i.

the introduction of an omnibus Insolvency Act and subsidiary legislation which are applicable to both companies and individuals that would set out the common principles and procedures and consolidate and update all core areas of insolvency practices.

ii.

the introduction of company voluntary arrangements, modelled after the UK Insolvency Act 1986, in the proposed omnibus insolvency legislation.

iii.

establishing a common qualification for all insolvency practitioners, e.g. receivers, liquidators and judicial managers, and extending the range of qualified persons to finance and other professionals.

Issues relating to the recommendations of the CLRFC

a.	Omnibus Insolvency Act The introduction of an omnibus Insolvency Act and subsidiary legislation would provide an opportunity to address the areas of uncertainty and inconsistency involving individual and corporate bankruptcies, for example:

i.

The definition of "associates" Definition of "associates" for the purposes of regulating transactions at undervalue, unfair preferences and extortionate credit transactions in the Companies (Application of Bankruptcy Provisions) Regulations, could be better defined. This is particularly so, in light of the recent ruling by the Court of Appeal in Show Theatres Pte Ltd (In Liquidation) versus Shaw Theatres Pte Ltd & Eng Wah Investments Pte Ltd. The definition of "associate" or "persons connected" would have far reaching implications on companies that have common directors and dealings with one another (although such companies may not have been deemed related under the present CA).

ii.

Proof of unliquidated tortious damages Whether Section 87 of the BA, which excludes the proof of unliquidated tortious damages in bankruptcies, should be attenuated for purposes of corporate insolvencies.

iii.

Realisation of securities Section 76(4) of the BA obliges secured creditors to realise their securities within 6 months of a bankruptcy order whereas there is no such provision in the CA for corporate insolvencies.

iv.

Creation of floating charges Whether Section 330 of the CA, which voids floating charges within 6 months of commencement of winding up save to the extent of cash received, should also apply to judicial management.

v.

Rules of proof of debts The rules of proof of debts should be standardised with respect to liquidation and bankruptcy.

vi.

The operative date for the application of insolvency set-off Under the current bankruptcy legislation, the relevant time for set-off is the date of the bankruptcy order. However, the Singapore Court of Appeal held that the relevant point in time for set-off is the commencement of winding up, i.e. the date of the presentation of the winding up petition (Good Property Land Development v Societe Generale (1996)). Please also see Section 255(2) of the CA. The CLRFC has recommended that the proposed set-off provisions prescribe that the set-off takes place at the date of the winding up order.

vii.

Disposition of a property after presentation of a winding up petition Section 259 of the CA renders void, all disposition of the company's property after the presentation of a winding up petition unless otherwise ordered by the Court, regardless of whether they are in fact made for the benefit of the company, for valuable consideration, for carrying out the company's contractual obligations or for preserving the value of the company as a going concern. The recommendation of the CLRFC to validate (1) transactions that are carried out in the ordinary course of business, and (2) dispositions of property for valuable consideration equivalent or exceeding the value of the property, after the presentation of a winding up petition, would eliminate any uncertainty of such transactions.

viii.

Management-in-control Chapter 11 process to replace judicial management? The CLRFC suggested a revisit of the merits of a management-in-control US Chapter 11 process in lieu of judicial management as it is observed that most judicial managers and their staff are not able to take over the day-to-day operations of a company without the presence, input and involvement of the company's management. Whilst it is true that most judicial management of companies are conducted with the involvement of the companies' management, they are under the supervision of the judicial managers. In this regard, any proposed changes should incorporate sufficient controls and safeguards to ensure the interests of the stakeholders are protected. Nevertheless, under the present judicial management legislation, the judicial managers are held personally liable for debts incurred during the judicial management period unless they have disclaimed personal liability (see Section 227I of the CA). The adoption of a management-in-control US Chapter 11 process may eliminate this onerous responsibility placed on the judicial managers, thus providing more flexibility and facilitating a speedier recovery of the company's business. Meanwhile, it is noted that the UK Department of Trade and Industry has started reviewing the UK Insolvency regime earlier this year, with the objective of encouraging entrepreneurship and providing sufficient remedies to creditors. In this regard, the new omnibus Insolvency Act is likely to be introduced after taking into account any changes in the UK Insolvency Act 1986.

b.

Company voluntary arrangement Under the UK Insolvency Act 1986, a company voluntary arrangement ("CVA") is a simple process by which a company can enter into an arrangement with its unsecured creditors, thereby binding all of them, provided that its proposals have been appraised and implemented by a qualified independent insolvency practitioner (hereinafter referred to as the "CVA Supervisor"). Such proposals require only approval by a simple majority of shareholders and a 75% in value of creditors. The introduction of CVA modelled after the UK Insolvency Act 1986 would provide an inexpensive means for companies to tide over their temporary financial difficulties and would also allow them a temporary reprieve from their creditors (with the introduction of a statutory moratorium). The CLRFC has however, noted certain operational deficiencies of the CVA process and we expect the issues to be addressed in the proposed omnibus Insolvency Act.

c.

Qualified insolvency practitioners At present, any approved liquidator must be an approved company auditor. There is no requirement for any approved liquidator to undergo any form of training or to have any working experience in the field of insolvency. As insolvency is a highly specialised field, the recommendation of the CLRFC to establish a professional body responsible for the accreditation of insolvency practitioners, continuing education and professional standards would improve the standards of insolvency practice in Singapore. With the range of qualified persons extending to finance and other professionals, one may see insolvency services being provided by specialist firms as well as law firms (as it is in the UK now) and not strictly accounting firms (as it is in Singapore now). It is also likely that legal firms and accounting firms may join hand to provide insolvency services in managing companies under insolvency administration.

Year published : 2002