Singapore Introduces ‘Simplified Insolvency Programme’ for Micro and Small Companies

Micro and small companies will be able to use a “Simplified Insolvency Programme” under amendments to Singapore’s Insolvency, Restructuring, and Dissolution Act 2018 (IRDA).

The Insolvency, Restructuring, and Dissolution (Amendment) Act introduces temporary new prepackaged restructuring and liquidation options (the Simplified Insolvency Programme) for eligible micro and small companies in the current coronavirus (COVID-19) environment. The Simplified Insolvency Programme aims to provide simpler, faster, and lower-cost proceedings for eligible companies, and will be in place until 28 January 2024, which is three years after the date of commencement (29 January 2021) of the relevant provisions of the Act..

WHICH COMPANIES ARE ELIGIBLE?

A company is eligible under the Simplified Insolvency Programme if:

• its “annual sales turnover” (excludes gains from sales of fixed assets, goods purchased for resale, interest, dividends, and investment income) do not exceed SGD 10 million;
• it does not have more than 30 employees;
• it does not have more than 50 creditors;
• its liabilities do not exceed SGD 2 million; and
• (in the case of winding up only) the value of its realizable assets does not exceed SGD 50,000.

Applications for eligibility must be made to the Official Receiver. The Act provides for circumstances where the Official Receiver will deem applicants to be unsuitable for the Simplified Insolvency Programme. These include situations where the applicant company is already under an existing insolvency process (i.e., it is the subject of a winding up order), it is in judicial management, or it has already applied for and/or received moratorium protections under existing scheme of arrangement provisions.

In addition, the Official Receiver may also deny acceptance if:

• in its judgment, it deems that the administration of the Simplified Insolvency Programme is likely to require significant knowledge, specialized resources or expertise;
• any proposed restructuring is unlikely to garner the support of at least two-thirds in value of its creditors and therefore doomed to fail; and
• a person who has appointed, or may be entitled to appoint, a receiver and manager of the whole (or substantially the whole) of the company’s property objects to the company’s acceptance into the Simplified Insolvency Programme.

NEW SIMPLIFIED PREPACKAGED SCHEME OF ARRANGEMENT

The Simplified Insolvency Programme introduces several new initiatives aimed at making prepackaged schemes of arrangement more accessible and less costly to eligible companies. The Singapore Ministry of Law has issued a press release summarizing these new, streamlined, provisions as follows:

• An automatic moratorium comes into place when a company has been accepted into the Simplified Insolvency Programme.
• No requirement to convene a meeting of the company’s creditors. Instead, the court can move straight to approving the scheme, provided that the company can satisfy the court that if a meeting had been called, a majority representing at least two-thirds in value of the creditors would have approved the proposed scheme[1].
• The restriction on the operation of ipso facto clauses in the IRDA applies.[2]

NEW SIMPLIFIED WINDING UP PROGRAMME

The amendments also introduce a new simplified winding up programme.

• An eligible company may, at any time until 28 July 2021 (unless extended by the Minister for Law), make an application to the Official Receiver to be accepted into the simplified winding up programme.
• No court application will be necessary because the winding up will be treated as a creditors’ voluntary winding up. The Official Receiver will be appointed as the liquidator of the company.
• Where the Official Receiver is of the view that the realizable assets in the winding up are insufficient to cover its expenses, and that there is no need for any further investigation into the company’s affairs, the company may be expeditiously dissolved thereafter.
• The Official Receiver’s duties as a liquidator of a company under the simplified winding up programme have been reduced. For example, there is no obligation to call meetings of the company’s creditors when the company is being wound up under this initiative. 

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[1] As compared with the threshold for a regular scheme of arrangement of 75% in value and a majority in number of the company’s creditors.

[2] Ipso facto clauses are provisions that allow a party to terminate or modify the operation of a contract (including accelerating payment) upon the occurrence of a counterparty's insolvency, financial conditions, or restructuring.