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Filing Bankruptcy Amid Covid-19 Pandemic In Singapore: What You Should Know About The Covid-19 (Temporary Measures) Act (Expired)
Article was first published on 24th May 2020 and updated on 31st January 2021.
Bankruptcy and insolvency may seem like taboo topics for discussion but with the number of bankruptcy applications reaching 462 in March 2020, the highest in more than 15 years, getting clarity on the subject can just be the best way to prevent such unfortunate events. Furthermore, as the Covid-19 pandemic continues to corrode the business sector and weaken the economy, there is no harm in getting more well-versed with the topics, they may even come in handy if you (touch wood!) or anyone around you are confronted with bankruptcy and insolvency matters.
A total of 8,663 business entities closed in April 2020, this figure more than doubled the number of cessation in March 2020. It will only get worse for Small and Medium Enterprises (SMEs), when the Job Support Scheme wages subsidy drop in June for most SMEs from 75% to 25% and that is also when the grace period of 6 months ends for loan moratoriums.
Due to the pandemic, the Ministry of Law has recently included additional relief measures under the Covid-19 (Temporary Measures) Act to help individuals and businesses cope with potential bankruptcy in Singapore. Here’s some information that we have gathered for those who are keen to find out more.
Temporary Amendments to Bankruptcy & Insolvency Laws As of 20th April 2020, the Ministry of Law has implemented extra relief for bankrupts under the Covid-19 (Temporary Measures) Act. There are two key amendments that both debtors and creditors need to know: The monetary threshold to petition for insolvency of a business - The Act increased the monetary threshold for bankruptcy from $15,000 to $60,000 for individuals, and $10,000 to $100,000 for corporates. The increase in the minimum debt amount provides a safety net for Singapore business owners to continue operating while insolvent. Debt repayment scheme has also increased from the initial $100,000 to $250,000 in this period to qualify. The statutory period to respond to creditor’s demand - The Act provides temporary relief to debtors from creditors’ legal action for up to 6 months from April 20. This means that for statutory demands served on or after this date, debtors can take up to 6 months, instead of 21 days, to satisfy creditors’ demands.
Measures in the Act relating to bankruptcy and insolvency will also commence on 20 April 2020, and last up to and including 19 October 2020
Alternatives to Bankruptcy Bankruptcy is not an easy way out of financial difficulties, being a bankrupt can create long-term problems that will impede employment, travelling overseas and loan applications. In Singapore, there are also restrictions for bankrupt to manage a business or act as a director of a company. As such, never ignore your creditors’ Letters of Demand, instead, take a proactive approach to resolve any credit issues before the matter escalates to the point of bankruptcy.
1. Private Negotiation with Creditors
An alternative to bankruptcy is to engage in private negotiation with creditors to pay off debts in instalments. Debtors should attempt to negotiate terms based on a realistic timeline and financial status so that repayment can be fulfilled promptly. If more time is required to liquidate assets or gather funds to repay the debts, present evidence and communicate the conditions clearly so that both parties can come to an agreeable decision.
2. Temporary Relief Measures - Ended 31st January 2021
Individuals and businesses who are unable to fulfil their contractual obligations due to the Covid-19 pandemic can leverage the Covid-19 (Temporary Measures) Act to protect themselves from litigation or bankruptcy proceedings. Besides the increased monetary threshold for bankruptcy and extension of the statutory period, the Act also renders support to those who enter into contracts for rentals in the industrial and commercial sectors, construction and supply contracts, as well as certain secured loan facilities granted by banks or financial institutions to small and medium-sized enterprises (SMEs).
For debtors who require protection from legal proceedings and wish to obtain relief under the Act, a notification for relief must be served to the other party. Refer to the Ministry of Law website for notification guidelines. Additional Reporting on 31st Jan 2021: The prescribed period for three contracts will end on 31st Jan 2021:
- Hire Purchase and conditional sales agreements for commercial equipment or commercial vehicles, excluding those entered with banks of finance companies regulated by the Monetary Authority Of Singapore (MAS) (SMEs who are affected can still opt to take up a repayment scheme under the Re-Align Framework)
- Rental Agreements for commercial equipment or commercial vehicles (SMEs who are affected can still opt to take up a repayment scheme under the Re-Align Framework) To do so, hirer or renter must serve notice on all parties to the contract between now and 26th Feb 2021
- Events and tourism-related contracts
3. Debt Repayment Scheme (DRS)
Since 2009, the Singapore Bankruptcy Act has granted DRS as another alternative to bankruptcy proceedings. The arrangement allows individual debtors to repay their debts while retaining possession of their property and continuity of their business activities without becoming bankrupts. The DRS also prevents creditors from proceeding with any legal action against the debtor unless permitted by the court.
To apply for the DRS, debtors are required to file a bankruptcy application with the Singapore court. If bankruptcy proceedings have been filed by creditors, the court will refer the debtors to the Insolvency Office to assess their eligibility to enter the DRS. As part of the Covid-19 (Temporary Measures) Act, the monetary threshold for DRS has also been increased from $100,000 to $250,000. This means that the DRS is now available to those with debts not exceeding $250,000.
4. Voluntary Arrangement (VA)
VA is another negotiation alternative for debtors to initiate a proposal to repay their debts in the hope that creditors can hold back on bankruptcy proceedings. Debtors who want to enter into a VA agreement must first apply an interim order to stop all further proceedings against them. The application should be filed together with a proposal containing information on the debtor’s assets and liabilities and repayment plan. A nominee such as a registered public accountant or an advocate and solicitor must also be appointed to supervise the implementation of the VA. If the debtor fails to comply with the VA, the nominee or any of the creditors may file a Bankruptcy Application against the debtor. Bankruptcy is No Laughing Matter Bankruptcy is a rare occurrence, but it is a possible scenario when we are faced with uncertain times such as this pandemic when there is no clear sign of how fast our economy will recover. Whether you are an individual or an SME owner, becoming financially literate and managing your debts efficiently are the first steps to securing a more stable future. Be open to seek assistance, there is really no shame in asking for help from professionals and governing bodies that are set up to provide financial aid and advisory. It is better to be in the know and avoid bankruptcy than getting tangled in a financial mess that is hard to get out of.
Bankruptcy Q&A In Covid-19 Situation
- Can I be sued for failure to fulfill my contractual obligation due to current Covid-19 Situation?
The COVID-19 (Temporary Measures) Bill will apply to various categories of contracts, including:
- Construction and supply contracts;
- Leases or licenses for non-residential property;
- Contracts for the provision of goods and services for events;
- Certain contracts for goods or services for visitors in Singapore, domestic tourists or outbound tourists, or promotion of tourism; and
- Certain loan facilities granted by a bank or a finance company to SMEs.
The Bill will have retrospective effect and apply to contractual obligations that are to be performed on or after 1 February 2020 in contracts that were entered into or renewed before 25 March 2020.
The Bill will prohibit contracting parties from taking certain legal actions against counterparties who have breached their obligations due to the COVID-19 pandemic. This includes court and insolvency proceedings and the termination of leases.
For construction contracts and supply contracts, the Bill will relieve contracting parties from the liability to pay liquidated damages in the event of a delay or failure in performance that was caused to a material extent by COVID-19. This statutory protection will override any contractual agreement between parties relating to the payment of liquidated damages.
The Bill will also provide additional relief in respect of forfeiture of deposits for events and tourism-related contracts. For example, a venue provider cannot forfeit a person's deposit for an event that is postponed because of COVID-19 restrictions without obtaining a determination from an assessment that it was just and equitable to forfeit the whole or part of the deposit.
- How long will the relief last for?
By default, the relief will last for 6 months from 20 April 2020. The Singapore government will monitor the situation and may adjust this period accordingly.
- What if i am sued or want to be declared bankrupt during this COVID-19 Period, am i allowed to meet my insolvency practitioner?
Meetings whose due dates fall between 27 March and 30 September 2020 2020 are allowed to be deferred. Alternatively, electronic means or alternative arrangements can be arranged but a meeting ordered or directed by the court does not apply to the order. For such meetings, one may wish to apply to the court to seek further directions or variation of the orders, as to the safe distancing measures that your practitioner intends to implement at such meetings.
- Can I be sued if I am unable to pay rents owing to COVID-19 situation?
Landlords would not be allowed to terminate the lease of tenants or repossess the premises and start court or insolvency proceedings, if rent is not paid during the relief period for rental contracts that are performed on or after 1 February 2020 and that were entered into or renewed before 25 March 2020.
If landlords dispute, the Ministry of Law will appoint assessor to decide if inability to perform contractual obligations was due to Covid-19.
The assessor will then decide on a just and equitable outcome based on facts of each case, the process will take no more than 5 days at no costs to either party and their decision is final and no appeals can be made.
- Are financial institution's contractual rights included in the current relief bill?
No, the financial institutions are still allowed to charge you for fees and interest for non-payment or late payment.
- What happened to my HDB, CPF and Insurance Policy after I was declared bankrupt?
Monies in your CPF statements are protected by legal liabilities, these include any amount in your Ordinary account (OA), Special Account (SA), Medisave Account (MA) or any CPF Investment Scheme (IS).
An undischarged bankrupt will still be able to purchase a HDB with their CPF monies of not more than $500,000 in value and no bigger than 4-room flat. (Special exemption can be obtained from your Official Trustee (OA), if you need to purchase a bigger flat of higher amount).
Existing HDB assets are protected from your OA and will not form part of your assets managed by the OA.
Undischarged bankrupt are still allowed to withdraw money from their CPF when they turn 55 if you are eligible but monies that are withdrawn will not be protected from the claims by your OA.
Any insurance policy especially those with cash value will form part of your assets and maybe sold by your OA, life insurance policy where your spouse or children are the beneficiaries will be protected from the OA.
7. If I am already a bankrupt, do I still need to pay my monthly installment or contribution this period?
Yes, but in light of the COVID-19 situation, the OA may allow bankrupts to formally request for a reduction of their monthly installment or contribution as a temporary relief measure.
More info can be found here.
8. Can i file my own bankruptcy during this Covid-19 Period ?
Yes, there are no change in the procedure for debtor bankruptcy application. But in light of the COVID-19 situation, the Legal Registry will determine if the application is deemed 'Urgent and Essential', and whether to proceed with the bankruptcy filling in this period.