New bankruptcy system to foster rehabilitative environment to bankrupts

The changes will take effect starting 1 August.

The Ministry of Law (MinLaw) has unveiled reforms to Singapore’s bankruptcy system, with the aim of creating a rehabilitative environment for bankrupts, and spur creditors to exercise increase financial prudence.

The amended framework, which will come into effect beginning 1 August 2016, has increased debt threshold from $10,000 to $15,000. The new threshold is based on the same income-related benchmarks that were used when the threshold was last revised in 1999.

“This change seeks to encourage both debtors and creditors to resolve debts falling below the threshold, without resorting to the formal bankruptcy process. This will help such debtors avoid the inconveniences and social stigma associated with bankruptcy,” asserted MinLaw.

In addition, the new framework expedites bankruptcy application. After a payment demand has been issued to a debtor, creditors no longer need to wait for a 21-day period to lapse before filing an application. However, creditors must show a serious possibility that the debtor’s property or value will be significantly diminished before the 21-day period ends.

Further, the new framework includes a mandatory appointment of private trustees by “institutional creditors.” MinLaw asserts that this will also incentivise creditors to undertake better risk assessments. This change will also allow the Official Assignee to focus its resources on administering cases where the applicant is an individual or a small business.

MinLaw’s amended framework also introduces a differentiated discharge regime that sets out fixed exit points for bankrupts to be discharged. These timeframes will give bankrupts an incentive to stick to their payment plan, their conditions of bankruptcy, and seek gainful employment to achieve their discharge.

First-time bankrupts will generally be eligible for discharge within five to seven years, while repeat bankrupts will generally be eligible for discharge within seven to nine years. Also, a key consideration in a bankrupt’s eligibility will be whether he has paid his “Target Contribution” in full. The Target Contribution is determined based on the bankrupt’s earning potential.