Second Reading Speech by Second Minister for Law, Mr Edwin Tong, on COVID-19 (Temporary Measures) (Amendment No. 3) Bill and Insolvency, Restructuring & Dissolution (Amendment) Bill
03 Nov 2020 Posted in Parliamentary speeches and responses
- Mr Speaker, Sir, I beg to move, “That the Bill be now read a Second time.”
- With your permission, Mr Speaker, I have asked the Clerk to place hand-outs on Members’ seats, explaining the details of the new Framework introduced by this Bill.
- Mr Speaker, this Bill is linked to the next Bill on our Order Paper, the Insolvency, Restructuring & Dissolution (Amendment) Bill, or IRDA, in short.
- Sir, may I therefore propose, with your permission, that the substantive debate on both these Bills takes place now. Members would be welcome to raise questions or express their views on both Bills during the debate.
- We will still have the formal Second Reading of the IRDA Bill to ensure that procedural requirements are met.
- [Mr Speaker gave permission] Thank you, Sir.
- Sir, I will first speak on the new Part 10 introduced by this Bill, and then subsequently on the IRDA Bill.
- Minister Desmond Lee will then speak on relief for the construction and property sectors, found in the new Parts 11 to 13 introduced by this Bill.
- Finally, Minister Lawrence Wong will speak on the amendments relating to the property tax rebate and rental relief.
- Mr Speaker, over the past year, since the pandemic began, several major temporary measures have been passed by Parliament to provide relief for businesses, and also to protect our economy, and fundamentally, jobs.
- Today, new temporary measures have been tabled before this House.
- Before I take the House through their key features, allow me first to explain why there is a need for these further measures, and the broad architecture of the proposed amendments as they are tabled in the Bill.
A. Overview of Pandemic’s Impact
- Sir, after almost a year, the Covid-19 pandemic continues to rage on around the world.
a. The global toll stands today at around 45 million infections, and over 1.1 million deaths, across over 160 countries.
b. 21 October – less than 2 weeks ago – saw the highest total infections reported in a single day across the world.
c. A second wave of Covid-19 is surging across Europe. France, Germany, and most recently, the UK, are now in lockdown.
d. Infections in the US are trending up toward a third peak, and just last week, saw a record for the highest number of cases in a single day.
- Covid-19 is staggering in scale, and unprecedented in the way it has affected almost every aspect of our lives. The way we work, the way we go to school, the way we transact business, and even the way we greet each other – we no longer shake hands!
- When we pause to reflect, and compare our lives and our daily routines now, compared to where it was 8 to 9 months ago, we see what a drastically different world we live in today.
- We have managed to do quite well in terms of treating the sick and keeping the number of deaths low.
- However, as an international trade hub, we cannot escape the global economic disruption caused by Covid-19 restrictions and border restrictions around the world.
- And indeed, for Singapore, we are in our worst recession since independence. Our GDP is forecast to shrink by 5 to 7% this year.
- MAS predicts that Singapore’s recovery will be more protracted than in previous crises, and uneven across different sectors.
B. Government Has Had to Step In with Unprecedented Relief
- In a corresponding manner, unprecedented Government relief has been provided, to help businesses weather the storm and also, to protect jobs.
- Around S$100 billion has been committed in support measures to deal with Covid-19, or assist people in the impact of Covid-19. This amounts to around 20% of our GDP.
- Just last month in Parliament, DPM Heng observed the relief measures have helped to avert a 5.6% loss in real GDP this year. They would have helped save an average of 155,000 jobs each year, in 2020 and 2021.
- Measures were also enacted, to deal with the contractual aspect, as members would know. And let me just briefly recap them.
- In April this year, my Ministry enacted a temporary legal circuit breaker. We called that “Covid 1”. We did that practically on the eve of circuit breaker, in April this year.
- Covid 1 provided for a moratorium on legal and enforcement measures, for prescribed contracts. Over 8,000 Notifications for Relief were filed to invoke the moratorium, from April this year. It also raised debt thresholds for bankruptcy and insolvency, to help people avert those consequences as far as possible. Bankruptcy and insolvency applications have consequently dropped significantly, to half or less, compared to the first quarter of 2020, since the measure was introduced.
- June saw the introduction of Covid 2 – to give SME tenants immediate rental relief.
- The relief has worked as intended.
- In September, I updated Parliament on the impact of these measures. They have been a crucial lifeline for many businesses.
- One beneficiary of the Act likened it to a parachute, stopping the free fall, helping affected businesses land safely. So still dropping, but with some measure of resistance.
- This has softened the impact of the pandemic on the economy as a whole, and prevented a precipitous increase in defaults on contracts, insolvencies and litigation, and consequently, loss of jobs.
- However, we cannot allow, or afford, for these relief measures to continue indefinitely.
- We will risk sustaining businesses that are no longer viable. It would trap and lock away precious economic capacity, such as workers, property and assets. This, in the longer term, would be damaging for our economy.
- DPM Heng said as well in October:
a. For the economy to recover, support must evolve, and it must go from resuscitate, to rejuvenate. And that’s a key principle behind why this Bill has been proposed.
b. The existing Government support will eventually have to taper off.
- The Covid 1 moratorium should also not be prolonged.
a. The moratorium holds enforcement actions at bay, as Members know, but it does not stop the debts from being incurred, as businesses continue and as they continue to perform on contracts entered into.
b. As announced on 12 October, we have extended the moratorium for a short period of time.
c. Save for construction and supply contracts, options and sale and purchase agreements with developers, and event and tourism-related contracts, which will be extended for longer periods, the moratorium for the other types of contracts are extended only for a month, and will expire on 19 November.
d. The extension for these contracts was for one month, in anticipation of the present Bill being introduced at this sitting.
C. Post-Phase 2 Re-opening
- With Government measures tapering off, where are the businesses today?
- Businesses have been feeling the impact of Covid-19 from February, and in some cases, possibly before that.
- In April and May, the circuit breaker was implemented. This was necessary to break the chain of Covid-19 infections and transmissions, and to flatten the curve.
- But this was an especially painful period for businesses. Many lost 2 months of revenue, and the impact continues to be felt, even some time after the end of circuit breaker. Due to the impact on their cash-flow, many businesses started accumulating arrears.
- Through the Phase 2 re-opening, the Government has been carefully monitoring the evolving situation, to see if further relief is needed.
- Members will know that there has been a modest recovery – uneven, and modest.
- However, Covid-19 restrictions cannot be completely lifted as we move cautiously into Phase 3, as announced by the Multi-Ministry Taskforce about 2 weeks ago, and these will continue to significantly impact some businesses.
a. First, travel restrictions are still stringent. This affects roughly 20,000 businesses in the tourism, hospitality, conventions, exhibitions sectors alone. This will also affect the F&B and retail stores and transportation workers that rely on tourist spending.
b. Second, foot traffic remains reduced, especially in the CBD area where many still continue to work from home.
c. Third, retail and F&B outlets must comply with mandatory safe management measures. This has reduced their operating capacities.
d. Fourth, some businesses are not even permitted to operate at all, and this may continue for quite a while. Take for example many of the 1,300 nightlife establishments, which employ around 20,000 workers. Those have not been able to operate, even now.
- Many businesses will be forced to operate in unfavourable conditions in the Covid, and in fact, including the immediate post-Covid scenario, for an extended period of time.
- In a survey by the Singapore Chinese Chamber of Commerce and Industry (SCCCI) from mid June to early August this year, they found that half of the respondents said that Covid-19 had a major impact on their business models.
a. Respondents had experienced a substantial average decline in revenue compared with 2019, without a proportionate decline in business costs.
b. Over 80% of them do not expect business to recover to pre-Covid-19 levels in the next year.
c. 58% indicated that they were worried that they will not be able to generate sufficient revenues to even cover their costs.
d. Nightlife businesses, especially, are in a difficult situation. According to a poll by the Singapore Nightlife Business Association, over 90% of respondents said there was at least a 50% chance of them fully shutting down, if they did not reopen soon. Close to 40% said they would definitely, permanently shut down.
- That is why the Government has rolled out specific, targeted support for the worst hit areas:
a. For nightlife businesses, MTI will be providing an assistance package, for them to transit out and pivot to new areas should they choose, and will be announcing more details soon.
b. For the tourism, aviation, arts and sports sectors, the relevant Ministries have today announced specific support packages for them as well, including grants to help with them with the immediate cash flow difficulties.
D. Re-Align Framework & Simplified Insolvency Programme: Broad Objective
- So our broad objective in this Bill is this: As we move from resuscitate to rejuvenate, a key priority is to ensure that businesses can look ahead, and focus on recovery.
- They should be reallocating resources to more productive uses, rather than being stuck in a prolonged, painful, unproductive struggle, when circumstances, business assumptions have clearly changed.
- However, some businesses, particularly the smaller businesses, face obstacles in doing so.
- Let me just share an example to illustrate the point with Members. A tenant wrote to MinLaw.
a. This tenant’s lease was for a period ending in October 2021. The rent was approximately $9,000 a month, something that was entered into before Covid.
b. Safe management barriers had been erected near his shops. As a result, footfall has dropped drastically.
c. The tenant’s earnings dropped to only $3,000, and even after the Phase 2 re-opening, the pick-up in footfall has been slow, and clearly unlikely to return to pre-Covid levels. And he clearly cannot continue at this rate until October 2021. I think this is a story which many Members of this House would find some resonance with.
d. The tenant approached the landlord hoping to negotiate a temporary reduction until the situation improves. If he could only get a rent reduction, he could also free up more resources to transform his business, or do what was needed to survive. However, in this particular case, the landlord refused to entertain discussions.
e. On the other hand, if the tenant chooses to terminate the contract before his lease ends next year, over a twelve-month period, he will have to pay substantial damages for termination. That’s calculated on the unexpired portion of the lease period.
- He is therefore stuck in this position, and continues to bleed. If nothing changes, it is likely that he will breach the tenancy. If the arrears or compensation for termination is not paid, parties will then end up in litigation, and the tenant might then end up insolvent.
- Sir, this case is not unique.
- We have received feedback from many businesses asking for assistance in a similar fashion.
- That said, we are at the same time also aware of many enlightened landlords. Many of them have proactively approached their tenants to offer relief or vary the terms of their tenancy. They have renegotiated them on new terms to help their tenants at least tide over this period of time.
- However, for the many businesses suffering from the lasting economic effects of Covid-19: it really is a simple question, in some ways –
a. Will their counterparties work with them to help them adapt their business models, restructure the arrangements, possibly downscale, or pivot to a different area?
b. If they cannot get their counterparties to work with them, and they are looking at meeting pre-Covid obligations in a Covid economy – then they are heading, inevitably, for at least a significantly curtailed cash flow, possibly insolvency, and very likely, litigation.
- This latter scenario is not in the interests of parties, nor indeed, in the interest of the greater overall good of our economy.
a. If these businesses close down, they will likely be under a mountain of debt. That is not good for the counterparty either, because it is unlikely to be able to recover the full debt.
b. Jobs would be lost, while businesses and creditors tussle over insolvency or litigation proceedings in court.
- The fallout is likely to be substantial. The number of SMEs who’ve experienced a significant certain substantial revenue fall this year may – on a rough estimate – be around 5 times what it was in 2019. And we can expect the number of insolvency proceedings to substantially increase, correspondingly.
- Hence, Sir, we have a two-pronged solution to –
a. First, ensure that these businesses do not get stuck in a limbo, in a situation where they can either find it unfeasible to continue in the present trajectory, on the current cash flow and assumptions, or to terminate, and then bear the brunt of the financial impact of the termination.
b. Second, to quickly unlock resources for more productive ventures in the new operating environment.
- That’s the broad objective of these two Bills.
- In this respect, Part 10 of the Bill puts in place the Re-Align Framework, for parties to have new alignment, to help businesses to re-align their contractual arrangements to the new business reality.
- Second, the IRDA Bill will put in place amendments to introduce a Simplified Insolvency Programme (SIP). This will make it easier for small businesses to restructure their debts, liquidate distribute their assets, in an orderly, effective and efficient manner.
- The two measures are separate, but complementary, as Members will see.
- I will take the House first through the Re-Align Framework, and subsequently, the Simplified Insolvency Programme.
(II) Re-Align Framework
A. The Need for Intervention
(1) Transformed business operating contexts have impacted the performance of contracts
- Sir, first, let me briefly explain the need for intervention.
- I wish to emphasise that this is not a step that has been taken lightly, and we have very carefully considered both the implications, as well as the scope of this framework.
- The nub of the problem for the mall tenant that I took Members through is that:
a. He’s entered into a contract pre-COVID-19.
b. The business environment and assumptions that he had then, were very different.
c. Now, when all these assumptions are different, he is bound to a set of obligations that were designed at a very different time.
d. And while business is not stagnant, no one could have predicted that the environment would have changed so dramatically, drastically, and fundamentally, in such a short period of time.
- For the businesses that are not permitted to resume operations, their situations would be even more dire.
- Just to give one example of many – I’ll share an appeal we received from a nightclub owner.
a. It had been prohibited from operating since March this year, as is the case for the nightlife industry as a whole.
b. Its lease continues to run, due to expire only in March 2021.
c. Pivoting to another business model, like F&B, is possible, but will be difficult for many. The premises themselves have no kitchen. The nightclub’s workers have returned to their home countries. Its manager cannot enter Singapore to come back to work.
d. The owner is fearful of terminating the lease, due to the termination penalties that I’ve sketched out earlier.
e. But, with each passing month, the dilemma, I think, is clear to see.
- For suppliers of goods and services, their costs may have sky-rocketed, and the price that they are contractually bound to sell the goods or services no longer covers their costs.
- In the free market, and with freedom to contract, there will be risks,, and the risks will be not different from what I’ve outlined earlier: changing market conditions, higher prices, drop in supply, all of which would affect the ability to deliver services at the contracted price. But the impact of Covid has also been sudden, widespread, and deep. And whilst some large businesses might be able to absorb shocks like this, for many businesses, it will be unsustainable.
- Our first prong, the Re-Align Framework, therefore deals with contracts entered into when the world was a very different place.
(2) Principal problem: Adherence to contractual obligations when circumstances have fundamentally changed
- The problem, Sir, that needs to be addressed would be as follows:
- Businesses are trying to meet obligations in very different circumstances: their contracts will need to be re-aligned.
(3) Re-alignment will not happen on its own
- This will not happen on its own, for a number of reasons.
(i) Intransigent counterparties
- First, counterparties may refuse to renegotiate the terms of their contracts. This is now a familiar story, and I’ve outlined some examples.
- This also commonly arises amongst the smaller businesses, with less leverage and negotiating power. So you take the examples that I’ve highlighted earlier, it’s going to be very difficult for a small business, one of maybe several that the counterparty is dealing with, to go back and seek the renegotiation of terms.
- Here, I think it would be useful to reiterate what Minister Shanmugam had said, when this Act was first enacted in April: In these critical times, everyone should take a collective approach. This is not the time to be circling the wagons, taking all that a business can give, until they go bust, in the name of exacting contractual rights.
(ii) Substantial early termination penalties
- Second, a business who is unable to renegotiate the contract may then want to terminate it.
- But they are often deterred by the risk of having to pay substantial damages for terminating their contracts early
(iii) Difficult to obtain ordinary legal recourse
- Third, the existing recourse that may be available in such situations may be out of reach and difficult for these struggling businesses to access.
- Depending on the facts of the case, some businesses may already have recourse to the doctrine of frustration in Singapore law, to discharge their contracts.
- Under this doctrine, parties are discharged from further performance of their contractual obligations where it can be shown that there is:
a. An unforeseeable supervening event that occurs after the contract was entered into;
b. The event is not the fault of either party; and
c. It renders performance of the obligations fundamentally different from what the parties had envisaged.
- Covid-19 is clearly an unforeseeable event.
- However, as I’m sure Members here will know:
a. If there is a dispute, businesses will end up spending precious resources, time, effort, money in Court.
b. The outcome could also be uncertain, and maybe also uneven in the context of different businesses, depending on the facts of each case.
c. Covid-19 is unprecedented, so it is also difficult to predict how the Courts will rule in one case to another.
83.For a business already bleeding, the prospect of going to court to argue these points can be daunting and it is also unproductive for the parties to spend the resources in discussion. It is worth noting that these problems with relying on the law of frustration, were highlighted in an op-ed by former Justice VK Rajah and Dean of SMU Law School, Goh Yihan, published in May.
a. In the op-ed, the authors recognised the need for new Covid-19 legislation to overcome these problems.
b. They suggested borrowing aspects of contract law from the Civil Law jurisdictions, which allow adjustments of contractual obligations where there is a supervening event.
(4) Market forces will not lead to the re-alignment needed
- What the above makes clear, Sir, is that if left to the market alone, the necessary re-alignment of contracts to the new paradigm, in many cases, will probably not happen, and that’s why we have considered intervening.
- My Ministry has received requests from businesses seeking fairly substantial and substantive interventions. For example, they have asked the Government to consider requiring a mandatory reduction in arrears. This means simply forgiving the arrears. Or, they have asked for a different way to calculate future rent.
- We have studied these proposals carefully.
- What we think would work best, is a more measured approach, which I will now go into.
B. Objectives of Framework
- The Re-Align Framework seeks to help small businesses that have been substantially impacted by the Covid-19 restrictions.
- These are businesses that have been faring badly with little leverage and so on.
- It provides a framework to re-negotiate, failing which, the contract may be terminated on a “no fault” basis, in a manner that gives a fair and just outcome.
- In redesigning the Framework, I would like to outline to the House four key objectives that we have kept to, in designing this Framework.
(1) Tilt the imbalance by providing leverage
- The first is to sort out the imbalance, to give parties the best chance to come together to renegotiate for themselves what’s just and fair in their own context.
- We believe that the contractual issues between two parties are best sorted out between the parties themselves as far as possible.
a. They know their contract best.
b. They know their operating assumptions, their cost positions, and they know what innovations could be made to the specific contract to help them get over this period.
- The Framework therefore seeks to solve this issue by giving the affected business the right to demand renegotiation from the counterparty, as a start.
- Secondly, unless agreement is reached, an eligible business will have a right to terminate the contract, on a “no fault” basis, without having to pay substantial damages in penalties for compensation in the manner I’ve outlined earlier, for example, in relation to the unexpired balance period of the tenancy.
- The first aspect is adapted from concepts found in some major Civil Law countries.
a. In these civil law jurisdictions, the right of renegotiation is built into the law.
b. For example, in France, in Germany and in Japan, parties significantly affected by an intervening event can invoke a right to renegotiate the contract.
c. If the negotiation is not successful, parties can apply to the Court to vary the contract.
- The second aspect, the “no fault” termination, is drawn from the principles of frustration.
a. It extinguishes all prospective obligations, but the parties remain liable for all accrued obligations.
b. These consequences, in respect of the accrued obligations, also apply, as a default, in this Framework.
- This right to terminate will shift the calculus for the party on the other side, to give it a nudge, to see if a renegotiated contract would be better alternative to either termination or litigation.
- Often, termination is not the answer for both parties.
a. For a tenant, for example, terminating the lease will come with costs, disruption, the impact of re-location and the risk of losing customers.
b. For the landlord, insisting on the strict contract terms in some cases might mean a tenant in serious unrecoverable debt, or a vacant unit, or very often, both.
c. It may be better to temporarily accept slightly reduced rent, or find some other mutually workable formula, to help the tenant survive and stay on in the tenancy, rather than to leave the premises vacant, and to incur costs of finding a new tenant.
- There are myriad ways to work things out, including shifting to a GTO model for example for rent, or taking a lower rent in the initial period, and then extending the term of the lease with a higher rent built in at the tail end.
- There are a number of different options that parties can look into, but ultimately, both sides must work out an arrangement that works well for them.
(2) Limited / Calibrated
- The second objective is to keep this relief narrow and limited, so as not to unduly trammel upon the sanctity of contracts. That is the key and fundamental principle that undergirds our legal system.
- In line with the Government’s policy of respecting the sanctity of contracts, this Framework will therefore be limited in scope, in terms of who it helps, and what it will do. I will elaborate on that in a moment.
- The third objective is to ensure that the Framework is accessible, efficient, and it has to be relatively simple to invoke and to use.
- We want to minimise uncertainty, and to help parties re-align their contracts efficiently, fairly and also importantly, quickly. The sooner we are able to do this, the more we are able to deal with uncertainty in the market.
- The Framework will therefore set out clearly who it applies to, what contracts it covers, what contracts it does not cover, and what the default consequences of termination would be, if parties were unable to reach an agreement after renegotiation.
- So it sets out a framework and a fairly clear formula as to what would be considered, should termination take place.
- Part 4 of the Second Schedule of the Bill spells out the default consequences that will apply to a contract covered by this Framework.
(4) Provide tools to parties to work out their own solution
- The Framework is designed to encourage and give the tools to the parties to work out a negotiated resolution or a termination on their own as much as possible. That’s the fourth objective – for parties to work together as far as possible.
C. Key Features of Framework
- I will now go into the key features of the Framework, to explain to Members how this is designed to work.
(1) Who does it help?
- First, let me focus on who this Framework would help.
- The first limb of Part 3 of the Second Schedule of the Bill states that the first criterion will be by revenue.
- As I have mentioned earlier, our primary objective is to help the smaller and micro businesses to give them a bit of leverage to find some basis to renegotiate. They have less negotiating power and are most in need of this assistance. We aim to extend help to the spectrum of businesses that fall within this criteria.
- We will set a revenue threshold which will exclude the larger enterprises that ought to have the sophistication and wherewithal to engage in negotiations with their counterparties, even without the assistance of this Framework.
- We also intend to cover –
(2) How will a business show it has been impacted by Covid-19?
- Second, how do you identify those businesses that have been impacted by Covid-19?
- Sir, as Members know, even in a non-recession year, a portion of our businesses will suffer a fall in business revenue, and that’s just the vicissitudes of business.
- This Framework is not intended to help those businesses who might see a cyclical drop or maybe even a scenario where the economy has been doing well and we see a drop in revenue. That’s not the target audience of this Bill.
- It will be however, onerous and impractical to expect a struggling business (especially the very small ones, including the micro businesses) to go through a detailed analysis of its business performance and pull out the factors that will justify its qualification for this relief.
- The effects of Covid-19 have been wide-ranging, affecting businesses in many direct ways, but also in many indirect ways, including disrupting supply chains, weakening consumer demand. Some may experience one or more of these and it may be uneven as well.
- It will not be feasible to show all the various factors that have led to the revenue fall, and further, to prove that these are caused by Covid-19. Even if it were possible, it would be difficult. It will be a protracted, long drawn-out forensic investigation into each measure, and then we get into an argument over whether this factor has got how much proportion and what weightage, and whether there’s been mitigation. By the time that process is complete, it will likely be that the business will be in deeper trouble, and might well be beyond saving at that juncture.
- Indeed, it should not be difficult to identify a business that has been badly affected by Covid-19 and that’s what we have done, to set an objective financial threshold.
- Under the second limb of Part 3 of the Second Schedule of the Bill, eligibility will be determined by the fall in revenue it has suffered over a prescribed period, compared to a relevant comparable period prior to the pandemic.
- The fall-in-revenue criterion will be suitably substantial. It will be pegged to a level such that a business that meets it will clearly have been significantly and adversely affected by the pandemic.
- This, in our view, would strike an appropriate balance between sufficiently showing there has been a substantial impact due to Covid-19, and helping businesses that need an efficient and accessible remedy.
- We have been and we remain in consultations with the industry on the precise criteria, and will announce the criteria once it is finalised. This will be set out in subsidiary legislation.
(3) Which contracts would this apply to?
- First, the contracts that can benefit from this Framework must meet the following criteria:
a. First, it must be governed by Singapore law, and at least one of the parties must have a place of business in Singapore.
b. Second, it must have been entered into before 25 March 2020.
i. The reason for this date is consistent with and also explained when we passed Covid 1.
ii. It is the day immediately after MOH significantly stepped up COVID-19 related restrictions.
iii. If parties entered into contracts on or after 25 March, with knowledge of the changed circumstances, then these circumstances are no longer unforeseeable, which is really the reason behind these amendments.
- Next, the Framework will only cover the prescribed contracts.
a. These are commercial contracts that tend to have substantial prospective obligations, which attract substantial damages or penalties.
b. As such, these are the types of contracts that a business will likely want to renegotiate and restructure.
- The legislation covers four main types of contracts, for now.
- Section 78 of the Bill empowers the Minister to amend the Schedule of Specified Contracts. This power is needed, so there is the flexibility, if necessary, to respond to evolving situations.
(i) Specified Contracts
- The four types of contracts are specified in Part 1 of the Bill.
- I’ll just very quickly take you through them.
- The first type of specified contract, are leases or licences for non-residential property in Singapore, that have terms not exceeding 5 years.
a. In general, these contracts are a significant cost component for many businesses.
b. The Singapore Chinese Chamber of Commerce and Industry survey, which I cited earlier, found that the topmost need amongst respondents was the reduction or waiver of rent. So that’s the first type.
- The second relates to contracts for the supply of goods, or services. These contracts are often at the centre of businesses’ operations.
- The third category of Specified Contracts comprises hire-purchase and conditional sale agreements for commercial equipment, including commercial vehicles.
a. As with Covid 1, we have excluded from this category hire-purchase agreements entered into with MAS-regulated banks or finance companies.
b. And that’s because MAS has worked with the financial industry to provide corresponding, substantive relief.
i. They will extend credit relief measures beyond 2020 to support individuals and SMEs who need more time to resume full loan repayments.
ii. These measures include partial deferments of principal repayments until March or June 2021, depending on the sector that the SME is in.
iii. In addition, borrowers that require additional help can approach their bank or finance company for more customised restructuring arrangements.
iv. In that aspect, banks and finance companies have recently developed a protocol to facilitate restructuring of loans across different lenders, to reduce the need for borrowers to go to the Courts for resolution.
- The fourth category comprises rental agreements for commercial equipment, including commercial vehicles such as taxis and private-hire cars.
- For the avoidance of doubt, a business may invoke this Framework in respect of a contract even if the Government is a party to the contract, as long as the contract is a Specified Contract.
(ii) Black List
- Certain contracts will be excluded from the Specified Contracts, for various reasons. We have set them out in Paragraph 2 of Part 1 of the Second Schedule. For example –
a. Contracts with consumers and employees are excluded. These groups deserve greater protection.
b. Construction and supply contracts will be excluded. They are dealt with under a customised set of measures for the construction industry, and Minister Desmond will be speaking on this later.
c. Also excluded are contracts that are uniquely interconnected with other contracts, where the termination may have unforeseen knock-on effects.
d. Lastly, contracts that are governed by specific international conventions or regimes will also be excluded.
(iii) Mixed Contracts
- Paragraph 1 of Part 1 of the Second Schedule defines a specified contract to include contracts that are “substantially in the nature of” a specified contract. Let me explain this.
- Not all contracts are legally defined in one category or another necessarily. Often, contracts are mixed, or multi-faceted. For example, a contract for the supply of goods, which is in the White List, may well have an element of carriage of goods, which is in the Black List.
- If it is substantially in the nature of a contract for the supply of goods in the White List, it will still be covered by the Framework.
(iv) Contracts of National Interest
- A contract of national interest is defined in Section 41(1) of the Bill.
a. The contract must be certified as a contract of national interest by the relevant Portfolio Minister.
b. It must be one where termination is likely to affect the provision of essential service or the ability of a public body to carry out its function. That’s the definition.
- A list of specified essential services is set out in Part 2 of the Second Schedule and includes water supply services, security and emergency services, broadband internet services, and so on.
- Special considerations therefore apply to contracts of national interest.
- An abrupt termination of these contracts can adversely affect the national interest.
- Hence, a special regime will apply. This is set out in Division 6 of Part 10 of the Bill.
a. In this context, for these contracts, there will be no right to terminate contracts of national interest.
b. Instead, there will be a right to renegotiate the pricing under the contract.
c. If no solution can be found by negotiation, the party seeking relief can apply to a Specialist Assessor, to adjust the price of the contract.
- Specialist Assessors will comprise Judges and senior judicial officers appointed to the panel by the Chief Justice.
- This is needed because of the potential complexity, seriousness, and of course, sensitivity of disputes which may relate to contracts of national interest.
(4) Process and consequences
- I come now to how the process will work.
(i) Summary of Process
- I will set out the key aspects of the process.
- First, this relief will be available for a period of 6 weeks from the commencement date of this Bill, if it is passed.
- As I explained earlier, we do not intervene lightly and when we do, it will be in a limited way. The relief is therefore for a short window to prevent wider disruption. This is in line with the desired outcome of a quick resolution to the matter. Parties should not drag it out – there should not be uncertainty for a prolonged period as to whether a counterparty might end up wanting to terminate the contract or not.
- Thus, to invoke this relief, a business, Party A, must serve a Notice of Negotiation on the counterparty, Party B, within this 6-week window.
- Once the Notice is served, there will be a moratorium on legal and enforcement actions for any non-performance of obligations arising after the date of service of the Notice.
- Second, after the Notice of Negotiation is served, there will be a mandatory 4-week period for the parties to negotiate, during which no application can be made to an Assessor.
- We hope that parties will use this 4-week period productively, openly and constructively to engage each other in good faith, to work out suitable and mutually acceptable arrangements for the longer term, for the balance period of the contract.
- If parties are able to successfully negotiate a position, the matter ends there.
- Third, however, if the renegotiation is unsuccessful, the contract will be terminated, but with the default consequences set out in Part 4 of the Second Schedule of the Bill.
a. These default consequences generally hold the terminating party to all accrued obligations.
b. All prospective obligations are discharged.
- Fourth, either party can apply for an Assessor’s determination if there is any disagreement on the application of the Framework. If after you have terminated or you are trying to work out the terms, you’re unable to settle on the consequences of termination for instance, then the parties may apply to an Assessor.
- The Assessors’ determinations will be final and binding, and non-appealable.
- If there is subsequently a dispute over the performance of any obligations that a party may remain liable for after the termination, that dispute can be resolved in the Courts.
(5) Specific Regimes
- I come now to two specific regimes under the Framework.
(i) Landlord Hardship Exception
- The first relates to an exception for small landlords who face hardship.
- To invoke this exception, the landlord must meet certain eligibility criteria, which will also be prescribed.
- The landlords we have in mind for this are those who have invested in a small property and rely on the rental for a good portion of their income.
- If the tenant were to terminate the lease, the landlord may be put in a situation of hardship.
- Division 3 of Part 10 of the Bill provides that such landlords are entitled to additional compensation if the lease is terminated. The compensation amount will be determined by an Assessor, in accordance with criteria that will be prescribed in subsidiary legislation.
- To clarify, this will not be an assessment of damages in the usual sense. The small landlord might not be awarded the full damages that he might have had, had he taken the matter to court.
- However, given that a tenant who qualifies to invoke this Framework is likely to be suffering badly because of Covid-19, there is a chance that the landlord could not have recovered the full amount of damages from the tenant anyway.
(ii) Statutory Repayment Scheme for Hire-Purchase and Equipment Rental Contracts
- The second specific regime relates to hire-purchase and conditional sale agreements, and leases, for commercial equipment.
- As an alternative to termination, the Bill provides a Statutory Repayment Scheme, or SRS in short, specifically for such contracts. This is set out in Division 4 of Part 10 of the Bill.
- I will explain why this specific regime is necessary.
- My Ministry received petitions from several hirers. One was a business that hire-purchased mini-vans to ferry tourists and corporate clients.
a. Its usual business had ground to a halt. It is now using the vans to do deliveries. The revenue earned is still not enough for it to fully pay its hire purchase instalments.
b. At the same time, the financing companies are threatening to repossess the vans. Without the vans, obviously, even the new delivery business will fail.
c. The livelihoods of these hirers depend on the equipment and vehicles they hire-purchase. Their situation is precarious. They are often the sole breadwinners, with families who depend on them to survive.
d. Termination in these cases is not really an option for these businesses. They can’t just give up the vehicle and go back to where it was because that’s the tools of their trade.
- These businesses will benefit from the SRS, which will allow them to pay outstanding arrears, from a specified period, in equal instalments every month, for up to 18 months. Interest will remain payable on the outstanding arrears, capped at 5% per annum.
- If a party fails to pay any instalment as required by the schedule, or terminates or repudiates the contract during the repayment period, all outstanding arrears will become immediately repayable.
D. Contracts terminated before Framework commences
- This Framework will not affect contracts terminated prior to 2 November 2020, yesterday, when the Bill was read for the first time.
- However, to ensure the smooth implementation and delivery of the relief to the intended beneficiaries, the relief under the Framework applies to contracts that are terminated from 2 November, when the Bill was introduced.
- This will prevent a rush of terminations leading to uncertainty in the market.
E. Concerns about Intervention in Contracts
- This Framework is an exceptional, targeted intervention, for extraordinary times.
- The Rule of Law, which includes respecting the sanctity of contracts, is a foundational value for Singapore.
- We worked with legal experts, considered it carefully, and consulted industry stakeholders, such as the Singapore Business Federation, the Singapore Nightlife Business Association, other business and trade associations, landlords, and banks. This was not a step that was taken lightly.
- Ultimately, this Framework protects our economy, in the longer term, by helping businesses overcome barriers to choosing the more economically productive route. It helps the market correct, and operate as it should.
- It is also not a concept alien to both the common and civil law traditions, where we see that there is a recognition of fairness, and that a fundamental, unforeseeable change in circumstances that impacts the performance of a contract can justify a change in the contractual environment.
- This Framework therefore adheres to the principles for intervention by the State in contracts, as set out by Minister Shanmugam in Parliament, when this Act was first introduced in April.
a. First, that the freedom of contract has never been absolute. Even today, there are mandatory laws that can invalidate or override terms of a contract. The law of frustration is an example.
b. Second, a State may intervene in contracts, to fulfil its duty to safeguard the vital interests of the people, where a significant part of the economy is at stake, and strict enforcement of particular contractual rights could lead to damage in the whole economy.
- In these circumstances, a State may intervene, with reasonable steps of limited duration, to safeguard the economic structure for the common good.
- Let me call on Members to bear in mind the impact of Covid-19 and the impact it has had on our fellow Singaporeans, and our business community. We have never before seen such deep and significant impact in any of our past crises, whether it is the Asian Financial Crisis, the Global Financial Crisis, or SARS. And in those cases, we did not intervene to this extent.
- I therefore emphasise again that this is an extraordinary measure that the Government has taken carefully in reaction to a once-in-a-lifetime event of unprecedented proportions.
F. Conclusion - Re-Align Framework
- Mr Speaker, the Framework will serve as a necessary complement to support the measures that have already been rolled out. It would ensure the cash infusions are not drained away because businesses are stuck in their contracts.
- It will help substantially impacted businesses avoid protracted disputes, re-strategise, and rejuvenate.
- I understand there may be concerns about knock-on terminations and chain reactions. But let me ask Members to consider the facts:
a. The businesses that we have scoped this to cover are those that have been substantially impacted.
b. Even without this relief, they face a likelihood of going insolvent, at the minimum, substantial litigation. The contract may not survive anyway.
c. The nature of the consequences even if one qualifies will be calibrated and modelled on established legal principles. Outstanding debts will remain payable.
d. The duration of this relief is limited and the consequences following the termination carefully scoped to ensure as far as possible fairness for both parties.
- There are fears that the Framework will be used by parties as a convenient “escape route” to terminate their contracts - that some parties might set unreasonable and unacceptable renegotiation terms in order to force a termination. But Members ought to note:
a. First, this is designed to allow parties to be as flexible as possible in the context of their own contractual environment, and I urge parties to work together to look at this productively.
b. Second, while we cannot say for everyone and overgeneralise, we believe that the vast majority will act commercially and rationally.
i. No rational tenant will choose to exit a tenancy unnecessarily. There is a cost to moving, a dislocation cost, and, it will be moving away from their pool of customers.
ii. Those that choose to exit will probably genuinely believe that they have no choice, given their business, operating assumptions and the cost.
iii. But even in those cases, the landlords can engage in discussions to try to understand the difficulties and find a solution, again using one of the different options that I’ve outlined earlier. For example, a short-term reduction in rent may free up cash-flow that can be used to revive the business.
- In the situation where there might be a number of parties who seek to attempt to misuse the system, the Assessor system is a check and safeguard against this.
a. The Assessor’s responsibility is, primarily, to ensure a fair and just outcome.
b. If the facts show, for example, that a tenant is in reality doing well, the Assessor can take that into account and make the appropriate directions, including that additional compensation be paid on termination.
- If we are dogmatic and overly cautious in our approach, we will see our businesses struggle and flounder, in unforeseeable circumstances that are no fault of their own. Many businesses will be worried about cutting costs, making ends meet, dealing with impending litigation or insolvency. This is a time when we would much rather help those businesses to adapt, to find a new paradigm, to find a new operating assumption, to recover, get their businesses back on track, and save jobs.
(II) IRDA BILL
- Sir, I will now move on to deal with the IRDA Bill, and the Simplified Insolvency Programme that it introduces.
- In order to fully appreciate how this Bill will help financially distressed companies, assist in saving jobs and strengthen the macro environment for businesses, let me first explain why an effective insolvency framework is important for the economy:
a. A successful restructuring allows a company to continue as a going concern. This results in better outcomes for employees, for creditors and for investors as a whole, by saving jobs, saving the businesses and giving a lifeline.
b. Where the business of a company is no longer viable, then an effective liquidation process realises the company’s remaining assets in an orderly fashion, and distributes the proceeds to creditors and stakeholders through an effective and transparent collective enforcement mechanism.
c. This enables the reallocation of resources to other more productive business activities.
d. It also reduces the number of zombie companies that might exist, those that are unable to generate enough profits to cover their debt-servicing costs and other obligations, while the value of their assets dissipates over time.
e. An efficient liquidation process will reduce the costs of the liquidation and maximise returns to the company’s stakeholders.
- It is therefore critical that distressed companies are provided with the necessary statutory framework to either restructure or wind down their business in an effective and orderly manner.
- An efficient and streamlined framework will reduce the complexity and hence, the cost and time of doing so for debtors and stakeholders alike.
- The purpose of this Bill is to create such a framework tailored for the micro and small companies.
A. IRDA and the multi-phase reform process
- We already have in place, Sir, a progressive and modern insolvency framework in the Insolvency, Restructuring and Dissolution Act (“IRDA”).
- This is the fruit of a multi-phase reform process that has taken about 5 years to put in place, to strengthen our insolvency framework and enhance our position as an international centre for debt restructuring.
- In 2015, the then-Bankruptcy Act was amended. This introduced –
a. A new differentiated discharge framework that promotes a more rehabilitative regime by giving bankrupts clear targets to work towards so that they can become eligible for discharge.
b. It puts in place also a requirement for institutional creditors to appoint private trustees in bankruptcy when making a bankruptcy application. This encouraged greater engagement by such creditors; and also drives creditors to exercise greater financial prudence when granting credit.
- In 2017, we introduced ground-breaking amendments to the Companies Act to strengthen the framework even further, introducing
a. super-priority for rescue financing;
b. encouraging fresh funds to assist the debtor through the restructuring proceedings;
c. we enhanced moratoriums to provide breathing room for distressed companies;
d. and also put in place pre-packaged schemes of arrangement to fast-track pre-negotiated, pre-agreed restructuring plans.
- On 30 July 2020, just a few months ago, the IRDA was commenced.
- It incorporates the relevant provisions from the Bankruptcy Act and Companies Act into a single new statute, that also builds on the earlier phases of amendments that I have outlined.
- Our legislation provides the best features of the world’s leading regimes. It also seeks to strike a balance between the different competing stakeholders’ interests, enabling companies to restructure successfully while at the same time, protecting creditors’ rights.
- The touchstone of any Singapore restructuring remains the support of the creditors. In any insolvency, it is the creditors who own the company.
- A recent restructuring example that I would like to highlight to Members, is Swee Hong Limited, a civil engineering contracting firm.
a. In February 2020, the High Court granted Swee Hong an order to give super-priority status to over US$2 million worth of rescue financing. This allowed them to continue doing business whilst it attempted to restructure.
b. 7 months later, the proposed scheme of arrangement was approved by more than 90% in number of creditors, representing more than 80% in value, higher than the requisite statutory threshold.
c. If sanctioned by the Court, the restructuring would allow Swee Hong, which was insolvent, to continue as a going concern and avert a winding up.
d. This in turn helps to save the business, keeps jobs, not only for Swee Hong but also for many of its counterparties and subcontractors.
B. Effect of COVID-19
- Whilst the IRDA has facilitated positive results, such as Swee Hong, it was not designed with the effects of a global pandemic like COVID-19 in mind.
- As a result of the COVID-19 pandemic, researchers have forecasted global business insolvencies to increase by 35% in 2021.
- In Singapore, in 2018, there were over 250,000 micro and small enterprises. These are enterprises with annual revenues of less than $1 million and $10 million respectively. So “micro” is $1 million, and “small” would be $10 million. Together, they formed about 95% of Singapore’s enterprise landscape.
- Thus, it is likely that a significant number of financially distressed companies as a result of the COVID-19 pandemic, are likely to be micro and small companies.
- We have received feedback that these companies in particular may still find it financially challenging to apply the provisions under the IRDA.
- Applying tailored processes to these micro and small companies, however, could help these companies get back on their feet in the same way as Swee Hong, which has benefitted from IRDA.
C. Objective of the IRDA Bill
- This Bill therefore introduces a Simplified Insolvency Programme comprising two bespoke temporary processes to better suit the needs of micro and small companies:
a. First, to restructure the debts of viable companies to rehabilitate their businesses, for example where there is a ready investor, prepared to come into the business; or alternatively where the company is in a position to re-negotiate with its creditors;
b. Second, to wind up the company, where the business has ceased to be viable, but in a quick, efficient and low-cost manner.
- The proposed amendments seek to provide temporary processes that fit these purposes and benefit stakeholders of the company – such as employees, and of course, the trading counterparties, creditors and shareholders – by
a. reducing the time it would take to either do a restructuring or a liquidation; and
b. maximising potential recoveries.
- The new processes were developed in consultation with public agencies and stakeholders from the private sector. This ensures that the framework is able to meet the needs of small and micro companies.
- Separately, the Bill also has one miscellaneous amendment which I will cover at the end, in relation to the licensing framework.
- Let me take Members now, very briefly, through the key features of the Bill.
D. Key Features
- The simplified insolvency programme comprises a restructuring portion and a liquidation portion. In some ways, the process and the formula for determining who qualifies for both have similarities, so I’ll cover them very briefly.
(i) Application Process
- In relation to the application process for both programmes, under the new sections 72B and 250B of the IRDA Bill, the programmes will be open for application by eligible companies for a “prescribed period”.
a. Subject to further consultation and review, we intend for this in the first instance to be 6 months.
b. This may be shortened or extended for a period to be determined by the Minister.
c. Overall, this window for application will be shorter than the overall lifespan of the proposed provisions, which is 3 years after its commencement.
- Where any company applies to the Official Receiver under the new sections 72E or 250D under the relevant “prescribed period”, and the Official Receiver assesses the eligibility requirements and are satisfied on the face of the application, then the Official Receiver, under the new sections 72G or 250G, will send a notice of the application to
a. the applicant company;
b. all creditors named in the application; and
c. in the case of section 250G, which is for liquidation, also to every contributory or officer named in the application; and
d. publish the notice on the designated website.
- The requirements are intended to ensure that only cases that are suitable for this simplified process are accepted. These requirements include –
a. a limit on the total liabilities of the company – not exceeding $2 million;
b. limits on the number of creditors and employees – not exceeding 30 employees and 50 creditors respectively;
c. the amount realisable in the winding up – not exceeding $50,000; and
d. that the company is not in the midst of any other debt restructuring or some other form of insolvency process.
- To provide flexibility, the figures I mentioned may be substituted by the Minister and prescribed by way of order in the Gazette.
- Where there is any objection to the acceptance of the applicant into the relevant programme, the Official Receiver must consider the objection and decide whether or not that particular company qualifies: If not, to exclude; if so, then to allow the company to avail itself of the process.
- The applicant company has to pay a fee and a deposit, and this used in a way to defray the costs of the Official Receiver.
- In order to provide flexibility to address companies that merit assistance under the programmes even if they might miss out on the eligibility requirements, the Minister may direct the Official Receiver, under the new sections 72H or 250H, to send and publish the notice of application, and then to accept the applicant into the programme.
(ii) Simplified Debt Restructuring
- Part 5A of the IRDA Bill establishes the simplified restructuring programme. I will just quickly take Members through the most salient provisions.
- This, as Members might appreciate, is modelled on the existing pre-packaged scheme in section 71 of the existing IRDA.
a. Under the pre-packaged scheme, a proposed compromise or arrangement is worked out among the company and its creditors, but done out of court, without having to invoke the Court process. You come to an arrangement with the creditors, it is then subsequently submitted to the High Court for approval.
b. Instead of having two applications to the Court required in a typical scheme of arrangement, the pre-packaged scheme requires only one application.
- Upon the acceptance of a company into the simplified debt restructuring programme and before the company is discharged—
a. the company will enjoy a statutory moratorium under the new section 72K(1), and amongst others, it restrains the commencement or continuation of any proceedings against the company;
b. the company is also restrained from disposing of its property under the new section 72K(3) unless it is done in good faith and in the ordinary course of business. This is to ensure that the assets are not dissipated while there is a moratorium in place; and
c. creditors are also prohibited from exercising certain contractual rights under an ipso facto clause under the new section 72T, which applies section 440, which is the ipso facto clause of IRDA. This is done with modifications as appropriate for smaller companies.
- This framework balances the interests of various stakeholders by
a. Providing, on the one hand, breathing room by way of the moratorium to the company,
b. But at the same time, preserving the rights of creditors to have access to a company that has not wrongly and unfairly dissipated its assets.
- Sir, there will be a Restructuring Advisor appointed for the company to assist the company to formulate a proposed compromise or arrangement. This Restructuring Advisor will be available to advise the company to prepare its papers and generally to guide the company through this process.
- The company may make an application under the new section 72M(1) for approval of the proposed compromise or arrangement.
- The Court may only approve the compromise or arrangement if there is an agreement of a majority of two-thirds in value of creditors. Two-thirds in value of the debts that are owed by the company must approve this scheme.
- There is no specific number of creditors required to assent to the scheme, unlike a “traditional” scheme of arrangement. The thresholds are slightly more relaxed than in a usual scheme of arrangement application under section 210 of the Companies Act.
- Sir, it is worth noting that this reduced threshold takes into account feedback that we’ve received, that it will typically be too onerous as a condition to be fulfilled by micro and small companies, especially in this current business environment.
- In looking at whether the threshold is met, the Court must disregard the agreement or disagreement of any related party of the company, so you can’t have a company which has several creditors who are related to officers of the company come together and decide on an outcome, and then use that consensus or agreement to bind the other creditors.
- There will be three classes of creditors in the scheme:
a. secured creditors;
b. preferential (unsecured) creditors; and
c. unsecured ordinary creditors.
- This is intended to provide certainty to the company on the default approach towards classification of creditors, given the simpler nature of the debt structure of these micro and small companies; and of course, to avoid potential litigation, which sometimes happens in relation to the way in which the company classifies its creditors.
- Nevertheless, the Court retains an overriding discretion under the new section 72M(5) to
a. take into account the agreement or disagreement of any related party, and
b. if the circumstances so require, and the result of doing so would be fair and equitable to all the creditors. The Court still retains an overriding discretion to do so.
- The Court may, under the new section 72M(6), without hearing oral arguments, grantor dismiss the application, as the case may be; and instead of having the company being required to engage counsel, a duly authorised officer of the company may represent the company in the relevant court proceedings without leave of court. This is provided for under the new section 72N.
- Section 72Q provides that the programme will have a shelf life in the first instance of 90 days. This is not uncommon. In many other jurisdictions around the world, even for the usual restructuring process. This keeps the process on an even keel, and if more time is needed, an application for an extension can be sought. But in the first instance, 90 days has been given to enter into the arrangements. Also, the limited timeframe is designed not to unfairly prejudice creditors, because during that period of time, while this is being looked into, there is a moratorium.
- Sir, typically, at least 3 Court applications are required –
a. first, for the moratorium itself;
b. second, for leave to convene a meeting; and
c. third, for the sanction of the proposed compromise or arrangement.
d. Oftentimes, a financial advisor will also be required.
- The simplified process brings it into one single application, and if accepted, the company will enjoy the benefits of the moratorium early on. Really only one application would be needed.
(iii) Simplified Winding Up
- Sir, let me now quickly touch on the simplified winding up. Part 10A of the IRDA Bill establishes a simplified winding up programme, which a company may resolve to be wound up voluntarily under.
a. Under this voluntary winding up, a company is wound up without the need for a Court application to place the company into winding up.
b. This is modelled on the existing creditors’ voluntary winding up process that is already found in the Act.
- Before making the application the company must pass a special resolution authorising the making of the application and so on.
- Upon acceptance of a company into the simplified winding up programme, the voluntary winding up of the company commences at that stage.
- The Official Receiver is the liquidator of the company under the new section 250K(3). The Official Receiver may also appoint a qualified person to act as a special manager under section 250M.
- The winding up is treated as if it were a creditors’ voluntary winding up, as I mentioned earlier, under section 250K(2). The provisions that therefore apply to the creditors’ voluntary winding up, will also apply in relation to the company, unless they are modified under 250L, and the conditions are set out in 250L.
- A company is discharged from the simplified winding up programme under 250N –
a. when the company is dissolved; or
b. if an order is made by the Court to wind up the company, stay the proceedings, or terminate the winding up.
- Lastly, the new section 250O sets out the non-exhaustive circumstances in which the Official Receiver (as liquidator) may apply to the Court under section 124 of IRDA to wind up the company.
a. Such circumstances include where the Official Receiver is satisfied that the company either did not meet, or could not meet, or no longer meets the eligibility criteria for the programme.
b. The provision is not intended to affect the rights of any persons entitled to make an application under section 124 of the IRDA for the company in simplified winding up to be wound up under a Court order. And that also includes the Official Receiver as liquidator.
- The proposed winding up in this form under the simplified regime provides a simpler and more streamlined framework for the winding up of micro and small companies, relative to the usual process.
- Currently, one would have to:
a. Apply to Court;
b. Pass a special resolution and convene the necessary meetings;
c. The company will have to seek a liquidator who will have to agree to being appointed;
d. And our creditors may also then appoint a committee of inspection to act in respect of the winding up.
- In comparison, under the simplified process,
a. The process is commenced once an application is made to the Official Receiver.
b. If the Official Receiver accepts it, the winding up commences and the Official Receiver becomes the liquidator.
c. There will not have to be a committee of inspection.
- These are in addition to the other features of and modifications that I have outlined earlier. The simplified winding up process is really designed for companies who have taken the view – small and micro businesses who qualify – that it’s no longer sustainable to remain in this business. And, rather than have a protracted process where more time, more effort, more cost is put into managing the exit from the business, those companies can avail themselves of this mechanism.
(iv) Licensing of Insolvency Practitioners
- Let me now touch briefly on the licensing of insolvency practitioners. This is an amendment that is separate from the programme. It is a miscellaneous amendment introduced under the existing section 50 of IRDA.
- This seeks to empower the Minister to exempt any individual from the requirement of being a “qualified person” in order to be a licensed insolvency practitioner.
- This power will be exercised judiciously on a case-by-case basis. It is not intended to allow a person to circumvent the general requirements, but is intended to be used in exceptional cases where the exemption is justified.
- Members who have been in Court and argued this, or seen this apply, will know that there have been insolvency professionals who act for companies or creditors in cross-border transactions, cross-border restructurings. And those are one type of professionals that we envisage would come under these exemptions.
- Sir, let me now conclude.
- I have taken Members through the two new measures in both Bills.
- At the level of individual contracts, business-to-business, party-to-party, the Re-Align Framework will allow businesses to have a basis to renegotiate and rebase their contracts, to adapt to substantially changed circumstances.
- At the corporate level, the Simplified Insolvency Framework will help eligible companies an easier route to restructure, or rehabilitate, or to exit in a way which I’ve just outlined.
- These are necessary as part of a suite of measures that the Government is providing, to help businesses and our workforce, and fundamentally, people and jobs, emerge stronger from the pandemic.
- Sir, let me end off with a few words about the process of preparing the Re-Align Framework. In some ways, it’s significantly more complex than the earlier Covid 1 and Covid 2, in terms of the concept, and its scope of application.
- We also did not have the luxury of time – as a Bill like this would typically have taken some months, up to a year, to conceptualise and make workable. It was only possible because of the outstanding contributions of many of those who worked closely and very hard with my Ministry to put this together.
- We are indebted to various agencies who have worked for many months, over the last few months, attending our meetings, turning this around, draft after draft, giving valuable input, going out to the ground, importantly, taking soundings from the different stakeholders in the business community, and reflecting those views in our meetings. MTI and ESG, in particular, were always ready to help with the ground sensing, with the data, making helpful suggestions to refine our proposals to scope them carefully and appropriately. MAS too, did the same, contributing their own domain expertise, and helping to bring stakeholders on board in explaining the process, explaining the intent.
- We are indebted to our other colleagues from the other ministries and agencies like MOT, MCCY, MND, HDB, JTC, MHA and SLA. And of course, MOF too – besides paying for the Bill – they also attended all our meetings, and helped us to work out a solution, especially when it came to dealing with contracts of national interest.
- So a few more. I wish to thank in particular, Mr Sushil Nair and Mr Patrick Ang, two private sector lawyers on the Committee, who have been working with us since Covid 1. They gave of their time very generously, and they also helped us not just to conceptualise, but to draft and redraft the Bill, along with Judge of the High Court, Justice Kannan Ramesh. Their years of legal experience and insights were very much invaluable, and a pivotal part of the way in which we were able to produce this Bill in short order.
- We also had an industry Resource Panel. We consulted with them very closely and we scoped the provisions based on the views and the feedback that they gave us, honing our policies and our thinking. I will put their names on record, without having to mention them individually. There is an Annex that we will put into the transcript.
- And finally, I think perhaps, to our Attorney-General, Lucien Wong, and his team at AGC – Lee Yean-Lin, Leong Kit Yu, and Ng Jun Yi. This Bill is the product of not just legal solutions, but indeed, legal innovation, that they have helped us with, in difficult, complex times.
- I wish to thank all of them and place on record MinLaw’s gratitude, to all of them, for the Framework. And because of this, we believe that we will have a better chance at emerging stronger from this pandemic, ready to overcome the challenges ahead of us in the mid to longer term.
- Thank you Sir, I beg to move.
This is an edited version of the speech delivered in Parliament.
Last updated on 03 Nov 2020