Making it easier for small firms to restructure debt, wind up business

Singapore's current insolvency laws generally provide processes for companies with substantial assets. PHOTO: ST FILE

Micro and small companies that require support to restructure their debts or wind up their businesses may soon be able to do so in a quicker and lower-cost manner.

A Simplified Insolvency Programme, which would provide such support to companies, was part of the Insolvency, Restructuring and Dissolution (Amendment) Bill introduced in Parliament yesterday.

Singapore's current insolvency laws generally provide processes for companies with substantial assets, which may not be well suited for distressed smaller companies.

The proposed programme will provide more suitable solutions for such companies, particularly those that have depleted their resources as a result of the Covid-19 pandemic.

Micro and small businesses have annual revenue of less than $1 million and $10 million respectively. There were more than 251,000 of them in 2018, of which around 207,000 were micro enterprises.

Qualifying criteria for the programme include having 30 or fewer employees, 50 or fewer creditors and liabilities of $2 million or less, among others, said the Ministry of Law (MinLaw) in a statement.

Among the streamlined and expedited processes mooted for firms' debt restructuring is a lower creditor approval threshold than required in a typical scheme of arrangement.

This means that only creditors with debt claims totalling two-thirds in value agreeing to the scheme are required, compared with more than 50 per cent of the number of creditors holding at least 75 per cent in value of debt claims agreeing to the scheme.

For businesses which are no longer viable, the simplified winding-up process includes a reduced scope of the liquidator's functions.

For example, there will be no need to convene creditors' meetings, and the liquidator may only begin legal proceedings to preserve the rights of the company.

In addition, if the liquidator views the company's assets to be insufficient to meet the expenses of winding up and that its affairs do not need further investigation, the company may then be dissolved without further administrative steps.

The programme will be available for six months from the start of the proposed legislation, and may be extended for a period determined by the minister. Firms will have to co-pay for the programme, and fees will be announced later.

The Simplified Insolvency Programme is part of other support measures to help businesses that are facing financial challenges, MinLaw said.

Complementing the programme is a relief scheme that will help sole proprietors and partnerships restructure business debts. It will be ready for application by Nov 2.

The scheme will be administered by Credit Counselling Singapore, with the support of The Association of Banks in Singapore, the Monetary Authority of Singapore, Enterprise Singapore (ESG) and participating financial institutions under ESG loan schemes. More details will be announced at a later date.

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A version of this article appeared in the print edition of The Straits Times on October 06, 2020, with the headline Making it easier for small firms to restructure debt, wind up business. Subscribe