The Insolvency, Restructuring and Dissolution Act 2018 (IRDA), together with its 48 related pieces of subsidiary legislation, came into force on 30 July 2020. It draws together the previously discrete individual and corporate bankruptcy laws into a single, consolidated piece of legislation, aimed at maintaining Singapore’s competitive edge as a restructuring hub.

The Journey

The IRDA’s commencement crowns what has been a detailed process to unify and further modernise Singapore’s insolvency and debt restructuring regime. Reforms took place in phases, following the Insolvency Law Review Committee’s recommendations, which culminated in its 2013 report. The IRDA ushers in the last phase. The amendments anticipated in the IRDA were highlighted in our previous article ‘Corporate and individual bankruptcy under one roof’.

The disparate legislation that pre-existed the IRDA meant that corporate and individual bankruptcy, at times developed independently of each other. The differing jurisprudence underlying the different pieces of legislation also fed into the notion that there were essentially separate sets of rules of individual and corporate insolvency, albeit with some overlap. Commentators voiced the need for a unified and holistic approach to the issue of insolvency, and change has now come in the form of the IRDA.

While the IRDA was passed in Parliament on 1 October 2018, and assented to by the President on 31 October 2018, it did not come into operation until 30 July 2020. This speaks to the significance of the change it brings, and the volume of work that still had to be undertaken to ensure a smooth transition from the pre-existing legislative framework.

With the IRDA coming into operation, the Bankruptcy Act (Chapter 20 of the 2009 Revised Edition) was repealed, and many of its provisions have been replicated with changes, in the IRDA. Portions of the Companies Act (Chapter 50) have similarly been repealed pursuant to s 451 of the IRDA and these have effectively been carved out, with further amendments. Together, the laws relating to compromises, schemes of arrangement, receivership, and corporate and personal insolvency, now reside in this new omnibus legislation.

The timing of the IRDA’s entry is notable, coming after the widespread outbreak of COVID-19. The enactment of the COVID-19 (Temporary Measures) Act 2020 itself made amendments to Singapore’s bankruptcy provisions, providing temporary shelter from the pandemic’s economic fallout.

Transition to the New

The transition to the new regime under the IRDA is a calibrated process. This is not only due to the protracted nature of restructuring and insolvency proceedings, but the spread of COVID-19. Notwithstanding the repeal of the Bankruptcy Act, certain provisions remain in force for continuity. The saving and transitional provisions enshrined in Part 25 of the IRDA hence warrant attention. These should also be read together with the Insolvency, Restructuring and Dissolution (Saving and Transitional Provisions) Regulations 2020.

As COVID-19 continues to suppress business activity, interim legislative relief is needed. These legislative measures run in parallel with the IRDA, as the economic landscape continues to evolve. The COVID-19 (Temporary Measures) Act 2020 has, inter alia, extended the timelines related to statutory demands, amended certain threshold requirements and effectively suspended rights of certain creditors in relation to the winding up of companies.

When the interim relief provided under the COVID-19 (Temporary Measures) Act 2020 ceases, many companies and individuals may unfortunately soon find themselves grappling with insolvency issues. The commencement of the IRDA at this juncture accordingly positions the legal infrastructure to receive the likely spike in insolvency related proceedings under the new framework.

The New Framework

The IRDA builds upon the changes made to Singapore’s corporate rescue and restructuring laws via the Companies (Amendment) Act 2017. It likewise draws on the jurisprudence in other mature jurisdictions, to fashion a comprehensive model that will take Singapore into the future.

New features that the IRDA brings include:

1. Measures to maintain and better standards in the professional body of insolvency practitioners. The new licensing and regulatory framework instituted by the IRDA centralises the licensing requirements. Previously, the licensing was administered by different bodies and differed in terms of qualifying requirements. The IRDA mandates that persons must not act or hold themselves out to be insolvency practitioners unless duly authorised. Conditions may be attached to the licences issued and each licence would ordinarily remain valid for about 3 years, unless earlier revoked, cancelled or suspended, and can be renewed. In addition, s 55 of the IRDA prohibits a licensed insolvency practitioner from acting as such under certain conditions. Again, close attention should be paid to the saving and transitional provisions – s 527(1) of the IRDA allows applicants to continue insolvency work without a licence issued under IRDA until 30 January 2021, pending the consideration of the application. Sections 47 to 60 of the IRDA would also have to be read with the Insolvency, Restructuring and Dissolution (Insolvency Practitioners) Regulations 2020. Along with this new licencing regime, the IRDA also clarifies the exposure to insolvency practitioners to legal liability in certain situations.
2. Restrictions on ipso facto clauses. Ipso facto clauses essentially trigger contractual rights upon restructuring proceedings. These may hurt the company’s restructuring prospects when it is already in a vulnerable state. The restrictions hence complement the existing laws, to give companies further breathing space needed to restructure debt. In particular, the restrictions would allow certain ongoing projects or contracts to continue, so that the distressed company is not deprived of its life blood when it needs it most. Section 440 of the IRDA limits contractual rights that are commonly provided for in contracts on certain insolvency events. This will have to be read with the Insolvency, Restructuring and Dissolution (Prescribed Contracts under Section 440) Regulations 2020 and Insolvency, Restructuring and Dissolution (Prescribed Companies under Section 440) Order 2020. The restrictions hence bring Singapore in line with best practices in other restructuring and insolvency regimes, including in Canada, Australia and the United States.
3. Widening the funding options. Amongst other adjustments to the powers of liquidators, the IRDA expressly provides for a larger range of actions that can be pursued via external funding arrangements than had been previously articulated in legislation. This development mirrors the developing jurisprudence in insolvency case law. It brings the twin benefit of enhancing the vibrancy of the third party funding ecosystem and affording creditors access to justice. Principally, it enables judicial managers and liquidators to overcome some of the potential obstacles created by the company’s impecuniosity, so that wrongdoers have to account for their actions. This is particularly important for the body of creditors who may have been defrauded by the company’s officers, and are already often faced with the bleak prospect of poor recovery on their claims. The enhanced powers of judicial managers and liquidators under the First Schedule and s 144(1)(g)/177(1)(a) of IRDA respectively, allow them to assign proceeds of claims for third-party funding in respect of ss 224, 225, 228, 238, 239 and 240 (transactions at undervalue, unfair preferences, extortionate credit transactions, fraudulent or wrongful trading, or delinquent officers).
4. A summary procedure for early dissolution. This addresses the problem faced by insolvent companies who may be devoid of an asset base to support the administration of the winding up and allows liquidators to take the practical step of bringing the company’s life to an expedient end under s 210 of the IRDA. The procedure may be invoked where the realisable assets of the company are insufficient to cover the expenses of the winding up and the affairs of the company do not require any further investigation. Further, the IRDA also makes clear that the Court staying or terminating winding up proceedings can order that the company’s directors resume control of it.
5. Placement into Judicial Management without Court Order. The IRDA allows for a company to place itself in judicial management (subject to certain conditions). This obviates the need for the Court process and hence considerably streamlines the mechanisms by which the company can seek rehabilitation. As a safeguard, the IRDA however also provides for expanded grounds on which a challenge to judicial management may be brought.
6. The introduction of the concept of “wrongful trading”. Section 239(12)) of the IRDA prescribes that a company "trades wrongfully" if it incurs debts or other liabilities when insolvent (or becomes insolvent as a result of incurring such debts or other liabilities), without reasonable prospect of meeting them in full. Notably, a person may be found liable for “wrongful trading” and be made personally liable for the debt, without criminal liability first being established. A person alleged to have breached the “wrongful trading” provisions, may however avail himself or herself to the statutory defence enshrined in s 239(2)). Under this section, the Singapore Court may relieve the person declared responsible from the personal liability if: (a) the person acted honestly; and (b) having regard to all the circumstances of the case, the person ought fairly to be relieved from personal liability.
7. A carve out from restraints. Pursuant to s 449 of the IRDA, the Insolvency, Restructuring and Dissolution (Prescribed Arrangements and Proceedings) Regulations 2020 prescribe the proceedings which are not affected by certain insolvency proceedings and moratoria. This provides clarity on what had been a hotly debated issue immediately following the amendments to the Companies Act in 2017.
8. Adjustments to the administration of personal bankruptcy. Some of the developments relating to personal bankruptcy include the increase in the maximum debt threshold for the Debt Repayment Scheme from S$100,000 to S$150,000. The rules relating in particular to the Debt Repayment Scheme are the Insolvency, Restructuring and Dissolution (Debt Repayment Scheme) Regulations 2020. The definition of an “institutional creditor” under s 36 of IRDA has also been expanded from that under s 33 of the Bankruptcy Act.

The drafting of new subsidiary legislation coupled with amendments to related rules has been undertaken to harmonise the provisions accordingly.

In terms of procedure, the Insolvency, Restructuring and Dissolution (Personal Insolvency) Rules 2020 and Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020 prescribe detailed procedural rules for proceedings under the IRDA. 

Specific regulations have also been made in respect of the main insolvency and restructuring events, including voluntary and court winding up, voluntary arrangements, bankruptcy, receivership and judicial management.

A Best of Both Worlds

The IRDA seeks to bring together the best of the old and new. It retains much of the substance of the pre-existing legislation, but at the same time, modernises it. A delicate balance always has to be struck between the various competing interests. The IRDA is a bold step forward to achieve that end.