All You Need To Know About Corporate Bankruptcy In Singapore

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All You Need To Know About Corporate Bankruptcy In Singapore

Corporate Bankruptcy: Is It The End?

Corporate bankruptcy refers to the liquidation of a company’s assets and business operations. The purpose of this is to allow creditors to recover some of their losses from the company’s remaining assets. If there are no remaining assets, then the company ceases to exist.

The term ‘bankruptcy’ comes from the French word for ‘breakdown’. When a company goes bankrupt, its assets are sold at auction to pay back creditors.

Corporate bankruptcy is a process in which a corporation's assets are liquidated, and the proceeds distributed to the company’s creditors.

Corporate Insolvency: How does it work? Is it the same as bankruptcy?

Corporate insolvency happens when a company is unable to pay its debts and it is not considered as bankruptcy. It is also called corporate failure or bankruptcy in some jurisdictions.

A company can become insolvent due to various reasons. One of the major causes of corporate insolvency is when the company has a negative net worth.

Insolvency can happen if the company's assets are worth less than their liabilities, which means that the company cannot pay back their debt with its assets.

Corporate insolvencies are usually caused by external factors such as natural disasters, economic downturns, etc., but they can also be caused by internal factors such as managerial mistakes or fraud.

Filing for corporate insolvency makes sense because it helps companies to protect their creditors from losses and help them to recover from financial difficulties without entering into a formal bankruptcy process.

Winding up

A company may be wound up either voluntarily or compulsorily. If a company voluntarily winds up, it does so without having been put into administration by a court. This happens when one of the directors dies or resigns, or when there are disputes among the shareholders about how to run the company.

In contrast, compulsory winding up occurs when a company cannot pay its debts, and creditors apply to the courts to have it placed into administration.

After winding up, the business will cease to exist.

Voluntary Liquidation vs Compulsory Winding up

The General Division of the High Court, which deals with company matters, hears applications for compulsory liquidation. Companies must file accounts with the Registrar of Companies (ROC), and the ROC sends copies of those accounts to the creditor body. When the creditors believe that the company is insolvent, they make an application to the High Court for compulsory winding up.

If the High Court agrees to grant compulsory winding up, it issues a notice to the company requiring it to show cause why it should not be wound up. After hearing representations from both sides, the court decides whether to issue an order compelling the company to be wound up.

Unless the company has acquired the court's leave (approval) for a representative to represent the company, a firm involved in a compulsory winding up motion must generally be represented by a lawyer.

Any of the above mentioned parties can apply to the court to wound up a company compulsorially. This applies even if there are no assets left to distribute among creditors. In such cases, the court appoints a judicial manager who distributes the remaining assets according to the priority of claims.

Role of a Liquidator

A liquidator is a person appointed by the Court to wind up the affairs of a company under administration. He/she investigates into the affairs and assets and conducts the sale of the company's property and disposes of the money received according to the provisions of law. A liquidator must ensure that the interests of all the creditors are protected during the course of his duties.

What is judicial management?

Under Singapore law, judicial managements are a way for companies in financial difficulty to get back on their feet. In this procedure, an independent court-appointed officer, Judicial Manager, is put in charge of running the business instead of its board of directors.

This Judicial Manager (or Interim Judicial Manager) will examine every account and activity of a company, have last say in any future business decisions, and assist in putting together a plan to repay creditors.

Hodlnaut is a great case for example of filing an application for judicial management in August in hope of regaining Group's financial well-being.

By doing this, a moratorium (also known as temporary pause) is provided to protect against legal claims and proceedings against the company - allocated time to set back and work on the recovery plan perhaps.

Summary on Filing Of Corporate Insolvency Documents

Corporate insolvency and restructuring documents will still be filed exclusively through Bizfile+, ACRA's online site for business registration and filing.

New forms have been created for the new rules set out by the IRDA, and there have been some minor changes to the old forms. Only these transactions must be filed in new insolvent companies that started after the IRDA's introduction. Read the new changes in detail here.

Why Your Corporate Might Need To File for Bankruptcy

If your company faces any of these situations, you might need to file for corporate bankruptcy:

Case 1: When facing a liquidity crisis. This means that your company is having trouble paying its bills.
Case 2: When suffering from an asset bubble. An asset bubble occurs when the value of a company’s assets increases faster than the rate of inflation.
Case 3: When there is too much debt. Debt is money owed to lenders. Companies often borrow money from banks and other investors to finance their businesses.
Case 4: Company's failure to meet its obligations.
Case 5: Company’s management team has mismanaged the company.
Case 6: When a company owns property that is losing value.
Case 7: When owes money to multiple creditors.
Case 8: When there are needs to restructure its debt.

Requirements to file for bankruptcy

A person (either a creditor or debitor) must meet certain requirements before filing for bankruptcy. These include being domiciled in Singapore, having property in Singapore, having resided in Singapore for at least one year, carrying on business in Singapore for a period of at least one year, and having a place of residence in the city state. In addition, there are three main types of bankruptcy cases: liquidation, reorganization and composition.

Cost to file for Bankruptcy

Any creditor or debtor who wishes to file for bankruptcy must pay a deposit of $1,850 to the OA to administer the debtor’s estate.
If you are filing for self bankruptcy, the deposit will not be refunded.

What other ways can bankruptcy affect you?

Bankruptcy affects all parties involved in the case.

The first party affected is the debtor. If he/she files for bankruptcy, then his/her assets will be taken away and used to repay creditors. This may mean losing everything.

Creditors are also affected by bankruptcy. They lose their right to collect money owed to them by the debtor.

Not-so-new Corporate Bankruptcy Law: Center for International Debt Restructuring

The Companies (Amendment) Bill 2017 (the "Act"), which would improve the nation's corporate debt restructuring structure, was approved by Singapore's Parliament on March 10 of 2017.

The Act is a ground-breaking advancement in Singapore's corporate rescue legislation and contains significant amendments to the regulations regulating judicial administration, cross-border insolvency, and schemes of arrangement.

The Act also integrates a number of aspects of chapter 11 of the U.S. Bankruptcy Code, such as prepackaged restructuring plans, cram-down powers, and super-priority rescue financing. The law could signal Singapore's rise as a hub for global debt restructuring. For full read, click here.

If A Company Becomes Insolvent, What Happens Next?

Singapore is renowned for being pro-business, and Singapore Law Watch claims that its insolvency laws are very "favorable to corporate relief." (Or, to put it another way, we prefer to contribute.)

In the absence of legal action but in the face of intense pressure from its creditors, a corporation may declare for bankruptcy.

The court may then impose a debt moratorium, which formally permits the business to put off making debt payments for a predetermined amount of time. Debtors are supposed to help the company restructure its operations during this time or find a "rescuer" to help it emerge from bankruptcy.

However, debt moratoria are frequently granted (and occasionally even prolonged) to give the business one last chance to treat its regular shareholders, customers, and employees fairly.

That's because these tiny participants typically receive little to nothing in a company's liquidation, as it's doubtful that anything will remain of the liquidated assets once the creditors have taken possession of them.

Who Get Paid First When A Company Goes Bankrupt?

In the event that a company's assets are liquidated, the proceeds will be distributed to creditors in the following order:

Once these preferential claims have been paid in full, any remaining funds will be distributed equally among the ordinary creditors. After all creditors have been paid, the liquidator may request permission from the court to make a capital repayment to shareholders, who will receive their share in proportion to their interests in the company's share capital.

UPDATED AS OF 15 Jun 2024
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