Cross-Border Insolvency.

I am pleased to report that the amendments to the Companies Act that came into effect on 23 May 2017 have made a positive impact. In a little more than a year, close to 100 applications under the new provisions have been filed with the Singapore courts, which is a significant number within a short period of time. It is heartening that parties are taking advantage of the new provisions to seek better outcomes for creditors, debtors and other stakeholders like the employees of financially distressed companies.

Our reforms have also garnered attention internationally, including Singapore being recognised as the "Most Improved Jurisdiction" at the inaugural Global Restructuring Review Awards in June 2017.

This Bill is the last phase of this current round of reforms, and builds on the foundation laid by the earlier amendments. Taken together, these reforms ensure that our insolvency and restructuring laws remain progressive and modern. This Bill achieves this aim through three specific objectives.

First, to promulgate a new single Act, which consolidates the corporate and personal insolvency and debt restructuring laws into one place. They are currently found in two separate statutes. This has numerous benefits, including setting out common principles and aligning procedures across the regimes under a single law, rationalising existing inconsistencies and minimising current uncertainty due to cross-referencing across the various pieces of legislation; and enhancing the clarity and accessibility of the laws for advisers and the parties involved. This will be welcomed as it removes the need to refer to multiple primary and subsidiary legislation.

Second, the Bill establishes a regulatory regime for insolvency practitioners. This will professionalise and raise the quality and standards of insolvency practitioners.

Third, the Bill also enhances our insolvency and debt restructuring regimes. In particular, the reforms continue the enhancement of Singapore's corporate rescue and debt restructuring framework that commenced under the Companies Act amendments last year. The latter introduced US Chapter 11 concepts into our English law-based schemes of arrangement regime, such as worldwide moratoriums, super-priority rescue financing, pre-packaged restructurings and cram-downs. This Bill will further enhance the restructuring regime, with new provisions such as a restriction on ipso facto clauses, which I will touch on in a minute.

Taken as a whole, these reforms benefit local businesses experiencing financial difficulties by providing them with more robust tools to rehabilitate – to get back onto its feet; position Singapore as a forum of choice for foreign debtors to restructure, creating new and greater opportunities for our professional services such as the legal, accounting and financial services; create value for our economy, by supporting Singapore’s position as an international legal, financial and business centre through a strong restructuring regime.

With that, Mr Speaker, let me now take Members through the key provisions of the Bill.

The Bill introduces a new legislation that consolidates the personal and corporate insolvency and debt restructuring laws, that are currently in the Bankruptcy Act and in the Companies Act, into a single Act.

If the Bill is passed and comes into force, the Bankruptcy Act will be repealed in its entirety; the provisions in the Companies Act relating to corporate insolvency and restructuring will be repealed; and necessary consequential and related amendments will be made to about 70 other Acts of Parliament.

The repeals, however, will not affect existing cases and pending applications that are now before the Courts under the current Bankruptcy Act and Companies Act, as long as they are before the date of commencement of the Bill. The relevant provisions of the Bankruptcy Act and Companies Act will continue to apply to those cases and applications.

I will go over some of the key provisions relating to personal bankruptcy. Clauses 273 to 437 relate to personal bankruptcy. These provisions have been ported over from the existing provisions in the Bankruptcy Act, and remain largely unchanged. Given the significant amendments that were made in 2015, the present amendments are less substantial.

Of these, one of the changes is to make the administration of bankruptcy cases more efficient.

Currently, secured creditors do not need to indicate an intention to claim interest on debts owed by the bankrupt. Under clause 327(4) of the Bill, secured creditors are required to notify the trustee administering the bankruptcy, within 30 days after the bankruptcy order, if they intend to claim interest on the debt for the period after the making of the order.

Given that secured creditors are in most cases paid out fully from their security, this change allows the trustee to have a more complete picture of the full extent of the bankrupt’s assets and liabilities early on. This facilitates greater certainty and transparency in projected returns to the relevant stakeholders and also facilitates a more efficient administration of the bankruptcy.

Next, I turn to liquidation which appear in clauses 119 to 250. These provisions have also been ported over from the Companies Act with various amendments. The key changes include the reforms made to the appointment of the Official Receiver as liquidator, the introduction of a new early dissolution procedure, and also a new wrongful trading provision. Let me deal with these.

Clause 135 sets out the circumstances where the Official Receiver may be nominated as liquidator in a court application to wind up a company. Currently, the Official Receiver is the default liquidator where there is no liquidator appointed by the court, or there is a vacancy in the position of liquidator in a court-ordered winding up.

This is undesirable because there is no obligation imposed on the applicant to attempt to appoint a private liquidator, even where the company may have sufficient assets to pay for such liquidators. This amendment thus re-focuses the Official Receiver’s role on overseeing the conduct of liquidation and cases.

Under clause 135(3) of the Bill, the Official Receiver may only be nominated to act as liquidator if the applicant for a winding up has taken reasonable steps, but is unable to obtain the consent of a licensed insolvency practitioner to be appointed as liquidator, and the Official Receiver then consents to such nomination.

Second, clauses 209 to 211 introduce a new procedure for the early dissolution of a company in liquidation. In the present regime, there is no summary procedure that caters to cases where companies may have insufficient assets to pay for the administration of their own winding up.

The impetus for this new procedure is to streamline the use of public resources and funds in administering cases where there are insufficient assets to fund even the administration of the liquidation. There are a sizeable number of such cases and, to give Members a sense of the scale: As of 31 August 2018, there were more than 100 companies undergoing winding up by the Official Receiver, with estimated realisable assets of less than S$1,000 in each case.

Without the new provision, significant number of man-hours and public resources will need to be expended to liquidate such companies, with little or even no return to creditors.

The early dissolution procedure may be utilised by the Official Receiver and by private liquidators who have obtained the prior consent of the Official Receiver. It may be used where the liquidator has reasonable cause to believe that:

(a) the realisable assets of the company are insufficient to pay even for the expenses of the winding up; and

(b) where the affairs of the company do not otherwise require further investigation.

In such cases, the liquidator may give notice to the creditors and contributories that the name of the company will be struck off the register and the company will be dissolved at the expiration of 30 days from the date of the notice. Relevant stakeholders who oppose the early dissolution may appoint a replacement liquidator or apply to the Court for relief. So, there is the option if one does not agree with the proposal.

Third, clause 239 introduces a new "wrongful trading" provision that replaces the old insolvent trading regime in sections 339 and 340, in particular, sections 339(3) and 340(2) of the Companies Act. The current regime is unsatisfactory as criminal liability must first be found as a prerequisite before the making of an application to impose civil liability against the officer of the company, and has not, as far as we are aware, been used in any reported case in Singapore.

Under clause 239, therefore, a company trades wrongfully if the company incurs debts or liabilities without reasonable prospect of meeting them in full when the company is insolvent, or becomes insolvent as a result of the incurrence of such debt or liability. The new clause 239 empowers the Court to declare that any person who was a knowing party to the company trading wrongfully shall be personally liable and responsible for those debts or liabilities of the company.

Clause 239(10) further provides that a company or any person party to, or interested in becoming a party to, the carrying on of business with a company, may apply to the Court for a declaration that a particular course of conduct, transaction or series of transactions would not constitute wrongful trading.

I now turn to deal with the licensing and regulatory regime. Clauses 47 to 60 establishes a new licensing and regulatory regime applicable to all persons acting as “insolvency practitioners”, as defined in clause 47.

Currently, such practitioners are regulated, if at all, under the professional regimes to which they belong. For example, public accountants are regulated by the Accounting and Corporate Regulatory Authority (ACRA). However, there is no specific regime applicable only to and for insolvency practitioners. This has led in some cases to undesirable situations where either a liquidator or a judicial manager whose conduct has fallen short of standards could not otherwise be punished besides or beyond looking at that individual’s professional licensing regime. So, it is a narrower framework.

To raise standards and improve accountability, the Insolvency and Public Trustee’s Office under the Ministry of Law will regulate more than 300 insolvency practitioners, who will fall under this new regime. Its key features include:

First, the licensing of insolvency practitioners, who must meet minimum qualifications and prescribed requirements to obtain and renew their licences under clauses 50 to 51. In particular, clause 50 provides that a “qualified person” means any person who is an advocate or solicitor, a public accountant, a chartered accountant or possesses such other qualifications as the Minister may prescribe.

Second, the investigation and discipline against insolvency practitioners for breaches of their conduct as insolvency practitioners under clauses 56 to 60.

I turn next to touch on the enhancements made to our debt restructuring regime. A successful debt restructuring avoids liquidation and allows the company to get back onto its feet, to continue its business as a going concern. Compared to liquidation, this provides a better return to creditors, and also benefits stakeholders, such as employees who get to keep their jobs, and trading counterparties who rely on the company's businesses.

When the Companies Act was amended last year to strengthen Singapore’s debt restructuring regime, it was noted during the Second Reading that, “[t]he need for debt restructuring is on the rise globally”, referring to high profile cases, such as Hanjin Shipping, and Singapore-listed businesses like Swiber and Ezra.

Since the passage of those amendments, several more high profile cases, illustrating the need for an effective debt restructuring and rehabilitation scheme, have been in the news, including well-known names like Toys "R" Us in the US, Noble, our own Hyflux and Nam Cheong.

This Bill further strengthens our debt restructuring regimes for the rehabilitation of companies in financial distress, while including appropriate safeguards to balance the interests of stakeholders.

With this in mind, I will touch on the amendments to schemes of arrangement first, followed by judicial management and, finally, the new restrictions on ipso facto provisions.

In respect of schemes of arrangement, the Bill makes two amendments.

First, clause 64 re-enacts section 211B of the Companies Act, with a new subsection (12)(b). Clause 64(1) gives the Court the power to make one or more orders restraining certain actions and proceedings against the company on an application by a company that has proposed a compromise or arrangement with its creditors, or intends to do so. Clause 64(8) provides for an automatic moratorium of not more than 30 days to apply upon the making of an application under clause 64(1).

The new clause 64(12)(b) provides that neither an order made by the Court under clause 64(1) nor the automatic moratorium under clause 64(8) affects "the commencement or continuation of any proceedings that may be prescribed by regulations." This amendment empowers the Minister to prescribe by regulations that the commencement of specified proceedings, or the continuation of specified proceedings, or both, is not affected by the moratoria. The intention is to apply this power in a targeted manner where necessary – in particular, with respect to writs for an action in rem against a vessel. The current practice, as I understand it, is that for urgent cases in rem writs and applications for leave are to be filed simultaneously and the Supreme Court registry accepts such filings with the Court thereafter deciding if the claim may proceed. The power under clause 64(12)(b) will be used to provide that the first step of the filing of an in rem writ is not itself impeded by the moratoria, and this is in order to preserve the claims against the vessels because time stops running when you have filed the claim. However, leave of Court under clause 64(1)(c) or (8)(c) will still be required to continue with such proceedings. A similar provision is also inserted at clauses 65(7)(b), 95(3)(b) and 96(5)(b).

Second, clause 70 empowers the Court to approve a scheme of arrangement despite there being dissenting classes of creditors, provided that the scheme is fair and equitable to the dissenting class. This re-enacts section 211H of the Companies Act, but with one key difference at clause 70(4)(b)(ii)(B) – that persons subordinate in priority to the dissenting class must not receive or retain any property “of the company”.

So the insertion of the words "of the company” clarifies and confirms the position outlined in Parliament last year when this provision was introduced in the 2017 amendments, that the cram-down provisions introduced were “not concerned with adjustments to shareholder interests".

Turning to judicial management, clause 94 is a new tool which seeks to allow a company to place itself into judicial management provided that creditors agree to it and support it in doing so. Currently, a company may only enter judicial management by a Court order. Clause 94 provides an alternative mode of entry into judicial management in cases where creditors are supportive. The aim of this new provision is to minimise the expense, formality and delay in such cases, and the expedited procedure will allow the company to focus its resources on rehabilitation. It must be emphasised that once the company is placed into judicial management, the judicial management process will then continue in the same manner and under the supervision of the Court, regardless of how the judicial management was started. That is obvious because it is a judicial management with the Court having oversight.

Clause 99 and the First Schedule provide for the powers of the judicial manager, including a new power at paragraph (f) of the First Schedule, to assign, in accordance with the prescribed regulations the proceeds of an action set out in that paragraph.

Judicial managers are provided certain powers under those provisions set out in paragraph (f) to bring an action in court to unwind prejudicial transactions and avoid acts detrimental to creditors. For example, where errant directors have entered into a transaction to transfer assets of the company to a third party for no value or no valuable consideration. Currently, a majority of such actions may not be pursued due largely to there being a lack of financial resources.

These new provisions allow the judicial manager to assign proceeds from such an action to a third party, in exchange for funding of the action. This new avenue of funding may increase the likelihood of such an action being pursued. This will, in turn, benefit stakeholders by providing higher recoveries, if such actions are successful. This new power is similarly provided to liquidators in clauses 144(1)(g) and 177(1)(a).

To avoid doubt, these new provisions are only intended to provide for the assignment of proceeds from such an action brought by the judicial manager or liquidator. This is not intended to affect other funding arrangements that are allowed under common law, such as funding for causes of action that belong to the company as its property, and funding for the investigation of potential causes of action for financially distressed companies.

Clause 102 re-enacts section 227I of the Companies Act, which provides that the judicial manager of a company is deemed to be the agent of the company, but in clause 102, it omits the imposition of personal liability on the judicial manager. Let me explain.

The present regime imposes personal liability on judicial managers for contracts entered into or adopted by the judicial managers, although the judicial manager is allowed to disclaim personal liability, and usually does so. The availability of such a disclaimer of personal liability ensures that the judicial manager is not otherwise discouraged from entering into or adopting contracts that would be beneficial to the company. However, the net effect of this practice is that it renders the imposition of personal liability quite academic in the first place. Therefore, at clause 102 of this Bill, the provision imposing personal liability on judicial managers has not been re-enacted.

I turn now to clause 440 which introduces a new restriction on the operation of certain types of ipso facto clauses. Ipso facto or in English, "without more" clauses in contracts allow one party to terminate or modify a contract upon a specified event occurring to the other party. In the restructuring and insolvency context, such clauses typically allow one party to terminate the contract upon the occurrence of a specified insolvency-related event affecting the other party, such as an application for a judicial management order or an application for a scheme under the Companies Act.

Currently, there is no restriction on the operation of ipso facto clauses. If a company's business relies on key contracts and such contracts contain ipso facto clauses, that company will have difficulty commencing or entering into a debt-restructuring process because of the risk that counterparties would simply by that reason alone be able to terminate those key contracts.

This new provision therefore facilitates the attempts of such a company to restructure by protecting its valuable commercial contracts from being terminated by reason only that the company has embarked on restructuring efforts, under certain specified circumstances. The concept of restricting the application of ipso facto clauses is also found in the laws of jurisdictions such as the US, Canada and Australia. The language in clause 440, in particular, takes reference from section 34 of the Canadian Companies' Creditors Arrangement Act.

Clause 440(1) provides that no party may by reason only that any restructuring proceedings as defined in clause 440(6) are commenced or that the company is insolvent and thereafter:

(a) terminate or amend, or claim an accelerated payment or forfeiture of the term under, any agreement with the company; or

(b) terminate or modify any right or obligation under any agreement with the company.

This restriction, if applicable, operates from the commencement of those restructuring proceedings, that means, from the commencement of the judicial management proceedings or the restructuring by schemes until their conclusion.

At this juncture, it is necessary to make it clear that clause 440 only limits a certain specific subset of ipso facto clauses – those I have just outlined above. In other words, by reason only of the restructuring efforts of the company. It does not affect ipso facto clauses that are triggered on any other contractually provided grounds.

So, let me illustrate. In a case of a developer and a main contractor entering into a contract for the construction of a building, where the contract contains ipso facto clauses that may be triggered either on the commencement of restructuring proceedings, or the failure to meet construction milestones, which is not untypical in such a contract.

If the main contractor is in financial distress and files an application to Court to place the company into judicial management, the developer will be restricted by clause 440 from relying on the ipso facto clause, because it is triggered by the filing of the application for a judicial management order, which is one of the specified restructuring proceedings in clause 440(6).

If, however, in addition to the filing of the restructuring proceedings, the main contractor also fails to meet construction milestones and timelines which are built into the contract, the developer may use the ipso facto clause to terminate the contract or for a variety of other reliefs as specified in the contract. So, it is only by reason of the restructuring efforts set out in clause 440 alone that these ipso facto clauses are restricted.

To balance the interests of the counterparty and other stakeholders, safeguards have also been included in clauses 440(4) and (5).

First, certain types of contracts are exempted from this provision. These exemptions recognise that restricting the application of ipso facto clauses in certain categories of transactions or contracts would have a disproportionately adverse impact on markets, while balancing the efficacy of the restriction. These include prescribed eligible financial contracts, and prescribed contracts that affect the national interest or economic interest of Singapore.

Second, a counterparty may apply to Court, nonetheless, for relief on the basis of significant financial hardship. This provides an additional safeguard for relief in certain specific individual cases.

Sir, in conclusion, this Bill ensures that our debt restructuring and insolvency laws remain modern and progressive. In particular, it strengthens our corporate debt restructuring regimes to better support companies, creditors and other stakeholders who seek to rehabilitate local and foreign companies here, balancing the commercial interests of all concerned.

This Bill would not have been possible without the extensive consultation over the years with the industry bodies, with leading industry practitioners, academics and other stakeholders in the insolvency regime, such as the courts. We received many helpful suggestions. These have been carefully considered in detail and incorporated into the Bill, where appropriate, and this makes the Bill far more robust.

This Bill is part of a wider concerted efforts to enhance Singapore's debt restructuring ecosystem. For example, just last week, the Supreme Court of Singapore concluded two Memoranda of Understanding (MOU) with the US Bankruptcy Court for the District of Delaware and the US Bankruptcy Court for the Southern District of New York. This follows from the MOU with the Seoul Bankruptcy Court in May earlier this year. These MOUs with key commercial and insolvency jurisdictions bode well for the future, and will facilitate efficient cross-border restructuring and insolvency proceedings between the Courts.

With this Bill, and our collective efforts, we will create a world-class restructuring and insolvency ecosystem in Singapore. Mr Deputy Speaker, I beg to move.

Question proposed.

5.07 pm

Mr Patrick Tay Teck Guan (West Coast): Mr Deputy Speaker, I rise in support of this Bill. This Bill seeks to facilitate the restructuring of distressed companies and benefit local businesses experiencing financial difficulties. Indeed, companies are under pressure from rising costs, a shrinking workforce and rapid disruption in an increasingly protectionist global environment. Many of our businesses are also restructuring their operations in a bid to stay ahead of the game. As restructuring intensifies, it is inevitable that some businesses in Singapore may end up distressed, or in financial difficulties. While this Bill seeks to strengthen the regimes in place to facilitate the rehabilitation of distressed companies, we must not forget to ensure that the interests of workers are taken care of as well.

Without a doubt, workers are the lifeblood of the company. In times of difficulty, the company stands little chance of rehabilitation without its workers. Yet, workers often have little bargaining power vis-a-vis the company and stand to lose the most when the company is unable to pay their wages. Wages generally form a sizable portion of workers' wealth and means to sustain their dependents. When the employer defaults, workers are left with limited options to fall back on.

Unlike other creditors that the business deals with, majority of workers would not have factored in the risk of entering into an employment relationship by looking at the financial health of the employer before they accept employment or minimise their exposure by taking a security. Workers would also not have negotiated into the price of their labour any compensation for the risk of non-payment. Thus, the worker is placed in a position of self-insurance, but without adequate power or compensation to absorb the loss of unpaid wages when the employer becomes unable to pay them.

I have come across various cases where workers continue to work without pay while the company is in judicial management, in the desperate hope that the company will turn around and they can keep their employment with the company.

For example, in February 2015, Vela Diagnostics came under judicial management in Singapore. Staff were informed that they could not be paid until new funding from investors was secured. MOM had stated that they were unable to assist employees for a firm under judicial management as the Assistant Commissioner for Labour at MOM was not able to inquire into salary claims of employees covered under the Employment Act while the statutory moratorium was in force, except with the consent of the judicial manager or with leave from the High Court.

One former employee, owed about $13,000, quit in April 2015 to start a new job because he could not afford to keep waiting for his salary to come in. Others struggled with their financial commitments while staying with the company in hope that investors could be secured. Vela Diagnostics was eventually brought out of judicial management in September 2015, and thereafter, settled all salary claims. By this time, the workers who had stayed on with the company would have worked for almost six months without pay.

Unfortunately, not all workers in such situations get paid their outstanding salaries or at all. From 1996 to 2000 and 2001 to 2010, there were only 52 successful judicial management cases, where all the debts were paid, out of 194 cases in total. That is something like 26.8%, and this was reviewed by the Insolvency Law Review Committee in 2013.

In unsuccessful cases, workers would be left with little or no recourse for outstanding wages, except to await distribution of assets upon the winding up of the company in accordance with the priorities of debts in insolvency. Depending on the assets available for distribution, they may receive a few cents for each dollar owed, or nothing at all.

With the introduction of rescue financing in 2017, the company may apply to Court for an order that debt arising from any rescue financing obtained or to be obtained by the company to have priority over some or all of the preferential debts or to be secured by a security interest, pushing unpaid wages further down the priority of debts.

In the case of Re Attilan Group Limited [2017] SGHC 283, the High Court rejected the company’s application for super priority for rescue financing, finding that the company had failed to show that it had expended reasonable efforts to secure other types of financing. The judge also added that the grant of super priority should not be ordinarily resorted to and the courts would be slow to do so, unless it is strictly necessary given that it reorders the priorities on winding up and allows the rescue financier to get ahead of the queue for assets. It remains to be seen how the case law on super priority rescue financing will be further developed. While rescue financing can certainly give the distressed company a timely boost toward rehabilitation, I urge companies and rescue creditors to give considerable thought to the interests of worker-creditors when mounting this application.

In conducting their review of the insolvency regime in Singapore, the Insolvency Law Review Committee received feedback that in many cases where the Official Receiver was appointed as liquidator, typically of a company with no or little assets, the Official Receiver received almost no remuneration for the fees incurred in conducting the liquidation and the costs of such liquidations were borne by public funds.

The Committee also found that a sizeable number of companies wound up by the Court had insufficient or no assets to fund the administration of the liquidation. As at 31 December 2012, the number of cases with estimated realisable assets of less than $1,000 administered by the Official Receiver stood at 320, constituting 42% of the 768 live cases administered that year.

Under section 328(1)(a) of the Companies Act, the fees of the liquidator enjoy priority over all other preferential creditors but share that priority with two other categories of debts within the same "class" ranking pari passu, that is, the taxed costs of the applicant for the winding up order and the costs of an audit carried out pursuant to section 317 of the Companies Act. This is followed by wages and salary owed to workers.

The Committee recommended that section 328(1)(a) of the Companies Act be amended to confer priority on the Official Receiver's fees vis-a-vis the other debts identified in that section. This recommendation has been accepted and reflected in clause 203(1) of the Bill – unpaid wages of workers are now ranked fourth amongst the preferential debts. Given that the Committee had found that there were already insufficient funds to pay the Official Receiver, at the top of the list of preferential debts under section 328(1) of the Companies Act, the implication will be that workers who have not been paid their wages, have even smaller chances at recovering any monies owed to them.

I would like to ask the Minister if there are any statistics available on the incidence of claims for unpaid wages in insolvent companies and the amount of wages claimed by workers?

In cases where workers had received some payment toward their unpaid wages, how long did it generally take for these workers to be paid?

How many workers were paid up to the monetary limit imposed under section 328(2) of the Companies Act for wage and retrenchment benefit claims pursuant to sections 328(1)(b) and (c)? Under the Bill, the same monetary limit now applies to claims for wages, retrenchment benefits and remuneration in respect of vacation leave or employee's death pursuant to clauses 203(1)(d), (e) and (h).

We must ensure that there are avenues available for workers to seek help when they are claiming for unpaid wages when the company is under judicial management or insolvent. I have four possible interventions and suggestions.

First, currently, workers with claims for unpaid wages can make a claim at the Employment Claims Tribunals (ECT) by first submitting a mediation request at the Tripartite Alliance for Dispute Management (TADM). For workers claiming for unpaid wages against companies under judicial management or insolvent companies, TADM should share with these workers information about the implication of judicial management and insolvency on their claim for unpaid wages against the company and connect them to employment facilitation support and resources.

Second, the short-term relief fund targeted at the bottom 20th percentile of the workforce funded by MOM and operated by TADM for workers who have successfully made ECT claims against their company but fail to recover payment, can also be expanded to assist all worker groups including Professionals, Managers, Executives who have not been paid wages by insolvent companies and the amount of help increased to commensurate with the salaries of those affected.

Third, MOM can also advance money to pay part of the workers' unpaid wages and stand in place of the workers as a preferred creditor of the same level of priority the workers would have had for a claim of unpaid wages to recover the advanced monies upon distribution of the insolvent company's assets. This will reduce the waiting time for workers to be paid and eliminate the hassle and stress of having to take additional administrative steps within the insolvency framework to recover their unpaid wages.

Finally, there should also be exceptions to the statutory moratorium – MOM could be allowed to investigate and take action against unlawful labour practices under the Employment Act without having to seek the consent of the judicial manager or obtain leave of Court. Unions should also be allowed to refer cases to the Industrial Arbitration Court for arbitration and not having to resort to industrial action.

To conclude, much as we now have consolidated and promulgated a mammoth and laudable piece of insolvency legislation which I support, I submit that a worker's basic rights to his day's wage should not be diluted nor denigrated. Workers should not be bearing the manpower cost of rehabilitation efforts of the company. A better insolvency regime is one that facilitates the rehabilitation of distressed companies while providing sufficient safeguards for workers. In short, I hope this Bill will not just be a omnibus Bill, but also omni-potent to ensure both businesses and workers survive. Thank you.

5.19 pm

Mr Dennis Tan Lip Fong (Non-Constituency Member): Mr Deputy Speaker, I wish to declare my interest as a practicing lawyer whose work include insolvency related matters.

I support the consolidation into one single piece of legislation, existing separate statutes pertaining to personal and corporate insolvency laws and the laws to debt restructuring. I hope this will allow a more unified approach to be taken by the courts, the Insolvency and Public Trustee's Office and the insolvency practitioners.

While much of the provisions in this colossal omnibus Bill are taken from existing provisions in the Companies Act and the Bankruptcy Act, the Bill also introduces some new regulations.

In particular, the Bill will introduce a new regulatory regime for insolvency practitioners acting as officeholders in insolvency and restructuring proceedings. This follows the practice in some other countries, for example, UK and Australia.

I have a few questions regarding this new regulatory regime. One, besides having the right qualifications such as being a solicitor, public or chartered accountant, which are provided in clause 50, and besides the conditions stated in clause 56(b) to (l), what are the other conditions which the Government intends to impose on all insolvency practitioners?

I would also like to ask the Senior Minister of State, whether in the past, say, 10 years or so, there has been instances of misconduct by any insolvency practitioner or where any such practitioner has committed any acts which would have run foul of the provisions under the new regulatory regime if this had been introduced earlier. Perhaps the Senior Minister of State can elaborate on what are some of these acts or misconduct complained of.

Next, I would like to ask the Senior Minister of State, with the new regulatory regime, what are the expected costs of compliance by practitioners and will that lead to increased business costs for companies involved in insolvency proceedings one way or other?

Mr Deputy Speaker, I understand that the Bill today represents the final part of a three-phase process to implement the recommendations from the Insolvency Law Review Committee as well as the Committee to Strengthen Singapore as an international Centre for Debt Restructuring. In 2015, as part of the first phase of this process, the Bankruptcy Act was amended to create a more rehabilitative discharge framework for bankrupts. Provisions of the existing Bankruptcy Act have now been incorporated into this Bill. I would like to ask the Senior Minister of State, whether he can provide any statistics for the past few years, to show that the intentions and objectives behind the more rehabilitative discharge framework have been achieved or at least that we are well underway to achieving such objectives?

According to data I have found on the Ministry of Law website for the number of bankruptcy applications for the past two years after the new bankruptcy threshold was increased from $10,000 to $15,000, the number dipped in the first year and then rose again. Has the Government conducted any studies to find out the reasons behind the increase? What is the expected trend that the Government expects in the next two to three years?

Finally, I would like to ask the Senior Minister of State for an update of Singapore's development as an international debt restructuring centre so far. How much success have we had in terms of attracting regional or international restructuring work?

5.23 pm

Mr Christopher de Souza (Holland-Bukit Timah): Sir, this Bill will further strengthen Singapore's position as an international debt restructuring centre. With this Bill, there is now no need to extensively cross-reference the Companies Act and Bankruptcy Act to see how the latter is adapted to suit corporate insolvency. By being located in a single statute, the law becomes clearer and much more accessible. This allows some who are less familiar with our laws to consider utilising our debt restructuring regime. It is advantageous.

Notwithstanding the focus is on companies – hence the title Insolvency, Restructuring and Dissolution, the Bill also contains personal bankruptcy law. This decision to keep the two bankruptcy laws within the same statute recognises that there are common principles in both situations. Both involve a balancing of the myriad of interests in a situation where a debtor cannot repay his or her or its creditors. Such concerns may include giving the bankrupt another chance, a trade creditor's own need for cash flow, and employees getting paid and keeping their jobs, as eloquently put forward by Mr Patrick Tay Teck Guan moments ago. Nevertheless, the very nature of a company gives rise to separate concerns. As a separate legal personality, its owners experience limited liability, it may be dissolved. Therefore, there are different regimes for each kind of bankruptcy.

A main feature of this Bill is the licensing regime for insolvency practitioners in Division 3 of Part 3. It seeks to govern liquidators, judicial managers, receivers or managers and those appointed to those positions in the interim. The requirements are more stringent than previously. Previously, it was a blanket ban against anyone who had "been convicted of an offence involving fraud or dishonesty punishable on conviction by imprisonment for three months or more." The Bill expands the inquiry to having a judgement in civil proceedings involving a finding of fraud, dishonesty, or breach of fiduciary duty; or conviction of an offence in Singapore or elsewhere of any offence involving fraud, dishonesty or moral turpitude.

Sir, allow me now to declare my interest that I am a practicing lawyer whose practice include insolvency.

With regards to this regime, what is the purpose of specifying 30 June as the date on which a valid licence that is not renewed would expire – for that see clause 53(2) – especially since it seems as though the renewal for licenses would all come at the same time? Also, since it seems as though a written direction can convert a condition into a criminal offence if the condition was not complied with, what sort of conditions are envisioned that a licensing officer may specify under clause 52(2), especially those applicable to a specified licensee only? I would be very open to hearing the Senior Minister of State's clarifications on these points.

There are also some amendments that alter contractual rights. The first is that affecting secured creditors of personal bankrupts. Under clause 327(4)(A), a secured creditor is required to notify an intention to claim interest in respect of his or her debt after a bankruptcy order is made. Secured creditors enjoy proprietary interest such that the security is, in the context of a company, not considered part of the company's assets. What safeguards are there to ensure that the secured creditor's interests in having a security are not unfairly prejudiced, even as this amendment seeks to ascertain assets and liability early for a more efficient administration of the bankruptcy?

The second is clause 440, which restricts ipso facto clauses in relation to judicial management and schemes of arrangement. I heard the Senior Minister of State expound quite fluidly on ipso facto clauses when he first read the Second Reading speech. Allow me to share my views on it.

Ipso facto clauses allow termination or modification of the contract upon the occurrence of a specified trigger event. In principle, this provision is important because it ensures that the objectives of an attempted rehabilitation of the company is achieved. However, this is not without consequences. It may alter risk-allocation and also, may increase uncertainty. The Revised Report of the Insolvency Law Reform Committee stated, "ability of the insolvent company to cherry-pick contracts would disrupt the rules on set-off and netting by making it difficult to isolate which contracts should be eligible for set-off or netting." Nevertheless, this is not something novel for Singapore. Other jurisdictions have or looked into having a similar provision before, for example, my research shows United States, Canada, France and Australia. Having said so, I seek a clarification from the good Senior Minister of State, how is clause 440 calibrated to balance between these different considerations and reduce possible negative market impact?

Moving on, Sir, regarding the proof of debts, was it intended for the law on provability of debts to change its reference point from the making of the winding up order to the making of the application for winding up? Allow me to explain. Clause 218(2) provides that "the following are provable where a company is in judicial management or an insolvent company is being wound up: (a) any debt or liability in which the company (i) is subject at the commencement of the judicial management or winding up, as the case may be."

The next paragraph also references the commencement of judicial management or winding up. Clause 126(2) defines commencement of winding up as “the time of the making of the application for the winding up.” In contrast, the current section 87(1) of the Bankruptcy Act on which Clause 218(1) is based reads “the following are provable in bankruptcy: (a) any debt or liability to which a bankrupt – (i) is subject at the date of the bankruptcy order; or (ii) may become subject before the bankrupt’s discharge by reason of any obligation incurred before the date of the bankruptcy order.”

Therefore, as seen by the current section 59 of the Bankruptcy Act, the bankruptcy order and bankruptcy application are different.

Whether or not the reference point for provable debts is from a winding up order or from commencement of winding up, that is, the winding up application, has practical implications. Halsbury’s Laws of Singapore points out “if the legal position is such that a person cannot prove for a debt incurred after he has knowledge of a winding up application, a company’s business would effectively be paralysed by the filing of a winding up application… since a prudent businessman is unlikely to deal with a company which is the subject of a winding up application.” As not all applications for winding up end in an order for winding up and since not all judicial management cases will end in winding up, was it intended for the law on provability of debts to change its reference point from the making of the winding up order on the one hand to the making of such applications on the other? I seek the Senior Minister of State's clarification on this one.

Besides some major amendments, Sir, this Bill also continues to refine the relevant regimes. For instance, clause 102 omits personal liability for judicial managers. Clauses 250(1) and clause 186 address issues that have arisen before our courts. Even as this Bill is a capstone to the preceding amendments which strategically positioned Singapore to be an international debt restructuring centre, it is important, just as these amendments have done, to continue to refine the processes for clarity, better calibration and balancing of interests. Essentially, it is a work-in-progress.

In conclusion, Sir, just as the shift in name signifies a symbolic change in our bankruptcy law, from Bankruptcy to Insolvency, Restructuring and Dissolution Bill, this Bill also fortifies Singapore’s resolve and positioning as an international debt restructuring centre. Therefore, I support the Bill.

5.33 pm

Mr Murali Pillai (Bukit Batok): Mr Deputy Speaker, Sir, I declare my interest as a lawyer practising insolvency law from time to time.

Sir, I fully support the aims of the Bill. It finally introduces the omnibus legislation covering personal and corporate insolvency laws, widely awaited by practitioners in the insolvency sphere. As the learned Senior Minister of State mentioned, it follows two reports, the 2013 Report of the Insolvency Law Review Committee as well as the 2016 Report issued by the Committee to strengthen Singapore as an international centre for debt restructuring co-headed by the learned Minister Ms Indranee Rajah and the Hon Justice Kannan Ramesh.

There was also an earlier report, the 2002 report by the Company Legislation and Regulatory Framework Committee, which made a clarion call at the outset for the introduction of a consolidated new insolvency act. I applaud the Ministry of Law for leading the consultative process over such a long period of time, getting feedback from the players in this industry and implementing the recommendations that have been made. It is a long process but it is worth the wait because we can see the complexities involved: 70 amendments through various statutes, about 150 recommendations have been provided to the Ministries for consideration.

I would, however, make a point that in providing for these provisions to basically enhance Singapore's status as a premier debt restructuring centre, we must also need to balance against the creditors' interest. Tilting against the creditors, especially banks, would result in higher business cost and it being more difficult for the banks to conduct the business, particularly given the regulatory requirements that it has under Basel III to ensure better ability on their part to liquidate collateral in a timely manner. This may in turn impact Singapore's attractiveness as a financial centre or if the cost of lending goes up then the cost will be passed on to the businesses. As we all appreciate, the vast majority of companies in Singapore are solvent so we must ensure that we do not have a situation of the tail wagging the dog.

We note that in 2017, a number of legislation have been passed making inroads into the rights of creditors. For example, the more extensive moratoriums, the possibility of rescue financing with the consequent super priority afforded to the rescuers. And also in relation to judicial management, it is now easier to get judicial management orders and the rights of the secured creditors have been watered down consequently. It is in this context that I wish to seek an explanation from the learned Senior Minister of State: how do we strike a balance between the need to maintain our reputation as a financial centre and our intent to build Singapore as an international centre for debt restructuring?

And it is in that context that I wish to seek a fuller explanation on the proposed section 440 of the Bill. My parliamentary colleague, Mr Christopher de Souza, spoke eloquently about it a few minutes ago. From my sensing, there is some level of nervousness on the impact of this provision. Take, for example, a bank or securities company that provides margin financing to a company trading in listed securities. The bank or securities company is exposed to the stock exchange or clearing house when putting through trade transactions of a company that is distressed. The securities company has itself to place margins with the clearing house or stock exchange. If it cannot enforce through exercise of the ipso facto clause to terminate facilities, there is a potential exposure to them. This may affect the bank’s practice which may become more conservative in providing margin facilities, and this may in turn may have some far reaching or unintended consequences.

In an economic situation where providing liquidity becomes important to keep companies afloat, this becomes an even greater issue. There are carve-outs in other jurisdictions, for example, in the EU there are the financial collateral directives.

The hon Senior Minister of State mentioned that there could be carve outs in relation to eligible financial contracts. I seek clarification as to what are the exceptions that may apply in relation to section 440 and in that regard I note section 440(5) contemplates a carve-out for eligible financial contracts.

I would also like to ask whether the industry has been consulted on this provision and in particular, because both in the 2013 and 2016 reports referred to earlier, this provision was not specifically recommended.

Another potential effect would be in relation to the private wealth management business. Would private banks rather use offshore SPVs as opposed to Singapore SPVs because of the potential for Singapore insolvency laws applying to these offshore SPVs? Or alternatively minimise the transactions such that there would not be a substantial Singapore connection between the foreign SPVs and Singapore. This substantial connection test is the basis upon which Singapore courts can exercise jurisdiction over a foreign SPV.

Notwithstanding what I have said, I support the Bill.

5.40 pm

Mr Deputy Speaker: Let me invite the hon Senior Minister of State to respond to all the comments.

Mr Edwin Tong Chun Fai: Thank you, Sir. Sir, I thank the Members for speaking up with their comments and also the various suggestions that have been made. These are very thoughtful, considerate comments and I will do my best to respond to them. I will do so , grouping them into five different topics.

The first relates to the consolidation of personal and corporate restructuring and insolvency laws into one single legislation. It is omnibus, not omnipotent. Second, the new licensing and regulatory regime which regulates all insolvency practitioners. Third, the proof of debts during winding up. Fourth, the availability of third party funding in judicial management and liquidation. And finally the need to safeguard the interests of creditors and employees, a point that Mr Patrick Tay spoke very passionately about.

Both Mr Murali Pillai and Mr Christopher de Souza commented on the benefits brought about by the Bill, which consolidates the personal and corporate insolvency provisions into one. Indeed, having them in a single piece of legislation will bring greater clarity and access, as well as expediency, cost-effectiveness and certainty through the reduction of numerous cross-referencing that we now see between the Companies Act and the Bankruptcy Act.

I take this opportunity to highlight that the Bill also sets out common principles that run across the different regimes, where possible. So for example, Part 9 introduces new provisions that are generally applicable to both judicial management and winding up. Currently, this is given effect to in judicial management and winding up by way of cross-referencing provisions in the Bankruptcy Act. In the Bill, these regimes now have provisions specific to themselves, with the necessary refinements to ensure that they are worded in the terminology consistent with the judicial management and winding up regimes. These include the provisions relating to proofs of debt in clauses 218 to 223, and the adjustment of prior transactions in clauses 224 to 229.

Second, the Bill also introduces new provisions for disclaimer of onerous property, for judicial management and winding up in clauses 230 to 233, and personal bankruptcy in clauses 373 to 376. In particular, clauses 230(4)(a) and 373(4)(a) are new provisions that require the judicial manager, liquidator or Official Assignee, as the case may be, where the property is subject to any written law under the Second Schedule, to give notice of the intention to disclaim the property to the relevant regulatory authority. This written notice must be given before the office-holder may give the notice of disclaimer under clauses 230(1) or 373(1). This ensures that the relevant regulatory authority has the opportunity to address any issues relating to the property under the relevant environmental legislation.

On the new licensing and regulatory regime, a point that both Mr Tan and Mr de Souza spoke about. Mr de Souza in particular noted that the new requirements to act as a practitioner are more stringent than the previous ones. To develop and strengthen Singapore as a restructuring forum of choice, a robust licensing and regulatory regime forms an integral and necessary part of the ecosystem. It is necessary to ensure that professional standards are maintained and upheld by all insolvency practitioners. This is also necessary to ensure that only "fit and proper" persons who are qualified are granted such licences to allow the licensee to undertake the spectrum of restructuring and insolvency work, as described in clause 47(1).

Mr Tan also asked about what the conditions that might be specified are. If Mr Tan looks at clause 50(2), it provides for certain categories of persons who are qualified to act and to administer such insolvencies. Whilst the provisions are being developed, Mr Tan can take it from me that it will be along the same vein to ensure that the relevant expertise and proper experience befit the person to manage such restructurings and insolvencies.

Mr de Souza asked about the purpose in clause 53(2) specifying 30 June as the date on which a valid licence that is not renewed would expire, given that the renewal for licences would all come at the same time. This is the point that Mr de Souza made. Under clause 50, a “qualified person” who is eligible to hold an insolvency practitioner’s licence means any person who is an advocate or solicitor, public accountant, chartered accountant or possesses such other qualifications as the Minister may prescribe. That, , is really not different from the scenario that we have today in term of the qualifications.

Currently, the registration of a public accountant or chartered accountant is valid from 1 January to 31 December of each year, whilst the practising certificates for advocates and solicitors run on a different time scale. They are 1 April to 31 March each year. So, the specified date of 30 June provides sufficient time for applicants for an insolvency practitioner’s licence to produce the required evidence of such registration or practising certificate.

Mr de Souza also asked, and I think he said: "[Since] a written direction can convert a condition into a criminal offence if the condition is not complied with, what kind of conditions are envisaged that a licensing officer may specify under clause 52(2)?” Let me clarify.

Clause 58(3) provides that it is the failure to comply with the requirement specified in the written direction issued under clause 58(1) that constitutes the criminal offence, and not the failure to comply with the condition of the licence per se. So, one is a criminal offence which Mr de Souza has in mind and the other is a regulatory breach. Such written direction may require the licensee to comply with, or cease the contravention of, any provision of Part 3 Division 3 or any condition of the licence, or make good any default arising from the contravention, or both. So, if there is contravention or if there is a non-compliance, the direction would specify that such compliance has to be provided. And it is a subsequent failure to comply with that written direction that constitutes the offence, and not the initial failure to comply with the condition of the licence.

Second, regarding the type of conditions that is envisaged to be specified, one example would be for the practitioner to comply with all the relevant statutory requirements under the Bill. MinLaw will take reference from other professional licensing regimes when formulating the licensing conditions, a point in response to Mr Tan's query.

Mr de Souza asked, in the context of a winding up, if it is intended for clause 218 on provability of debts to change its reference point from the making of the winding up order to the making of the application for the winding up.

The answer is no. In the case of a winding up pursuant to a Court order, the reference point is the making of the winding up order itself.

Mr de Souza also referred to clause 218(2)(a)(i) and (ii), where the phrase "commencement of the judicial management or winding up" is used. A similar phrase "commencement of the winding up" is also used at clause 218(1)(a)(i) and (ii). And the meaning of those phrases must be ascertained in the context of the provision itself. In other words, the phrase used in this clause is not defined in Part 9 and considering the context of this clause in the manner described above, the plain and ordinary meaning of these words would apply. These are for the words the "commencement of the judicial management”, it means the time when the appointment of a judicial manager takes place. And the words the "commencement of the winding up” means the time when the winding up order is made or the passing of the resolution for a voluntary winding up, if it is done out of court.

Where the phrase is intended to bear a technical meaning, other than the plain and ordinary meaning, a separate definition is used to provide for that technical meaning. In the context of clauses 224 to 229, where it is intended for a technical meaning to apply, clause 217(1) sets out the definition for that technical meaning, which applies only for the purposes of clauses 224 to 229.

Further, Mr de Souza also asked if the technical meaning of "commencement of winding up” in clause 126 applies to clause 218. Clause 126 in Part 8 Division 2 applies to applicable provisions in that Division, such as clause 130, which requires the technical meaning provided under clause 126. The technical meaning in clause 126 does not apply to clause 218, which is in Part 9.

I turn now to Mr Pillai's comment about how the Bill enhances the availability of third party funding that allows the judicial manager or liquidator to pursue claims against parties on behalf of the company. I earlier mentioned that the new option which allows the judicial manager or liquidator to assign proceeds from an action set out in those provisions to a third-party, in exchange for funding of the action.

Where the company is in winding up, I would like to point out that an enhancement to an existing option for funding by creditors under section 328(10) of the Companies Act, which is re-enacted with modification at clause 204, and it is as follows.

Currently, the main drawback of section 328(10), as Mr Pillai might be aware, was as stated by the Insolvency Law Review Committee and I quote, "the court may make an order only after the relevant assets have been recovered, protected or preserved, or after the relevant expenses have been recovered. At the point of providing the funds or the indemnity, the funding creditors at that stage will have no assurance that the court will make an order giving them an advantage over other creditors in consideration." That is a limitation to the current regime in section 328(10) of the Companies Act.

To address this, the new provision in clause 204(2) allows the Court to make such orders prior to the creditor providing the funding or indemnity.

In summary, these two options will increase the availability of third party funding to facilitate the judicial manager or liquidator pursuing claims against parties on behalf of the company.

Next, I think various Members spoke up about safeguarding the interests of creditors and I will turn to this point now. Mr Pillai, in particular, commented that there is a need to balance the interests of creditors against that of companies, and I agree entirely. I would like to assure Mr Pillai that the overall regime will continue to balance the interests of all stakeholders carefully, including creditors, while strengthening Singapore as a forum of choice for debt restructuring. Specifically, in relation to Mr Pillai's query on how the balance between a financial centre and being an international centre for debt restructuring should be struck, I should say that these two objectives are not mutually exclusive. In fact, in many ways, they are complementary. We want businesses to be set up here, thrive, function, and operate. But when they fall into difficult times, given the impact it has on various stakeholders, in terms of the creditors, employees and other counter-parties, we want to provide them the best possible tools and the best regime possible in this forum to restructure and get back on its feet. Being an international centre for debt restructuring in fact augments our attractiveness as a global financial centre. It enhances our capabilities to provide a comprehensive end-to-end suite of options for businesses and transactions.

I turn now to the ipso facto clauses which I think several Members spoke on, on clause 440. Both Mr de Souza and Mr Pillai commented on the potential consequences of clause 440 in exposing creditors to greater risk and uncertainty, and have asked how it is calibrated to address these consequences, and balance the different considerations.

To start, let me reiterate the reasons for introducing the restriction. And Mr Pillai is right. He has read both of the committees' reports. Both committees obviously had the ipso facto provision before it, but at that stage chose not to recommend it as being as one of the options. That is why it did not make it into the 2017 amendments.

But the restriction that we have in mind in clause 440 supports a company's restructuring efforts. It prevents the other party to the contract from unilaterally exercising his or her rights against a company to terminate or modify the contract solely because of the commencement of restructuring proceedings. In other words, solely when a company applies to court, or voluntarily takes a restructuring step, it is in that limited scenario that the ipso facto clauses are being sought to be restricted. Such actions undermine the prospects of achieving a successful restructuring. As Mr de Souza has pointed out, having this restriction will give the company necessary time and room to restructure, by protecting the company's valuable commercial contracts from termination or modification. In other words, if one is about to restructure and get the company back onto its feet, the last thing it wants is for valuable counter-party contracts to be terminated for no reason other than that it has now sought protection from the courts. These restrictions allow a company to continue with the key commercial contracts to generate revenue or which enable the company to continue operations itself, and thus preserving and enhancing the value of the company itself.

Take the example of Hyflux, a recent case. Shortly after filing for a moratorium under the current regime to support its restructuring proceedings, certain creditors declared an event of default had occurred because of the moratorium filing. So, no other breach of that underlying provision, but because of Hyflux's filing of the moratorium protection and the application to court to protect and enhance its restructuring efforts. Based on this event of default, the creditors exercised their contractual rights, such as the acceleration of repayment terms and set-off rights in respect of debts owing by the creditor to Hyflux. So, the moment that happened, some creditors, exercising contractual rights under the ipso facto provisions, provided for accelerated repayments to be made when it was otherwise not yet due or provided for set-off rights that they could not exercise immediately. So, all of these steps diminish and restrict Hyflux's cashflow. And that is not an untypical situation that happens. And this thereby further exacerbated the financial position of the company.

Now, if a similar situation arises in the future, clause 440 would restrict creditors from exercising such rights solely on the basis of the filing of a restructuring moratorium. This would allow the company to continue with its business operations while restructuring its debts, provided there are no other events of defaults which are triggered outside the scope of clause 440.

As Mr Pillai noted, a successful restructuring benefits its creditors, as it preserves the on-going value of a company. I would go beyond that to say that a successful restructuring will, in fact, maximise the benefits to the company's stakeholders as a whole, including, as Mr Tay knows, its employees and also its trading counter-parties.

Finally, the introduction of such a restriction would also align Singapore with key jurisdictions, such as the US, Canada and Australia, which do offer debtor companies seeking to restructure their business interests such similar forms of protection. Although the Insolvency Law Review Committee had not recommended at that time restricting ipso facto clauses in its report – this was about five years ago – this amendment is now being introduced because of further industry feedback which continued after both Committees had completed their work. The feedback received would be that such restriction, on balance, would be beneficial to a company's rehabilitation efforts.

Having said that, my Ministry is mindful that the restriction on the operation of such clauses must also balance the interests of all stakeholders, including the counter-parties. And, what has been done is to calibrate clause 440 as well to introduce the ability to deal with different considerations, and I wish to just highlight and re-iterate the following notable features.

First, the restriction is suspensory in nature, meaning it is only for the duration of the period when the company has embarked on and continues the restructuring proceedings, so from the time it commences until the time it gets out of the restructuring proceedings, either successfully or unsuccessfully. It does not seek to terminate or extinguish the other party's contractual rights. So, there is no change in the rights altogether. It is only suspended during a period of time.

Second, the scope of this restriction is limited. The exercise of contractual rights is only restricted if restructuring proceedings are commenced, or the company is insolvent. The creditors may still exercise their rights where there is another contractual ground to terminate the contract. So, in the example that Mr Pillai spoke about, the securities company would be entitled to terminate the margin facilities where the company has failed to maintain sufficient collateral with the securities company, if this is otherwise a contractually provided for ground for termination.

Third, clause 440(5) provides that the restriction does not apply in respect of any legal rights under the types of contracts set out in that paragraph. These exemptions reflect the fact that there are situations where the restriction of such clauses may have a disproportionately adverse impact on markets, and also introduce uncertainty into markets which depend on established systems and norms.

Mr Pillai did speak on certain classes of financial contracts that would be eligible for such an exemption and the scope of the exemption. We will work with the relevant stakeholders to ensure that the prescribed exemptions will strike the appropriate balance amongst the interests of stakeholders. The exemptions will be finalised after we have obtained and studied feedback from stakeholders as well as the experience in other jurisdictions who have introduced the ipso facto restrictions ahead of us. At this juncture, I can say that it is likely that the definition of "eligible financial contracts" that will be exempted would include repurchase agreements, swap agreements and forward contracts, which is similar to the position in the US.

To the extent that certain contracts will fall within the exemption as an "eligible financial contract", this will ameliorate any potential negative impact on the industries that rely on such contracts for various commercial reasons. This includes, no doubt, the wealth management industry that Mr Pillai spoke about which is also an industry that we will consider as we take feedback on what would constitute an eligible financial contract.

Next, clause 440(4) contains a further safeguard for creditors by allowing any affected creditor to apply to Court on the basis of significant financial hardship. This builds in a degree of flexibility, depending on the impact that it may have in a particular situation or on a particular creditor. And this can be determined by the Court on the basis of facts and context in that case and on a case-by-case basis.

As highlighted above, whilst the Bill facilitates the rehabilitation of distressed companies, we have taken efforts to ensure that the overall regime does strike a sufficient balance to ensure that the interests of all stakeholders in this eco-system is fair and balanced. Moving forward, we will continue to study developments, both locally and also abroad, so as to ensure that the regime continues to balance the interest of all stakeholders.

Next, I turn to the point Mr de Souza raised about clause 327(4), which requires a secured creditor to notify the Official Assignee within 30 days after the date of the bankruptcy order of the intention to claim interest on the secured creditor’s debt. Mr de Souza expressed some concern that such a requirement might be prejudicial to a secured creditor’s interest, and asked if there are safeguards in place.

I would like to emphasise that this provision only affects the secured creditor's entitlement to any interest in respect of the secured creditor’s debt after the making of a bankruptcy order. So it is for a period of time post the making of the bankruptcy order. To avoid doubt, this does not in any way affect the secured creditor’s security interest. The intention of this change is, as Mr de Souza mentioned, to facilitate a more efficient administration of the bankruptcy by ensuring all stakeholders, including the Official Assignee, are on the same page with respect to the bankrupt’s total liabilities and consequently the value of the assets in the bankrupt’s estate that would be available for distribution.

In addition, the subsidiary legislation under the Bankruptcy Act currently requires a bankruptcy order to be gazetted and advertised no later than 21 days after the bankruptcy order is made. A notice requirement will likely be re-enacted in the subsidiary legislation under this Bill. These requirements ensure that sufficient notice is provided to all stakeholders, including secured creditors. Secured creditors would thus be notified of a bankruptcy order, and in turn allow the secured creditor to notify the Official Assignee of the intention to claim interest under clause 327(4).

I now want to move on to Mr Tay's points, his very passionate points on the interests of the employees, a point that Mr Tay has raised several times and I would like to turn to those points now. Essentially, Mr Tay's points focus on the need to protect the employees' claims for unpaid salaries in the context of insolvency and Mr Tay touched on this issue I think in two different scenarios. The first, where the company is in a restructuring proceeding, and second, where the company is in a liquidation proceeding and the difference between those two is obviously in a liquidation scenario, it is terminal, there is one outcome.

The approach and treatment of such claims under those situations are different consequently, with good reasons for this.

In a restructuring situation, such as in a judicial management, the impetus is to facilitate the company restructuring its debts and hopefully rehabilitate its business to its former position or better. For there to be a meaningful rehabilitation, employees are an important group of stakeholders. As Mr Tay mentioned, and I agree, "workers are the lifeblood of the company… [i]n times of difficulty, the company stands little chance of rehabilitation without its workers". I agree with that.

Given that there are various types of debts incurred during the course of judicial management, including employees' wages, clause 114 contains new provisions that clearly provide for the priority of such a debt incurred by the judicial manager on behalf of the company ahead of other expenses incurred or the remuneration of the judicial manager.

Under this new provision, employees' wages that are incurred in the course of judicial management would fall under clause 114(1)(b) as, and I quote, "any sums payable in respect of any debts or liabilities of the company incurred during judicial management". This will rank second in the order of priority, behind only any super-priority debt arising from rescue financing obtained pursuant to an order under clause 101(1)(b).

Such super-priority rescue financing is integral and fundamental in most corporate restructuring cases. New money and injection of new capital is really the lifeblood of a successful restructuring. And without the injection of rescue financing to aid the company during the restructuring process, the restructuring may not get off the ground. Therefore, any potential prejudice to employees, which Mr Tay mentioned, must be balanced against the benefits of a successful restructuring such as the potential continuation of employment and higher rate of repayment of outstanding wages as compared to a scenario where the company goes into liquidation.

Mr Tay mentioned the grant of super-priority rescue financing cases under clauses 67 and 101 and whether they are subject to safeguards. And, in particular, Mr Tay mentioned the case of Re Attilan Group Limited, a 2017 decision of the High Court. The Courts would generally be slow to allow super-priority financing unless it is strictly necessary. That said, as I mentioned, given that new monies and new injection of capital and, in some cases, super-priority funding, in the appropriate circumstances, it will be allowed.

I turn now to a scenario where employees' wages are not paid in an insolvent liquidation scenario. As I mentioned earlier, this procedure is terminal. It leads to the dissolution of the company and it is so because there are insufficient assets to meet the myriad competing creditors’ claims. In this context, the order of priority provided under clause 203 strikes the appropriate balance in according such priority, taking into consideration the nature of the varying claims against the company.

The costs and expenses of liquidation and the expenses of the applicant for the winding up order are paid out first under clause 203(1)(a) to (c) before any of the other preferential debts under clause 203(1), a point that Mr Tay mentioned earlier. Removing the priority for these categories of claims would deter insolvency practitioners from undertaking liquidations because they would have little assurance of recovering the costs and expenses of such liquidations. This would severely undermine an orderly liquidation and distribution of dividends, to the detriment of all stakeholders, including employees. So, we are dealing with the costs and expenses of undertaking the liquidation in the first place.

Now, Mr Tay then mentioned that because of the provisions, what used to be ranked number two for the employees' claims is now ranked number four. Let me deal with that. Immediately after the preferential debts mentioned in clause 203(1)(a) to (c), clause 203(1)(d) and (e) provide that employees’ claims enjoy the next highest priority as between all the preferential debts of the company in liquidation. This clearly and unequivocally affirms the importance of employees by providing such debts priority over all other lower-ranked preferential debts and all other unsecured debts.

Mr Tay mentioned that whereas currently employees’ wages are ranked second under section 328(1)(b) of the Companies Act, clause 203(1)(d) however provides that unpaid wages are ranked fourth amongst preferential debts. Let me clarify that the new 203(1) has no material impact on the relative priority. That is because the debts mentioned under the new clause 203(1)(a) to (c) are currently placed together under section 328(1)(a) of the Companies Act. So, in other words, what went into section 328(1)(a) of the Companies Act would be clause 203(a), (b) and (c).

So, what clause 203 has sought to do is to break up what otherwise used to be a group of priority or preferential claims, all of which already ranked ahead of employees' wages, and parcel that out into three separate portions to deal with it in (a), (b) and (c) of clause 203(1). Those debts that were previously under section 328(1)(a) have been set out in those three provisions which I have mentioned and there is, therefore, no change from the existing position under section 328(1), in relation to the relative position of the employees’ claims.

Lastly, Mr Tay asked for some statistics. They are not available but I thank Mr Tay and also I think Mr Tan for raising some suggestions on the avenues. Mr Tay I think also talked about having MOM make those claims first and then to stand in queue. I think that is probably better addressed to MOM because it is a burden you are asking them to take on, and then wait in queue for the claims. But Mr Tay has our assurance that the structure of the preferential payments will continue to place the employees high up on the scale and behind really only the provisions that deal with expenses of the liquidation so that we can be assured that the liquidation will be properly proceeded with.

I want to deal with a couple of points raised by Mr Tan. Mr Tan asked me about the rehabilitative framework, the Differentiated Discharge Framework (DDF). The scheme came into force on 1 August 2016 and at present it is still somewhat early to comment on the impact of the scheme because bankrupts whose bankruptcies commenced after the amendments came into force will only begin to be eligible for discharge in 2019. To-date, we have not commenced any studies on whether the DDF objectives have been met or otherwise as the scheme given what I had said earlier is still new but I thank Mr Tan for that suggestion and certainly we will look into studying the impact of the DDF at the appropriate time when more data becomes available and there is a greater runway after the implementation itself.

I think Mr Tan also asked about what has been the type of typical misconduct cases in the past 10 years or so. Typically, when you have and when you appoint an insolvency practitioner, you are looking for the level of professionalism that is commensurate with what you might see from an advocate and solicitor, chartered accountant or a public accountant. So, those are the criteria we have set out. And as I said earlier, the prescribing criteria will largely follow the same lines. On the types of misconduct in cases, we have looked up some, I think Mr Tan might be familiar with some because they had been reported. One example will be Mr Ewe Pang Kooi. Mr Ewe was a public accountant. He acted as a liquidator for 21 companies and he was on trial earlier this year for allegedly pocketing more than $40 million from those companies. Not that having the new licensing regime or having a set of rules would necessarily mean that there will be no fraud, but what we want to do is to ensure that the bar or the barrier is higher so that there will be proper regulation just for insolvency practitioners and that we avoid the type of conflicts that we see, as in Mr Ewe's case which may well be an extreme example. But we also want to ensure that other professional misconduct type cases like acting in conflict of interest or having unnecessarily high remuneration can be something that will be controlled. So, those are some of the examples.

Mr Deputy Speaker, I just wish to conclude now by making the point that we have come some way, as speakers have mentioned, since the two Committees sat. To recap, in 2015, significant amendments were made to the Bankruptcy Act, including the introduction of the DDF, which gave bankrupts a clear target to work towards in order to be eligible for discharge. This promoted a more rehabilitative regime where bankrupts would be given a chance to start over again. Changes were also made to require institutional creditors to appoint private trustees in bankruptcy when making a bankruptcy application. This change encouraged greater engagement by such creditors in the insolvency process and drives such creditors to exercise greater financial prudence when granting credit.

In 2017, the amendments to the Companies Act introduced new features to strengthen the schemes of arrangement and judicial management regimes. This put in place a bespoke debt restructuring regime that incorporated the best features of the world’s leading regimes and these features included one, super-priority for rescue financing in schemes of arrangement and judicial management to encourage injection of fresh funds to assist the debtor through the restructuring processes; two, enhanced moratoriums in schemes of arrangement to provide breathing room to the debtor that is seeking a compromise or arrangement with its creditors; three, pre-packaged schemes of arrangement to fast-track pre-negotiated restructuring plans; and four, cram-down provisions that prevent a minority class of creditors from preventing a restructuring, which has otherwise the support of the majority of its creditors.

Mr Tan asked for an indication of how successful this has been. As I mentioned at my opening speech, we had about 100 applications made following the amendments in 2017. We have put the tools in place for this to be successful as an international restructuring regime; so we have used UNCITRAL Model Law on Cross-Border Insolvency, which is a cross-border mechanism. We have the Judiciary Insolvency Network (JIN), where courts in Singapore can now in real-time link up with and also speak with courts of other jurisdictions and so far, the US, Korea and Australia are jurisdictions that have signed up for the scheme and that allows our courts here to be very global and very cross-border in the kind of work and the kind of cases that they see.

And, finally, Members also heard me say that the Supreme Court has also signed up with the US courts on two MOUs which would cement their relationship and also take the platform on which such cases can appear or be heard in Singapore that much further.

This Bill is the culmination of concerted effort undertaken by the Government and other stakeholders in the insolvency ecosystem to transform and modernise our insolvency regime. And that is with the view to cementing Singapore's position as a forum of choice for debt restructuring.

The Bill also harmonises the different provisions from the Bankruptcy Act and the Companies Act, including the earlier amendments that have been made, into a single Statute.

The Bill contains reforms such as the introduction of a new licensing and regulatory regime and amendments which further strengthen our debt restructuring regime, such as the introduction of judicial management by resolution of creditors and a new restriction on the operation of ipso facto clauses. These modern and progressive reforms signal our ambitions to become an international centre for debt restructuring.

We have achieved quite remarkable progress on the various legislative reforms on this topic over the past three years or so. My Ministry will continue to work and ensure that the legal regime remains balanced, robust and, perhaps most importantly, responsive to the needs of the stakeholders in the system, be it debtors, creditors or other stakeholders. Beyond the legal regime, we will continue to develop and enhance Singapore’s eco-system for restructuring and insolvency so that Singapore remains efficient, effective and consistent in achieving outcomes that are in the interests of all stakeholders.

I would add in closing that all of this has really only been possible because of the efforts of all the stakeholders, all the people we have consulted, the feedback we have received. Mr Pillai asked if we had received feedback on ipso facto clauses, in particular, that, as you know, was not in the report but subsequently we continued with the engagement of stakeholders. So, we are here today largely because of what we have been told, and the efforts of all the interested parties in making this happen.

We look forward to maintaining and extending those existing partnerships and fostering new collaborations as we continue to build on bold and exciting developments.

I conclude by thanking the Members for their suggestions. Those that I have addressed, I have addressed today. Those that we have not yet been in a position to deal with, I have taken onboard and we will continue to monitor them as we look at refining this in the near future. Sir, with that, I beg to move.

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