Preventing Individuals with Outstanding Debts and Claims Tribunals' Orders from Setting Up New Business Entities

Mr Melvin Yong Yik Chye asked the Prime Minister and Minister for Finance whether there are any plans to have ACRA work with agencies, such as the Ministry of Manpower and the Competition and Consumer Commission of Singapore, to prevent individuals from setting up new business entities without having first paid off debts owed to employees and consumers arising from tribunal orders imposed by the Employment Claims Tribunal and Small Claims Tribunals respectively.

There are established procedures for creditors to seek enforcement of the orders granted by the Employment Claims Tribunals (ECT) and Small Claims Tribunals (SCT). If a business entity fails to comply with an ECT or SCT order, employees and consumers can apply to the Court to enforce the order.

The Government does not require individuals to pay off the debts of their business entities before they can set up a new business entity.

For business entities that have no separate legal personalities from their owners, such as sole proprietorships and partnerships, the business owners would remain personally liable for the debts of their businesses.

For business entities with separate legal personalities, such as companies, shareholders have limited liability under the law, which is consistent with the legal structure in other jurisdictions. This limited liability does not preclude creditors from being paid. When a company is being wound up, its remaining assets will be distributed among its creditors in accordance with insolvency law, although there may not be sufficient remaining assets for all creditors to fully recover the debt that they are owed.

Such limited liability fosters entrepreneurship, as individuals can embark on business ventures without facing the forfeiture of their personal assets in the event of corporate insolvency. That said, shareholders are likely to lose the amount they had invested.

This balance between shareholder liability and creditor protection must be carefully managed to maintain our competitiveness vis-a-vis other jurisdictions in promoting entrepreneurship, which is important for developing a competitive economy and creating good jobs for our people.