INV 2: Singapore Bankruptcy Law

• Relevant legislation includes the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) and the Insolvency, Restructuring and Dissolution (Personal Insolvency) Rules 2020 (“IRDA Rules”).
• A Singapore court has jurisdiction over a debtor if the debtor is:
  • Domiciled in Singapore.
  • Has property in Singapore.
  • Ordinarily resident or has a place of residence in Singapore for 1 year before the bankruptcy application was made.
  • Has carried on business in Singapore for 1 year before the bankruptcy application was made.

Bankruptcy Applications

• Either a creditor or a debtor may apply for a bankruptcy order.
• Creditor's application per s307 IRDA.
• Debtor's application per s308 IRDA.
  • For example, if John owes a supplier $20,000 for goods delivered but hasn't paid, the supplier (creditor) can apply for a bankruptcy order against John under s307 IRDA. Conversely, if John knows he cannot pay his debts, he can apply for a bankruptcy order himself under s308 IRDA.

Grounds of Application

• Per s311 IRDA, grounds for application include:
  • The amount of the debt, or the aggregate amount of the debt, must not be less than S$15,000.
    • Imagine Sarah owes three creditors: $6,000 to Bank A, $5,000 to Bank B, and $4,000 to Bank C. None of these debts individually meet the $15,000 threshold.
  • The debt must be for a liquidated sum payable to the applicant creditor immediately.
    • Example: Company X has a contract to pay $30,000 to Company Y for services rendered, with payment due immediately. This is a liquidated sum.
  • The debtor must be unable to pay their debts.
    • If a debtor has assets worth significantly less than their liabilities and cannot meet immediate payment obligations, they are deemed unable to pay their debts.
  • Where the debt or each of the debts is incurred outside Singapore, such debt must be payable by the debtor to the applicant creditor by virtue of a judgment or award enforceable in Singapore.
    • For example, if a French court issues a judgment against a Singaporean debtor, and that judgment is enforceable in Singapore, it can form a basis for a bankruptcy application.

Inability to Pay Debts

• s311(1)(c) & s312 IRDA outlines the presumption of inability to pay debts upon non-compliance of a statutory demand.
  • To illustrate, if a creditor serves a statutory demand on a debtor for failing to pay a debt, and the debtor does not comply within 21 days, the debtor is presumed unable to pay their debts.
• The presumption arises when the debtor fails to make payment within 21 days of receiving the statutory demand.
• IRDA Rules 73, 64, and 65 dictate the form of the statutory demand and the requisite particulars and information.
• IRDA Rule 66 specifies the manner of service.
• IRDA Rule 67 stipulates the procedure for making an application to set aside a statutory demand.
  • David receives a statutory demand, but believes the amount is incorrect. IRDA Rule 67 outlines how David can apply to set aside this demand.

Expedited Procedure

• Per s314 IRDA, a creditor may file a bankruptcy application before the 21-day statutory demand period expires if:
  • A serious possibility exists that the debtor's property or value of any of their property will be significantly diminished during that period.
    • A creditor discovers the debtor is planning to sell off all assets and move the money overseas before the 21-day period expires.
  • The application contains a statement to that effect.
• The bankruptcy order will be advertised and published in the Gazette, as stated in Rules 109 and 110.
• The commencement date of bankruptcy is the date the bankruptcy order is made against the debtor and continues until they are discharged (s326).

Effects of Bankruptcy Order

• The bankruptcy order will be advertised and published in Gazette.
• s327 IRDA sets out the effects of the bankruptcy order.
• The property of the bankrupt vests in the Official Assignee.
• The deadline for filing Proof of Debt is 4 months.
  • Example: After a bankruptcy order is issued, creditors have 4 months to file proof of debt to claim what is owed to them.

Bankrupt's Duties

• General duty to assist the Official Assignee in identifying and recovering the property of the bankrupt's estate per s399 IRDA.
  • Consider that a bankrupt must inform the Official Assignee about all assets, including overseas accounts or hidden valuables to comply with s399 IRDA.
• File a Statement of Affairs per s332(1) IRDA.
  • A bankrupt individual must accurately and truthfully disclose the value of all assets like stocks, bonds, and real estate in their Statement of Affairs.
• Submit accounts as and when directed by the OA per s333 IRDA.
  • If the OA directs submission of transactions and account status from the last 5 years, bankrupt must comply.

Bankrupt's Restrictions

• Bankrupt's statutory restrictions are defined by s400 IRDA, s401(1)(a) IRDA, s401(1)(b) IRDA, s412(1)(a) IRDA, and s148(1) Companies Act.

Alternatives to Bankruptcy - IVA

• Part 14 IRDA covers Individual Voluntary Arrangements (IVA).
• IVAs allow debtors to enter into binding, voluntary arrangements with creditors for debt repayment.
  • Instead of going bankrupt, an entrepreneur in debt proposes a payment plan where they pay back a portion of what's owed over time, and the creditors agree.
• IVAs avoid bankruptcy proceedings.
• s275 IRDA states that IVAs are not available to undischarged bankrupts.
• Application to Court is done by Originating Summons.
• s276-279 IRDA - an Inerim Order may be granted if:
  • The debtor intends to make a proposal for a Voluntary Arrangement.
  • The nominee appointed by the debtor to supervise the Voluntary Arrangement is qualified and willing to act;
  • It would be appropriate to do so to facilitate the consideration and implementation of the debtor's proposal.
• Procedures for IVAs:
  • Section 280 to 281 – nominees' report and creditors' meeting
  • IF creditor's meeting summoned, the interim order will be extended
  • After the creditor's meeting, the nominee will report to the Court on whether the debtor's proposal is approved by the creditors
    • If yes – implement
    • If no - discharged and creditors can proceed

Alternatives to Bankruptcy - DRS

• The Debt Repayment Scheme is covered in Part 15 of IRDA:
  • The debtor's total liabilities cannot exceed S$150,000.00.
  • The debtor must not be bankrupt or under any voluntary arrangement within 5 years immediately preceding the date of the bankruptcy application.
  • The debtor must not be subject to any debt repayment scheme or subject to one within 5 years immediately preceding the bankruptcy application.
  • The debtor must not be a sole proprietor, partner of a firm, or a limited liability partnership.
    • If an individual runs a business as a sole proprietor, they are not eligible for a Debt Repayment Scheme (DRS) according to the IRDA regulations.
• Section 293 states that a moratorium shall apply during the period of implementation for a DRS.
  • During the period, creditors are not allowed to take legal action against the debtor to recover the debts.
• The right of any secured creditor to realize or deal with their security is not affected by the moratorium.
• Per section 301, the debtor shall be issued a certificate of completion if they repay their debts in accordance with the debt repayment plan.
  • To illustrate, upon fulfilling the requirements and completing his debt payments, the debtor receives a certificate under section 301, signaling the successful completion of the DRS.

OA & Private Trustee

• The OA shall be the receiver of the bankrupt's property and shall administer the bankrupt's affairs (s327(1)(b) IRDA).
• Private Trustee is covered under s36 IRDA.
• Mandatory to appoint Private Trustee under s36(2) IRDA, in all cases unless the Official Assignee considers there is public interest and consents to be appointed as the trustee in bankruptcy.
  • If a political figure goes bankrupt, then the Official Assignee would step in as trustee due to public interest concerns.

Trustee's Remuneration

• IRDA Rule 47 lists 4 factors:
  • The complexity of the case.
    • A complex cross-border bankruptcy case with several international creditors will result in higher remuneration for the trustee.
  • Whether the responsibility that the trustee was required to assume in the administration of the bankruptcy estate was of an exceptional kind or degree.
    • If the trustee has to manage a large, geographically dispersed set of assets, their remuneration will be impacted.
  • The effectiveness of the trustee's discharge of their duties.
    • A trustee is able to recover a higher percentage of assets, it might lead to a more positive evaluation of their performance.
  • The value and nature of assets in the estate.
    • Trustee managing a large real estate portfolio would be paid more.

Bankruptcy Administration

• Property of bankrupt shall vest in the OA: s327(1)(a) IRDA
• Order of distribution among creditors: s352
  • Secured creditors are typically paid first from the assets they hold security over, followed by a distribution to unsecured creditors based on their proven debts.
• Bankrupt's property that is divisible among creditors: s329 IRDA
• See also avoidance provisions under s361 and 362
  • A bankrupt transfers assets to a family member shortly before filing for bankruptcy, the OA could invoke s361 to reclaim those assets.

Dividend Distribution

• OA will declare and distribute dividends when sufficient funds – s385 IRDA
• OA may bring administration to an end when he has realized as much of the estate that he is able to without needlessly protracting bankruptcy
  • Administration would end if debtor only has $2000 in assets after all collection attempts, and legal fees to manage are likely to exceed that.

Discharge and Annulment

• There are 4 ways to cease being a bankrupt:
  • Annulment by the Court or OA where all debts & expenses have been paid or secured
    • s392 IRDA for annulment by the Court
    • s393 IRDA for annulment by the OA
  • Composition or scheme of arrangement: s357 IRDA
    • Example: Bankrupt presents a plan to creditors agreeing to pay 70% for debts over 3 years, and creditors voting to accept this arrangement.
  • Subject to s394(4) & (5) IRDA, the Court may:
    • refuse to discharge the bankrupt from bankruptcy.
    • make an order discharging him absolutely.
    • make an order discharging him subject to such conditions as it thinks fit to impose, including conditions with respect to:
      • any income which may be subsequently due to him.
      • any property devolving upon him, or acquired by him, after his discharge as may be specified in the order.
        • Illustration: The court specifies that 20% of any lottery winning must go to the creditors still owed money.
  • Discharge by certificate of OA: s395 IRDA:
    • Differentiated discharge framework
    • First-time bankrupts vs repeat bankrupts
    • Conditions eg. meeting Target Contribution
    • Creditors' objections:
      • per Section 396(1)
      • refer to Sections 395 and 396