Legislative changes to bankruptcy regime to create a more rehabilitative environment and facilitate risk assessment
11 May 2015 Posted in Press releases
The Ministry of Law (MinLaw) has submitted the Bankruptcy (Amendment) Bill for First Reading in Parliament today.
The Bill seeks to introduce reforms to the bankruptcy regime to create a more rehabilitative regime for bankrupts, ensure better utilisation of public resources and encourage creditors to exercise financial prudence when extending credit.
The proposed reforms will apply to bankruptcy applications filed after the Act comes into effect. The Insolvency Office will manage existing cases, where appropriate, to ensure some parity of treatment for current bankrupts.
Key Features of the Bankruptcy (Amendment) Bill
- The Bill proposes the following changes to the bankruptcy regime:
- Increased debt threshold
- The bankruptcy debt threshold, or minimum debt amount that needs to be owed before a person may be made bankrupt, will be increased from $10,000 to $15,000.
- The new threshold is based on the same, income-related benchmarks that were used when it was last revised in 1999.
- This change seeks to encourage both debtors and creditors to resolve debts falling below the threshold, without resorting to the formal bankruptcy process. This will help such debtors avoid the inconveniences and social stigma associated with bankruptcy.
- Introduction of differentiated discharge regime
- Currently, there are no statutorily mandated exit points for bankruptcy. Bankrupts will generally only be able to be discharged via an order of discharge by the High Court, or, if their debts are less than $500,000, a certificate of discharge from the Official Assignee (OA).
- The new differentiated discharge framework introduces a regime where bankrupts can be discharged at fixed exit points. First-time bankrupts will generally be eligible for discharge in five to seven years. Repeat bankrupts will generally be eligible for discharge in seven to nine years.
- A bankrupt’s eligibility for discharge will depend on his paying a “Target Contribution”. The Target Contribution is determined based on the bankrupt’s earning potential.
- This differentiated discharge framework will create a more rehabilitative regime, giving bankrupts clear timeframes and the incentive to seek gainful employment as a means of achieving their discharge.
- Mandatory appointment of private trustees by “institutional creditors” 
- Institutional creditors will play a more active role in the administration of bankruptcy as they will be required to appoint private trustees to administer the bankruptcy when applying to make a debtor bankrupt. Institutional creditors are well-placed to perform this function and have sufficient resources to do so. They will also be incentivised to undertake better risk assessments before granting credit.
- The vast majority of bankruptcies in Singapore are currently administered by the OA. With this change, the OA will be able to focus its resources on administering cases where the applicant is either an individual or a small business.
- Permanent bankruptcy records
- Bankrupts who fail to pay their Target Contribution in full prior to discharge will have their records permanently kept on a publicly available register maintained by the OA. This will enable prospective creditors to make an informed decision when extending credit to discharged bankrupts.
- Bankrupts who pay their Target Contribution in full will have their name and particulars on the register for five years after discharge, and removed thereafter.
- The reforms outlined in the Bill have arisen from a review of the current regime and adopt recommendations made in the Insolvency Law Review Committee’s report submitted in 2013. These changes aim to create conditions conducive to sustainable entrepreneurship and risk-taking, while encouraging responsible debt management.
- In reviewing the bankruptcy regime, MinLaw also sought feedback on these features through a public consultation from 16 Jan 2015 to 24 Feb 2015. Suggestions offered by the respondents have been considered in detail and, where appropriate, have been incorporated in the Bill.
“Institutional creditors” are defined as either (i) banks and finance companies regulated by MAS; or (ii) business undertakings with annual sales turnover or more than $100 million and more than 200 employees.
Last updated on 28 Nov 2017