Out-Law News | 28 Jul 2020 | 4:41 pm | 2 min. read
The act will make substantial changes to Singapore’s corporate insolvency laws in particular, while retaining most existing personal insolvency provisions. It sets out common principles and aligns procedures across the previous regimes under a single law, rationalising existing inconsistencies and minimising uncertainty that has previously existed due to cross-referencing across the various pieces of legislation.
Banking law expert Jia Lin Ho of Pinsent Masons, the law firm behind Out-Law, said the legislation was good news for businesses and practitioners.
“The new act is part of a wider effort to enhance Singapore’s corporate debt restricting regime by giving better support to companies, creditors, and other stakeholders. The consolidation of insolvency laws into a single piece of legislation would enhance the clarity and accessibility of the law for advisers and clients, and remove the need to refer to multiple primary and subsidiary legislation,” Ho said.
The regulatory regime for insolvency practitioners introduced by the act will impose minimum qualifications, as well as conditions for the grant and renewal of licences. It puts in place a disciplinary framework for officeholders in respect of breaches in their conduct as insolvency practitioners, and those found to have breached the regime could have licences revoked or face penalties.
Under the new rules, insolvency practitioners will not be able to act as a liquidator, judicial manager or receiver of a corporation unless licensed. The regime will be administered by the Insolvency and Public Trustee’s Office under the umbrella of the Ministry of Law.
The act also introduces new restrictions on the operation of ‘ipso facto’, or contractual determination, clauses in certain circumstances. Ipso facto clauses permit the termination or modification of the contract upon the occurrence of a specified trigger event, such as insolvency or restructuring of the company, and have previously not been restricted under Singaporean law.
The new act will restrict the ability of counterparties from terminating or amending an agreement or claiming an accelerated payment under any agreement with a distressed company because judicial management or creditor schemes of arrangement have commenced in respect of the distressed company, or because the company is insolvent.
As a result, counterparties will not be prevented from exercising contractual rights on other substantive grounds, such as non-payment or non-performance by the distressed company. However, a counterparty may apply to the court for a declaration that the restriction does not apply to it, if it can satisfy the court that the operation of the restriction would “likely cause the applicant significant financial hardship”.
The restrictions are intended to facilitate restructuring where a distressed company’s business relies on key contracts that contain such ipso facto clauses. The ipso facto provisions in the act are based on corresponding provisions in Canadian insolvency legislation, and the concepts can also be found in equivalent laws in the US and Australia.
“It is hoped that with the new Act, financially distressed companies will avail themselves of the new tools available to rehabilitate and restructure their debts successfully. In the meantime, commercial parties would be prudent to review their existing contracts to determine how the new restrictions on ipso facto clauses may affect their current contractual rights,” Ho said.
03 Apr 2020