Debated in Parliament on 13 Jul 2015.
Order for Second Reading read.
Mr Deputy Speaker, I beg to move, "That the Bill be now read a Second Time".
Bankruptcy refers to the legal process whereby the debts that a person is unable to pay are resolved. The bankruptcy regime serves a number of objectives.
First, it provides an orderly regime for the resolution of unpaid debts.
Second, in so doing, the regime balances the interests of debtors, creditors and the wider society in the following ways. It ensures that bankrupts are held accountable for their debts, but allows them to make a fresh start in their financial matters after a reasonable period of time; and it provides incentives for creditors not to over-extend credit and for debtors not to borrow more than they can repay.
The Bankruptcy (Amendment) Bill furthers these objectives while ensuring that public resources are utilised more efficiently.
The Bill introduces four key sets of amendments.
First, it raises the debt threshold for obtaining a bankruptcy order.
Second, it allows creditors to make an expedited bankruptcy application.
Third, it requires or incentivises creditors to appoint private trustees in certain circumstances.
Fourth, it introduces a "differentiated discharge" regime to allow bankrupts to be discharged within clear timeframes.
The Bill also contains a number of miscellaneous amendments.
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As bankruptcy procedures are fairly technical, let me first begin by explaining how the process works under the current law.
A debtor, or his creditors, may apply for a bankruptcy order. In either case, it must be shown that the debtor is unable to pay his debts as they fall due and that such debts amount to at least $10,000. The Bankruptcy Act provides that a debtor is presumed to be unable to pay his debts if, having been served with a statutory demand, he does not settle it or set it aside, within 21 days.
Even if a debtor meets the requirements for being made a bankrupt, he may be eligible for the Debt Repayment Scheme (DRS). The DRS, which was introduced in 2009, allows debtors to avoid bankruptcy if they meet certain eligibility criteria. It also allows creditors to receive no less than what they would have, had the debtor been made a bankrupt. The DRS is being reviewed, but no changes are presently being made to it.
If a bankruptcy order is made, the bankrupt's property will vest in a trustee in bankruptcy, or the "trustee". The trustee may either be the Official Assignee (OA) or a private trustee appointed by the Court. The trustee performs the following functions in administering the bankruptcy.
First, the trustee will investigate the bankrupt's financial affairs to ascertain what is available for distribution.
Second, the trustee will adjudicate the proofs of debt filed by creditors, to determine which debts are valid and how much is owed to each creditor.
Third, the trustee will realise the property available for repayment, including any property acquired or contributed by the bankrupt, after the bankruptcy order is made.
Fourth, if there are sufficient funds, the trustee will declare a dividend in respect of the debts proved.
A bankruptcy terminates when the bankruptcy order is discharged or annulled. A bankruptcy order may be annulled by the court or by a certificate issued by the OA, if, for example, all the relevant debts and expenses have been fully repaid. Alternatively, the bankruptcy order may be discharged by the court or by the OA's certificate, thus releasing the debtor from all the debts provable in the bankruptcy, apart from debts due to the Government.
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With this general framework in mind, let me now explain the key amendments in the Bill.
The first key amendment relates to raising the debt threshold before a bankruptcy application may be made in court.
Presently, a bankruptcy application can only be made if the debtor owes at least $10,000 in debts. This threshold was introduced in 1999. It is timely to review the threshold given the rate of inflation over the past years. The Bill, therefore, raises the debt threshold to $15,000.
The second key amendment is to introduce an expedited bankruptcy procedure.
Earlier, I had explained that a debtor is presumed to be unable to pay his debts if he does not respond to a statutory demand within 21 days. Presently, a creditor must wait until the end of the 21-day period before he can make a bankruptcy application. Clauses 14 and 15 of the Bill allow a creditor to make an expedited bankruptcy application after the statutory demand has been served, but before the 21-day period has expired. However, the creditor must show a serious possibility that the debtor's property, or the value of all or any of the debtor's property, will be significantly diminished before the 21-day period ends.
The amendments are being introduced because, currently, a creditor can only appoint an interim receiver or prevent the bankrupt's property from being transferred after a bankruptcy application has been filed, which can only be done after the 21-day period has expired. There is a risk that the debtor could dissipate his assets during this 21-day period. The amendments will, therefore, allow the creditor to take steps to preserve assets available for distribution to the creditors at an earlier stage, although the bankruptcy order will only be made upon the expiry of the 21-day period. This is to ensure that the debtor will still have the full 21-day period to settle or set aside the statutory demand.
The third set of amendments requires or incentivises institutional creditors to appoint private trustees to administer some bankruptcies.
Currently, it is not mandatory to appoint a private trustee to act as the trustee in bankruptcy. As a result, private trustees are seldom appointed and the OA acts as the trustee in over 99% of bankruptcies. This includes those cases where the value of the bankrupt's estate is insufficient to cover the OA's costs. At present, creditors have no incentive to consider the costs of administering a bankruptcy before applying to make a debtor bankrupt.
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This is unsatisfactory, because the state bears the cost of resolving debts entered into between private parties and, often, for the benefit of private parties. As such, the amendments seek to ensure better utilisation of public resources.
Clause 6 provides that a creditor must apply for a private trustee to be appointed at the time of making a bankruptcy application, under two circumstances.
First, where the creditor making the application is an institutional creditor or its subsidiary.
Second, where the debt, when incurred, was payable to an institutional creditor or its subsidiary. So, for example, where the debt was originally incurred to a bank, the bank assigns the debt to someone who is not an institutional creditor and the latter institutes bankruptcy proceedings.
An "institutional creditor" is defined as a bank or finance company that is licensed by the Monetary Authority of Singapore (MAS) or a business undertaking with more than $100 million in annual sales turnover and more than 200 employees.
So, take, for example, where a debtor has incurred debts from two sources, namely, a bank and a personal loan from a friend. If the debtor is unable to pay his debts, he may be made bankrupt in one of three ways.
First, if the bank makes the bankruptcy application. In this scenario, the bank would have to nominate a private trustee before the Court will grant the bankruptcy order.
Second, if the personal creditor makes the bankruptcy application. In such a case, there is no need to nominate a private trustee.
Third, if the debtor files the bankruptcy application himself. In this case, he will not need to nominate a private trustee either.
Where no private trustee is appointed by the Court, the OA will administer the bankruptcy. However, in such a case, clause 37 provides that where at least half of the value of the bankrupt's debts is owed to institutional creditors or their subsidiaries, the OA may issue a written notice to inform all the creditors to consider applying for the appointment of a private trustee in place of the OA.
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Any creditor can apply to appoint a private trustee. If a creditor chooses to do so, the costs and expenses of appointing the private trustee will affect the eventual returns on the debts.
But if the creditors choose not to do so, the OA is not required to incur further expenses to administer the bankruptcy, other than that related to the payments made by the bankrupt under the new differentiated discharge framework.
In the converse situation, where less than half of the value of the bankrupt's debts is owed to institutional creditors, the OA will administer the bankruptcy in full until its conclusion.
Presently, it is common for the OA to administer bankruptcies where the value of the estate is insufficient to cover the OA's costs which results in the taxpayers bearing such costs where there is little prospect of recovery. These amendments will encourage institutional creditors, who have sufficient resources and expertise to make credit assessments, to carefully consider whether to apply for a bankruptcy order. They will also encourage institutional creditors to be more prudent in extending credit and allow the OA's resources to be better utilised elsewhere
The Bill also contains some consequential amendments relating to the appointment of private trustees.
First, a private trustee may resign only if he nominates another private trustee who has consented to act, or if the OA consents in writing to the appointment. This ensures that a private trustee will see through the administration of the bankruptcy, unless the OA consents to take over.
Second, a private trustee has to provide security to the OA, to ensure that he performs his duties and duly observes all the requirements of the Act. The Bill introduces a new provision allowing the OA to forfeit the security furnished where the private trustee fails to comply with statutory timelines.
I will now explain the fourth set of key amendments, which introduces the differentiated discharge framework.
This framework addresses one of the key concerns that bankrupts have, namely, when they can be discharged from bankruptcy.
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Presently, there are two ways for a person to be discharged from bankruptcy.
First, by an order of court. There is no change to this process.
Second, by the OA's certificate. However, the OA's certificate can currently only be issued three years after the bankruptcy order was made, and if the debts proved in bankruptcy do not exceed $500,000.
This monetary cap fetters the OA's ability to discharge bankrupts in deserving cases. Clause 42 of the Bill removes this condition and introduces a differentiated discharge framework that will provide all bankrupts with greater certainty as to when they are eligible to be discharged. Let me explain the key features of this new framework.
The new framework provides bankrupts with clear goals and timelines to meet, in order to become eligible for a discharge. Whether a bankrupt is eligible for discharge depends on whether he has paid the target contribution, which refers to the total amount contributed to the estate from the bankrupt's income or from third parties. The trustee will calculate the target contribution at the early stages of bankruptcy so that the bankrupt knows upfront the targets that he will have to meet in order to be eligible for discharge.
The framework will allow bankrupts who pay their target contribution expeditiously to be eligible for discharge earlier. With your permission, Mr Deputy Speaker, may I ask the Clerks to distribute copies of the infographic explaining the differentiated discharge framework to the Members?
Yes, I give my consent [A handout was distributed to hon Members.]
Thank you. As Members will see from the infographic, there are three relevant time periods. For a first-time bankrupt:
(a) he is eligible to be discharged after three years in bankruptcy if he has paid the target contribution in full. However, a discharge will not be granted if sufficient creditors object to it;
(b) he is eligible to be discharged after five years in bankruptcy if he has paid his target contribution in full. Objecting creditors will need to obtain a court order to prevent the bankrupt from being discharged;
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(c) if a bankrupt has not paid the target contribution in full, he will be eligible for discharge after seven years. Likewise, a Court order must be obtained to prevent a bankrupt from being discharged.
Bankrupts may also be discharged at the three- or five-year mark even if they have not paid the target contribution in full, if there are extenuating circumstances, such as a debilitating illness.
For a repeat bankrupt, all the timelines I mentioned will be extended by two years, as compared to a first-time bankrupt.
To address any concerns that bankrupts who have not paid their target contribution in full will be eligible for discharge, the OA will keep a public register containing a list of undischarged and discharged bankrupts. Only those who pay their target contributions in full will have their records expunged from the register five years from the date of discharge. For those who do not, their names will remain on the register permanently. This will also allow future creditors to make informed decisions on whether to extend credit.
There are two further important points about the differentiated discharge framework that I need to highlight.
First, bankrupts need to file their statement of affairs and any supplementary information on time. This is because the timeline for reckoning a bankrupt's eligibility to be discharged does not start until these documents are filed. The later a bankrupt files these documents, the later the timeline will start to run.
Second, the timeline will be suspended if the bankrupt travels or remains overseas without the trustee's permission. Bankrupts should not be allowed to benefit under this new framework if they fail to comply with their obligations under the law.
This framework introduces a new rehabilitative regime which gives bankrupts clear timeframes and goals to meet in order to become eligible for discharge. Cooperative bankrupts will be incentivised to make sufficient contributions to achieve an earlier discharge but, at the same time, the framework has sufficient safeguards, in the form of permanent bankruptcy records and the OA's and the Courts' discretion to extend the bankruptcy, to prevent moral hazard.
I will now touch briefly on some of the miscellaneous amendments in the Bill.
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Clause 27 requires a bankrupt's creditor to file a proof of debt within four months from the date that the administration of the differentiated discharge framework begins, unless the time period is extended by the Court, or by the trustee in certain circumstances. This will provide bankrupts' creditors with greater certainty as to the value of their debts and also will facilitate the smooth administration of the bankruptcy.
Clause 37 provides that the OA will not be required to incur further expenses unless there is sufficient available property in the bankrupt's estate. This ensures that the bankrupt's estate will not be unnecessarily depleted. Any creditor may apply to the court to direct the OA to incur a particular expense, but only on the condition that the creditor indemnifies the OA and provides reasonable security to secure the indemnity.
Clause 49 provides that the offence of fraudulent disposal of property will be committed only if the bankrupt had the intention to defraud his creditors or to deprive his creditors of the property in the event of a bankruptcy order. Clause 51 introduces a new offence, which is committed when a bankrupt provides a guarantee, indemnity or security of at least $1,000 without disclosing that he is an undischarged bankrupt at that time.
The Bill contains a comprehensive suite of changes aimed at improving the bankruptcy regime. The changes are targeted at ensuring that public resources are better utilised, while providing greater certainty as to when bankrupts are eligible to be discharged and ensuring that the Act remains up-to-date.
The Bill strikes a balance between the need to hold the bankrupt accountable, while ensuring that bankrupts have the opportunity to make a fresh start in their financial affairs after a reasonable period of time. Mr Deputy Speaker, I beg to move.
Question proposed.
Mr Deputy Speaker, I rise in support of the Bill. We have over 20,000 cases of undischarged bankrupts in Singapore, with about 1,500 to 1,900 new cases filed every year.
According to the Insolvency and Public Trustee's Office, the leading causes of bankruptcy in Singapore are overspending, business failure and unemployment. The Credit Bureau Singapore also reported that borrowing by individuals had increased over the years.
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It is important that the Government puts in place measures to encourage financial prudence and prevent borrowers from over-leveraging. Continuous public education is necessary to remind Singaporeans of the benefits of financial discipline so that they will be prudent and not borrow beyond their means.
I support measures, such as the Total Debt Servicing Ratio (TDSR) framework and so-called financial restrictions of motor vehicle loans by MAS.
The Credit Bureau also plays a role in helping borrowers and lenders manage debts and risks.
Schemes, such as the Debt Repayment Scheme and the Repayment Assistance Scheme administered by the Official Assignee and Credit Counselling Singapore respectively, are also useful in helping individuals reduce their debts gradually and in a feasible manner.
The Bill proposes to raise the minimum debt level for debtors to be made bankrupt from $10,000 to $15,000. The Ministry has pointed out that the intention of this amendment is to get lenders and borrowers to resolve more debts without resorting to a bankruptcy application or petition. In addition, the amount takes into consideration inflation.
My concern is that the higher limit may encourage lenders to try to get individuals to borrow more than what they need. There is also the possibility that lenders will upload their costs to meet the minimum amount.
May I suggest that the Government consider setting up another institution or registrar as a long-term solution to administer smaller defaulters through a simpler and more economical framework. It is important to impress upon the individuals to take personal responsibility and exercise self-discipline for their personal finances. Raising the limit may send the wrong signal to them.
Next, I would like to voice my support for the amendment which will allow bankrupts to be discharged according to a set timeframe.
This is a more transparent approach than the current framework under which there are no specific criteria and discharge is granted only by the High Court or Official Assignee on a case-by-case basis.
Under the new framework, debtors will be encouraged to work towards resolution and closure. At least they will know when they can see the light at the end of the tunnel. With
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that, I support the amendment.
Mr Deputy Speaker, over the years, I have encountered residents who were made bankrupts due to business failure, or simply because they were trying to help a relative by signing off as guarantor for a loan. They languished for many years in their status, with diminished career prospects and demoralised, as either the debt was too large or they were simply unable to make sufficient payment to satisfy their creditors.
I am thus supportive of the Bill's purpose of seeking to inject some efficiency and timelines into bankruptcy administration. I also welcome the increase in the bankruptcy debt threshold from $10,000 to $15,000, in view of the rise in costs since the threshold was last set.
However, I wish to seek some clarifications on two areas, namely, private trustees, and the time limits for discharge of bankrupts.
First, private trustees. I note that the Bill requires "institutional creditors" to nominate a private trustee in place of the Official Assignee (OA) when bringing a bankruptcy application. The "institutional creditors" include banks and finance companies regulated by MAS and business undertakings with an annual turnover of more than $100 million and more than 200 employees.
Over the past few years, I have come across several residents in bankruptcy who complained about slow responses from the OA's office. I hope that this proposal of private trustees taking over significant workload from the OA will improve the response times and efficiency of bankruptcy administration overall.
One potential issue I wish to raise relates to the costs of private trustees. Under the Act, the fees of the private trustees are to be borne by the bankrupts. This will be an item added to the debt under the bankruptcy. The private trustees' costs will be paid from the bankrupts' monies and properties, in priority to creditors' claims.
Will the additional burden of high private trustees' fees delay or hinder the bankrupts' rehabilitation and discharge? I am thinking of certain scenarios, for example, where a bankrupt owes a small debt of say, $20,000, how much additional fees would be added for him to pay by way of private trustee's charges? High trustee's charges could also come at the expense of creditors' recovery, since the trustee's charges will be paid in priority to
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creditors' claims.
Furthermore, it is foreseeable that institutional creditors, such as banks, may appoint larger law firms or accounting firms as private trustees. These larger firms' fees generally are much higher than smaller firms' fees. Should there be some regulation or capping of private trustees' fees to ensure that they are proportionate to the debt or, at least, reasonable and necessary?
Besides their fees, I would like clarification on how the private trustees will be held accountable for their work.
Under section 39 of the Act, the OA has supervision over the private trustee in that the OA will take cognisance of the conduct of a private trustee, inquire into any complaint made and conduct investigations where needed. In addition, according to a MinLaw explanatory note on the Bill, once a bankruptcy exceeds its five-year mark or seven-year mark in the case of repeat bankruptcies, a private trustee will have to submit reports to the OA every year. I would like the Ministry to confirm that a bankrupt does not need to wait for the five- or seven-year mark respectively before making a complaint to the OA.
In addition, before complaining to the OA, the bankrupt may want to resolve matters with the private trustee first. If such residents were to come to see their Members of Parliament for assistance, should Members write to the private trustee directly, or should such correspondences be channelled through the OA's office? Is the private trustee expected to reply to Members' letters?
Next, Sir, timeframes for discharge. The Bill sets out a differentiated discharge framework, with timeframes for discharge of bankruptcy: for first-time bankrupts, they are generally eligible for discharge in five to seven years, while repeat bankrupts are generally eligible for discharge in seven to nine years. Under this framework, bankrupts are told that they should keep up their monthly contributions to reach the Target Contribution, so as to be discharged earlier rather than later. However, bankrupts who have not paid their Target Contributions in full may still be discharged after seven years for first-time bankrupts and nine years for repeat bankrupts.
I see the benefit of this framework of injecting more certainty for bankrupts to work towards their discharge. Nevertheless, I note that the periods of time proposed are long compared with some countries. One example at the other end of the spectrum is the United Kingdom, where bankrupts are automatically discharged after one year to promote rehabilitation of bankrupts and to encourage entrepreneurs to try again. While having a regime of one year automatic discharge is probably too drastic a change and unfair to
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creditors, how did the Government arrive at the timeframes it decided upon?
Secondly, under the differentiated framework of this Bill, repeat bankrupts are treated more harshly, compared with first-time bankrupts. Repeat bankrupts would have to pay 76 monthly contributions to meet their target contribution, compared with 52 monthly payments for first-time bankrupts.
Would the Ministry be able to tell us whether there are significant numbers of repeat bankrupts, or give other indications of the size of the problem, to warrant such a blanket treatment for all repeat cases?
Mr Thomas Chua Kee Seng (Nominated Member): (In Mandarin): [Please refer to Vernacular Speech.] Mr Deputy Speaker, firstly I wish to declare that I am the President of the Singapore Chinese Chamber of Commerce & Industry. I support the Bankruptcy (Amendment) Bill, as it will prescribe a minimum period that a bankrupt can be discharged. This would benefit those who have failed in their ventures to learn their lessons, and start all over again.
Currently, Singapore's economy is undergoing a period of restructuring, and we do need more entrepreneurs who have ideas and creative thinking to develop economic avenues and new ways of doing business. We also need to groom more young entrepreneurs to be daring enough to venture and not give up easily even when they face obstacles. The business battlefield is surely not going to be plain sailing. Even renowned entrepreneurs like Jim Rogers and Jack Ma have experienced failure, and not only once.
Does our society have the environment to nurture entrepreneurship? Recently, I participated in a seminar entitled "The role of parent education in preparing young people for employment" by the Chinese Development Assistance Council (CDAC); the results of one survey that were announced deserve further thought. A total of 550 parents participated in this survey which was mainly to find out how parents could prepare their children for employment. Results showed that the capability parents valued most is to cultivate their children's specialised skills and knowledge learning capacity. Parents felt that the least important is to cultivate their children's willingness to take risks.
These results show that the tolerance level for risk-taking needs to be further increased in our society; a variety of reasons lead to parents placing more emphasis on knowledge acquisition and skills. While this is certainly a good thing, the young people groomed under this mindset could turn out to be excellent civil servants, managers and outstanding skilled
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workers and professionals, but are not likely to become successful entrepreneurs.
Starting a business entails taking risks. Let me cite a real example: Mr Tan, who was a restaurant owner, became bankrupt a few years ago. He was not used to working for others and wanted to continue doing business. Hence, he used his wife's name to re-register a business and started to sell fish soup. As he learned from his previous experience, the business became better and better, and he opened another stall at a nearby hawker centre. Because he has already mastered the specialised skill of slicing fish, of late, Mr Tan hopes to expand his business through opening a chain, but because he was still an undischarged bankrupt, he faced hindrances at every turn – rejections in discussing projects, getting bank loans, and applying for Government assistance schemes. He really hopes that the Government could show more leniency towards bankrupts.
After the amendment to the Bankruptcy Act, people who have failed in business could be discharged from bankruptcy within five to seven years and given the chance to strive ahead to realise their dreams, which is what Mr Tan hopes to do. Given his ability, he has no problems settling the target contribution, but what is at stake is his reputation. If our society is unable to tolerate failure, and not accepting mistakes, fears taking risks and dodges from it; if parents are unwilling to let children take risks, or are not used to the idea of letting children take risks and responsibilities, then Singapore would lack the social environment to groom entrepreneurship. Without the nurturing soil, big trees can never grow.
Allow me to share the insights from our late Founding Prime Minister Lee Kuan Yew in his book "The Grand Master's Insights on China, the United States and the World". Mr Lee felt that the spirit of innovation and entrepreneurship is even more important than technological ability. In an era of technological revolution, only talented entrepreneurs would be able to seize new opportunities, create new ideas, establish new enterprises and make great strides forward. The ordinary businessmen only need to learn from others' experiences to have a fairly comfortable life, but those businessmen who possess the innovative and entrepreneurial spirit can reap rich rewards.
These statements show that our late Founding Prime Minister values the importance of grooming the entrepreneurial spirit. However, from CDAC's survey results, parents certainly have neglected the importance of the entrepreneurial spirit. This gap makes us think hard about whether we should create a more conducive social environment for entrepreneurs. After all, failure is the mother of success. Though we can tolerate failures, we should not indulge failures. There is no conflict of interest between the Government legislation of protecting creditors' interests and grooming the entrepreneurial spirit. Successful entrepreneurs have a responsibility to their shareholders, employees and customers, and are able to gain the trust of interested parties.
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In the recently concluded SEA Games, Singapore made sports history by the most number of medals won! However, as we followed the Games closely those few days, the sports we banked on for gold medals turned out to disappoint us, while those sports that were not on the radar suddenly produced many dark horses. In the future, the business environment can be expected to be full of uncertainties, just as in the SEA Games. Past glories may be overtaken by others, while past failures could also be the foundation for a comeback.
Amending the Bankruptcy Act, specifying the minimum period to discharge a bankrupt, is like giving a new lease of life to those who have failed, giving them another platform to strive forward after they have learned their lessons the hard way. This is extremely good news for would-be entrepreneurs. I hope this is a signal for the whole society to view the business cycle with greater magnanimity. Hence, I support the Bankruptcy (Amendment) Bill.
PAPERCUTS