Simplified insolvency process to help small firms in financial distress to be made permanent

SINGAPORE - Small companies facing financial difficulties that are looking to wind up or restructure their business will be able to continue doing so, under a simplified process that is set to be made into law by Parliament.

The Ministry of Law (MinLaw) on Nov 11 introduced proposed legislative changes in Parliament to make the Simplified Insolvency Programme (SIP) a permanent feature of the Insolvency, Restructuring and Dissolution Act (IRDA).

“This is part of MinLaw’s efforts to bolster Singapore’s insolvency framework and support for financially distressed companies”, the ministry said in a press release.

The SIP was first

introduced in January 2021

to help micro and small companies hard-hit by the Covid-19 pandemic restructure their debts to rehabilitate their business, or wind up via a simpler, faster and lower-cost insolvency process. These are companies with an annual sales turnover not exceeding $1 million for micro companies, and $10 million for small companies.

The programme was introduced amid concerns that smaller businesses would be hit hardest by the pandemic. It was part of several support measures to help businesses struggling amid the pandemic and meant to be a temporary lifeline, but it has been extended thrice: in 2021, 2022 and 2024.

In November 2023, Second Minister for Law Edwin Tong said that MinLaw was planning to make the programme a permanent one to help micro and small companies.

The programme comprises two separate processes. The first is helping viable but distressed micro and small companies restructure their debts with their creditors via the simplified debt restructuring programme. The second is assisting unviable micro and small companies wind up via the simplified winding-up programme.

Without the programme, small companies in financial distress may not have the resources to restructure their debt or wind down their business. Singapore’s insolvency laws generally provide processes for firms with substantial assets, which may not be well-suited for distressed smaller companies, MinLaw had said previously in October 2020 when a new Bill was introduced to establish the programme.

As at Oct 25, the programme saw a total of 116 applications, and 77 were accepted. Of these, 60 micro and small companies in severe financial distress were successfully assisted, MinLaw said in the press release.

The programme was

set to stop on January 2026,

but MinLaw is now proposing to make the programme a permanent one under the IRDA, with some tweaks.

If passed by Parliament into law, the debt restructuring programme will have one general eligibility criterion: The company’s total liabilities must not exceed $2 million. This will allow companies that are not micro and small companies to also benefit from the programme, MinLaw said. Applicants currently have to meet multiple criteria such as thresholds on revenue, liabilities, number of creditors, and employee size.

Other proposed changes include a simpler application process in terms of the documents needed, a more effective administration process and providing more protection to creditors.

“MinLaw will continue to review processes and work closely with industry stakeholders to strengthen Singapore’s restructuring and insolvency framework and ecosystem,” the ministry said.

The proposed changes are scheduled to be debated at the next available Parliament sitting.