Debated in Parliament on 6 Jan 2020.
Mr Seah Kian Peng asked the Minister for Law (a) whether he can provide an update on the success rate of debt recovery by the Official Assignee over the last 10 years; and (b) what has been the Official Assignee's track record in recovery of overseas assets held by insolvent persons.
Bankruptcy refers to the legal process whereby the debts that a person who is unable to pay are resolved. It provides an orderly regime for the resolution of unpaid debts, and seeks to balance the interests of debtors, creditors and the wider society, by: (a) Ensuring that bankrupts are held accountable for their debts, but allowing them to make a fresh start in their financial matters after a period of time; and (b) Providing incentives for creditors not to over-extend credit and for debtors to not borrow more than they can repay.
Under the bankruptcy regime, the Official Assignee, or OA, serves as the trustee of the estate of bankrupt individuals, assisted by the Insolvency Office. One of the duties of the OA is to investigate the affairs of the bankrupt, and thereafter to recover and realise his assets for distribution to the bankrupt's creditors.
The debt recovery rate is the ratio of the total dividends paid to creditors over the total debts owed, and depends on the bankrupt's ability to pay. In general, bankrupt individuals have limited ability to pay their debt. Hence, the OA will make reasonable efforts to realise assets for creditors as long as it is financially viable to do so. The OA has to exercise prudence as any cost incurred by the OA is paid out of the bankruptcy estate or the public purse for shortfall. The debt recovery rate for bankruptcy cases averaged 4% over the last 10 years.
Less than 1% of bankruptcy cases administered by the OA involve overseas assets. For such cases, the OA will adopt a pragmatic approach in deciding whether to embark on recovery work, as this can be resource-intensive and often have little or no likelihood of success. In general, the OA will only proceed in attempting to recover the assets if information provided about the assets is complete and not speculative. If creditors prefer, they may also choose to appoint a Private Trustee-in-Bankruptcy to carry out the recovery and realisation of assets.
In 2009, the Ministry introduced the Debt Repayment Scheme, which is a pre-bankruptcy scheme, to provide an alternative approach for debtors to pay off all or some of his debt through a repayment plan over a period of time. Debtors with a regular income and whose unsecured debt do not exceed $100,000 can be considered for the scheme. The scheme benefits both the debtors, who can avoid bankruptcy if he meets his obligations under the Scheme, and the creditors, who will receive no less than what they would have otherwise received had the debtor gone into bankruptcy. Around 30% of debtors in bankruptcy proceedings are referred to the DRS. The recovery rate has averaged 85% since the scheme’s commencement.
While the OA will make reasonable efforts to help creditors recover debt, the amount recovered depends on how much the bankrupt is able to pay, and it is necessary to balance the creditor's interest against allowing bankrupts to make a fresh start in their financial affairs. On this note, we encourage lenders to exercise prudence in extending credit.
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