6 Jul 2012 Posted in Speeches
Good morning Mr Wong Meng Meng, President of the Law Society, Mr Andrew Chan and Mr Nish Shetty, ladies and gentlemen. This is my first public speaking engagement since taking office as Permanent Secretary and I apologise for any faux pas.
Thank you for inviting me to join you this morning at the first Regional Insolvency Conference presented by the Insolvency Practice Committee of the Law Society of Singapore.
The International Monetary Fund reported in April this year that growth in the Asia Pacific is expected to continue its momentum over the course of 2012. This optimism is mirrored by the investments made by Singapore enterprises in the region as well as the inflow of investments from Asian companies into Singapore. Between 2001 and 2010, over the past decade, Singapore’s total direct investment into Asia almost quadrupled from S$64,081.5 million to S$227,169.7 million. In the same period, the amount of foreign direct investment by Asian countries into Singapore tripled from S$51 billion to S$152 billion.
However, the global economy is experiencing significant uncertainty and volatility. In the West, the tentative recovery of the American economy may be undermined by the on-again, off-again Eurozone crisis. If matters worsen, many Asian economies will not be spared. Consequently, we could see a potential rise in the incidence of cross-border business failures. There is thus an ever-increasing need to foster greater regional understanding and cooperation in the area of insolvency practice. The conference today is thus very timely.
This morning, I shall touch briefly on two points. First, the importance of a robust insolvency regime to the continued growth and competitiveness of an economy; and second, a key policy initiative that the Singapore Government, my Ministry, has undertaken in this space, which is the Omnibus Insolvency legislation.
Insolvency Regime as a Key Pillar of Singapore’s Legal Infrastructure
- Let me start with the importance of a sound insolvency regime.
- The risk of business failure is an intrinsic element to any commercial endeavour. It is not the task of government to eradicate business risk. That would be tantamount to creating a moral hazard where lenders and investors have no incentive to exercise prudence.
- Instead, the objective of a robust insolvency regime is to lay down the rules that will apply when business failures occur. Clarity and predictability enable not just debtor companies, but also their creditors and stakeholders, to know their relative positions should financial difficulties arise and to conduct their activities accordingly. Creditors who are assured of the priority of their claims are better able to assess the risks in extending credit. At the same time, an effective insolvency regime should facilitate negotiations between debtors and creditors, which may either lead to compromises forged in the “shadow of the law” or, where all else fails, the efficient winding up of a company to maximize value for creditors and all other stakeholders.
- On this front, Singapore has fared quite well. Currently, a key indicator that the World Bank Group uses to determine “Ease of Doing Business” is a country’s ability in resolving insolvency. This entails an examination of a country’s insolvency laws as well as the main procedural and administrative bottlenecks in the insolvency process. Out of 183 economies surveyed, Singapore was ranked number two by the World Bank Group in 2012 for its ability in resolving insolvency. This is encouraging and is testament to the effectiveness of the existing insolvency regime.
- But methods of conducting commerce do not stand still. New financial instruments and business models continue to emerge and the range of possibilities expands over time. Consequently, our insolvency laws must evolve to keep pace. From a policy maker’s perspective, the legislative framework for any insolvency regime has to ensure that: (a) risk is allocated in a predictable, equitable and transparent manner among the various stakeholders operating in a market economy; and (b) value is protected and maximised for all interested parties and the economy in general. The Singapore Government has thus embarked on an initiative to review and reform our insolvency laws.
The Omnibus Insolvency Legislation
- On this note, in 2002, the Company Legislation and Regulatory Framework Committee was appointed by the Ministry of Finance, the Attorney-General’s Chambers and the Monetary Authority of Singapore to review this. It published its Report and noted that the legislative framework in Singapore relating to insolvency procedures represented a mix of adaptations from the United Kingdom and Australia. The Report further noted that our insolvency laws are spread over different pieces of legislation such as the Companies Act and the Bankruptcy Act. Therefore, the Committee recommended that Singapore should modernise and consolidate its insolvency laws into a single omnibus insolvency legislation which would provide for orderly and efficient liquidation and restructuring.
- In 2010, the Minister for Law established an Insolvency Law Review Committee (ILRC) to carry out a comprehensive review of Singapore’s insolvency regime. The ILRC comprises experienced practitioners and academics. The mandate of the ILRC is to make recommendations on what should be included in the omnibus insolvency legislation, with a view to:
- unify both the bankruptcy and corporate insolvency regimes into a single piece of legislation;
- modernise the law on bankruptcy and corporate insolvency to adopt practices which are best suited to promote the sustainability of Singapore’s commercial sector;
- make the attendant processes user friendly and accessible for individuals and corporations alike; and
- where possible, take into account the relevant recommendations made by the 2002 Committee.
- One key area that the ILRC has been looking into is the regulatory framework for cross-border insolvency. With globalisation, more and more companies are establishing operations in different jurisdictions. Indeed, these were the companies that I dealt with as Managing Director at the EDB. As a result, it is not surprising that office holders of such insolvent companies often experience enormous difficulty in marshalling the assets and coordinating the winding up or reorganisation of the failed enterprise because the insolvency laws of many countries are not equipped to facilitate this process.
- Another area of focus by the ILRC relates to the corporate rescue regimes currently available in Singapore. A legal system that is not well equipped to help ailing companies recover will compel creditors to favour liquidation over reorganisation. This, in turn, can have a negative impact on jobs, entrepreneurship and the health of a country’s economy.
- To conclude, the conference today will provide participants with an invaluable opportunity to exchange perspectives on the insolvency practices from their respective jurisdictions, as well as to share views on future developments in this area of law. These deliberations will provide valuable inputs to the Singapore Government as we continue to review and revamp our insolvency laws, with the help of the ILRC.
- It leaves me now to wish everyone present a fruitful conference. Thank you.
Last updated on 25 Nov 2012