BANKRUPTCY (AMENDMENT) BILL

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BANKRUPTCY (AMENDMENT) BILL: Order for Second Reading read.

5.16 pm

The Senior Minister of State for Law (Assoc. Prof. Ho Peng Kee): Mdm Deputy Speaker, I beg to move, "That the Bill be now read a Second time."

Our bankruptcy regime seeks to give creditors their rights whilst, at the same time, give debtors an opportunity to make a fresh start in their financial matters.

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In 1995, we enacted the present Bankruptcy Act to protect creditor interests without stifling entrepreneurship and enterprise, and to improve the administration of the affairs of bankrupts.

After a person is adjudged a bankrupt, the financial embarrassment and social stigma that he faces can make it difficult for him to keep his job and, if he loses it, to secure a new one. He then faces even greater financial hardship and cannot contribute as much to his bankruptcy estate as he would have had if he had kept his job. As a result, creditors receive a smaller dividend payout.

Currently, a debtor facing a bankruptcy application can avoid bankruptcy by entering into a voluntary arrangement (VA) with his creditors. This arrangement is, however, court-based, requiring the debtor to obtain the Court's sanction at various stages of his proposal, as well as the support of creditors holding at least 75% in value of the debts. Hence, whilst the VA may be useful to debtors who manage businesses or who have large debts and whose proposals may not be so straightforward, it is cumbersome and costly for debtors who are wage earners with smaller debts.

Where a debtor has a regular income and his debts are not large, a better alternative would be to have a non court-based approach that gives him a reasonable opportunity to pay off all or some of his debts through a repayment plan over a period of time. By avoiding bankruptcy through this debtor-driven scheme, the intention is that the debtor will keep his job and apportion part of his monthly income towards repaying his debts. The aim is that creditors will receive no less than what they would have otherwise received, had the debtor gone into bankruptcy. The benefit for the debtor is that if he successfully meets his financial obligations under the repayment plan, he will avoid the stigma and

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restrictions of bankruptcy. But the point is he has to do his part; eg, adjust his lifestyle or spending habits so that repayments are made. Hence, these amendments to the Bankruptcy Act to introduce the Debt Repayment Scheme (DRS). They take into consideration the feedback we had received from a public consultation on an earlier version of the Bill.

Madam, as the DRS is intended to be a pre-bankruptcy scheme, we propose to insert its provisions under a new Part VA of the Bankruptcy Act. Let me now take the House through the salient features of this new Part VA inserted by clause 8 of the Bill and I will refer to the other key amendments of the Bill where relevant.

Salient features of the Bill

_Division 1 – Preliminary
_

Division 1 of the new Part VA defines the various expressions used in the DRS. Specifically, under the scheme, all unsecured and liquidated liabilities would be taken into account in determining a debtor's debts.

_Division 2 – Proposal for DRS
_

Division 2 covers how a debtor is considered for the DRS and a debt repayment proposal formed and approved.

Currently, the High Court can make a bankruptcy order against a debtor if the total unsecured debt under a bankruptcy application, whether filed by the creditors, either singly or jointly, or by the debtor through a self-petition, exceeds $10,000. So, I would like to make a point of clarification here which is that a debtor who owes several creditors in total more than $10,000 can be made a bankrupt even though the debt owed to each creditor is less than $10,000. Under the DRS, if the debtor meets certain criteria, the Court will adjourn the bankruptcy

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application for up to six months, and refer the matter to the Official Assignee (OA).

The criteria to be eligible for the DRS are as follows. First, the debtor's unsecured debts, whether the bankruptcy application is filed by a single creditor or by several creditors or by himself, total $100,000 or less. In setting this limit, we sought to balance the objective of helping a sincere wage-earning debtor meet his financial obligations – bearing in mind his ability to make payments pursuant to the DRS – and the need to ensure that his creditors are treated fairly for their forbearance in obtaining a bankruptcy order against the debtor. And our assessment is that $100,000 would be an appropriate amount for an average wage earner.

Madam, of the current stock of bankrupts, about 42% of them had debt liabilities of $100,000 or less when they were made bankrupt. Over the past five years, the average number of bankrupts per year was about 3,200. Hence, based on this first criterion alone, ie, $100,000 or less, about 1,300 debtors would be eligible to be considered for the DRS every year. But, of course, some will be eliminated from consideration as they would not be employed because they need to be a wage-earner or if the debt had been incurred arising from business-related debts.

Secondly, in the preceding five years, the debtor must not have been a bankrupt, or on a VA or the DRS. This is because the DRS is designed to help wage-earners who have genuinely fallen into financial difficulty. It is not intended to be a scheme that debtors can use repeatedly to avoid repaying their debts in full.

Thirdly, the debtor, at the point of the bankruptcy application, was not a sole

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proprietor or a partner in a business partnership. Sole proprietors and partners are excluded as they are unlikely to be assured of a regular income stream to see through a debt repayment plan under the DRS. These debtors are also likely to require new credit in the course of their business. These recurring debts would cause the total debts to exceed the proposed $100,000 limit and make it difficult to apportion a fixed amount towards regular debt repayment.

Section 56B empowers the OA to review the suitability of a debtor for a DRS based on the factors above. If the debtor qualifies, the OA will administer and supervise his affairs through an administrator from the Insolvency and Public Trustee's Office (IPTO). Section 56C requires the creditors to file their proofs of debt and the debtor to file a Statement of Affairs and a debt repayment plan not exceeding five years. In deciding on the maximum length of repayment period, we sought to ensure that the time required for the debtor to obtain a fresh start was balanced against the time needed for creditors to recover some, if not all, the debts owed to them.

Section 56D empowers the OA to examine the debt repayment plan proposed by the debtor and to make the appropriate modifications to ensure that the interests of the creditors are not prejudiced. The OA will then call for a meeting of creditors, which the debtor must attend, for them to provide any input or information to the Administrator. The OA will consider this input in deciding whether to approve the plan as it is or after further modifications. If the debtor or any creditor thinks that the approved plan unfairly prejudices his interests, he may appeal to an Appeal Panel. The Appeal Panel will either confirm the OA's approval of the plan or make appropriate modifications to it and its decision will be final.

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_Division 3 – Commencement & Administration of the DRS _

After a DRS commences, section 56F prevents creditors from commencing or proceeding with any action against the debtor for any outstanding debt provable under the scheme except with the leave of the Court. The OA will distribute the debtor's repayments to the creditors on a pari passu basis.

Section 56H allows the OA to modify an approved plan if there is a material change in the financial situation of a debtor; eg, when a debtor becomes the beneficiary of a large inheritance, which changes his debt repayment capability, if more debts are proven after the DRS commences or if the debtor changes job.

For most of these modifications, the repayment period for the modified plan cannot exceed five years. However, in two situations when specific new debts are proven amounting to less than $50,000, the repayment period may be extended by up to another two years, that is to say, up to seven from five years. The first involves claims for a shortfall after a secured creditor realises a security. For example, the debtor may default on his monthly repayment for a housing loan which has his house as collateral. The lender may decide to sell the house, and file a claim for any resultant shortfall. The second situation involves contingent and unliquidated liabilities that crystallise after the DRS effective date. For example, the debtor may be the guarantor for a friend's loan contract signed before the DRS' effective date. If his friend defaults on the loan, the DRS debtor then becomes liable for the value of the loan under the terms of the contract.

Division 4 – Cessation of the DRS

If the debtor completes the repayment plan, section 56N empowers the OA to issue him a certificate of completion.

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When this happens, the debtor will be released from all his debts which are proved under the DRS, which thereafter ceases.

However, there are a few scenarios where the DRS would be considered to have ceased but with the debtor not deemed to have completed the scheme, remaining liable for debts under it. I have described the first scenario above where specific new debts more than $50,000, surface in the two situations highlighted. The debtor is then issued a certificate of inapplicability.

The second scenario is where the debtor does not abide by the terms of the repayment plan or fails to fulfill his duties under it. Section 56M then empowers the OA to issue the debtor a certificate of failure.

The third scenario is when the debtor completes the DRS, but it is subsequently discovered that the debtor had failed to disclose all his property, had not informed the OA of the disposal of his property, or had obtained the approval or modification of his debt repayment plan by means of fraud, false representation or concealment of material facts. Section 56O then empowers the OA to revoke the certificate of completion that had been issued.

When the OA issues a certificate of inapplicability or a certificate of failure, or revokes a certificate of completion, a debtor will be presumed to be unable to pay off his debts. Any creditor who has proved his debt under the scheme may then rely on this presumption to commence bankruptcy proceedings against the debtor in respect of that debt.

In summary, the Debt Repayment Scheme seeks a "win-win" outcome for both a debtor and his creditors. On one hand, the creditors are likely to receive at least the same amount if not more than what they would receive had the debtor

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gone into bankruptcy. On the other hand, the debtor will get an opportunity to remain in employment. In addition, if he dutifully meets his financial obligations under the repayment plan, he will be able to avoid the stigma of bankruptcy and have a fresh start. In addition, the DRS will imbue in debtors the responsibility and discipline needed to avoid future financial embarrassment.

Madam, I beg to move.

Question proposed.

5.29 pm

Ms Ellen Lee (Sembawang): Madam, I commend the Ministry on its timeliness in introducing the Bankruptcy (Amendment) Bill. The present Bankruptcy Act was enacted in 1995, repealing the earlier Act, to improve the administration of the affairs of bankrupts and to protect creditors' interests without stifling entrepreneurship. I am happy to note that this Bill will introduce a debt repayment scheme to allow wage-earning debtors with unsecured debts of less than $100,000 to avoid bankruptcy by repaying his/her debts in accordance with a debt repayment plan. I laud this pro-active approach as it will not only help wage earners with smaller debts to avoid the social stigma and restrictions that follow bankruptcy but also help small and medium enterprises to continue to survive in the current economic crisis.

Although I support the introduction of the Bill, I wish to highlight another area of the law and related policy which I hope the Minister would review and re-examine as it is encountered by many undischarged bankrupts. There was a Straits Times article not too long ago that had highlighted this problem of bankrupts leaving Singapore without the requisite approvals.

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This problem appears to be quite widespread amongst the bankrupts in Singapore. I have personally encountered some such cases at my Meet-the-People sessions. Many bankrupts have complained to me on the highly onerous and often cumbersome rigmarole which the Official Assignee imposes on them before they can embark on any travel outside of Singapore (including Malaysia). Inevitably, these bankrupts have found it very hard to find jobs in Singapore due to the stigma of bankruptcy. They therefore extend their search overseas and more often than not, those with experience and skills are most sought after. Unfortunately, the jobs often require them to work outside Singapore and to travel as well. Prior permission from the Official Assignee is needed before the offer could be accepted but often times the approval is not granted or granted in time, before the offer lapsed. I humbly ask the Minister to seriously consider the plight of these bankrupts who genuinely want to leave Singapore to embark on decent work to make a living and to repay their debts.

This is particularly true of those who were sole breadwinners in their family prior to their bankruptcy and could have fallen into the bankruptcy trap because they had guaranteed loans or stood as sureties for their spouses, loved ones or friends, and could not meet the repayment obligations. Let me relate a true case encountered at a MPS before I became an elected MP. A wife stood as guarantor for her husband's bank loans. When his business failed, both were made bankrupts. The husband disappeared and she was left to support five schooling children alone. She took on several odd jobs. Once, she was offered a well-paid job by an employer from a third world country that needed her to travel every now and then. She applied for approval to travel but did not always get the duration that she needed. In one of these applications, she misread and misunderstood the period approved and committed

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about 33 technical offences of travelling without approval. After representations made on her behalf, the prosecution proceeded with a few of the charges. She was jailed for three months.

I suggest that rules be eased to allow genuinely motivated bankrupts greater latitude because if they continue not to be able to support their families, they would eventually break down and suffer mental distress or depression. The whole family suffers along with them. Besides society, their own family members including their children also look down on them as they blame them for the loss of comfort and lifestyle.

A very common reason offered by these bankrupts for travelling without prior permission was that they had encountered so much delay, uncertainty and red tapes, including being looked down or humiliated by the Official Assignee's staff processing their application. Hence, rather than wring their hands in despair waiting for rejection and end up even poorer and with no prospect of having their bills paid, they might as well take the risk of being caught later and seize the opportunity extended to them, so that they can earn the money, support their families and, hopefully, have some money to discharge themselves from bankruptcy.

In view of the high-tech that our Government is equipped with, I suggest that the Official Assignee allow such approvals to leave jurisdiction to be obtained online and approvals granted could be contemporaneously or simultaneously routed to or updated with the Immigration and Checkpoints Authority (ICA). If both the Official Assignee's computer system and the ICA's database system can be synchronised (just like OSCAR for update of NRICs and Police Gazette for screening of criminals), bankrupts can then be

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prevented from leaving Singapore at the very first instance. This will avoid the embarrassing situation of arrest and the full brunt of the law being brought to bear upon their return. Currently, by allowing them out of Singapore's checkpoints, the impression that these bankrupts have is that they are allowed to travel as they are not stopped when they attempted to leave the country.

In the same vein, the Official Assignee should be more transparent by giving clear reasons for rejection of overseas travel, so that whatever conditions that may be lacking could be addressed and satisfied. This would be more productive in today's competitive world. We should make the best use of our manpower and not let these undischarged bankrupts - many of whom are able, educated, talented people - be demoralised, sink into depression and gradually disappear into oblivion. We should not be afraid of "exporting" them and letting them return to the corporate world to start all over again, as I believe the true entrepreneurs amongst them will surely make a comeback. There are living examples of individuals who have bounced back to being successful. One good example would be Mr Fong Kah Kuen who is currently the Chief Operating Officer of listed company Xpressprint Holdings who bounced back from near bankruptcy when he managed to get his debt restructured.

At present, the bankruptcy laws against bankrupts who leave jurisdiction without permission from the Official Assignee attract punitive punishments. I am proposing that the authorities take a proactive stance so that would-be or potential offenders against this provision of the Bankruptcy Act do not commit the offence (especially for the genuine cases) through a simple way of enhancing the immigration exit and entry systems. This will avert time wastage and man hours expended in conducting investigations and prosecutions.

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By the same token, I take cognisance of the creditor's predicament. As such, it is imperative for the Official Assignee to examine each application for leaving Singapore by bankrupts carefully, expeditiously and with sound judgement and reasoning, so that we can balance the interests of the debtor and the creditor, thereby serving societal interests as well. Where we encounter sincere and genuine bankrupts (based on their background, circumstances, current situation and the amount of debt owing), we should try to help them get back on track.

With that, Madam, I support the Bill.

Ms Sylvia Lim: Madam, it makes sense to have a pre-bankruptcy scheme to allow someone in debt a last chance to clear his debts. By avoiding bankruptcy and its restrictions, the debtor can continue to be economically productive with a higher probability of clearing his debts.

Madam, I have two questions about the Bill. The first question relates to what kind of debtors can qualify for the Debt Repayment Scheme (DRS). The proposed section 65(7) has excluded sole proprietors and partners from the scheme. This means that those from smaller or unincorporated businesses who incurred business debt are not considered suitable. Madam, I think this exclusion will rule out cases of business people who are running their businesses responsibly but have met with some temporary liquidity problems. In the current economic climate especially, these problems could arise from difficulty in collecting payments from customers or clients, or failing to get credit due to credit tightening by lenders. If the scheme is meant to provide some support for those with temporary difficulties who have the potential to return to the black, surely we should consider such people for the DRS. In the Second Reading speech, the Senior

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Minister of State mentioned that the scheme was restricted to wage earners with regular income. However, even if we were to include sole proprietors and partners in the scheme, each case will have to be assessed by the Official Assignee anyway and a viable plan discussed with creditors as well. If the plan is then deemed to have merits, why not? In any case, if the debtor defaults on the plan, all bets are off, and the bankruptcy proceedings can still be carried on. It seems to me that we may be defeating a real benefit of the scheme if we withhold it from our smaller businesses who are facing real pressures today.

Madam, my second question relates to the composition of the Appeal Panel. The proposed section 56Q refers to the Appeal Panel who can decide whether to overrule the Official Assignee's decisions on debt repayment plans. There was public concern raised during the consultation about who would be part of the Panel and whether they were independent. The Ministry's written response was that more details of the Panel would be given in the Bill, but all that the Bill states currently is that the Panel would be appointed by the Minister. Could the Senior Minister of State comment on this?

Assoc. Prof. Ho Peng Kee: Madam Deputy Speaker, first of all, I want to thank both Ms Ellen Lee and Ms Sylvia Lim for supporting the DRS scheme. They have certain concerns. For Ms Lee, it is essentially on travel, and Ms Sylvia Lim raises two points, which I will address later.

First, on the point about travel. Indeed, this is not a new issue. This is something that has been raised in this House before, particularly during COS, and each time we have given our replies and, indeed, gone back to the Official Assignee to ask him to see whether he

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can further improve and fine-tune the system in light of the feedback that is received. But before I go into some of these improvements, I should say that, as in other countries, under our laws, bankrupts are required to obtain the prior approval of the Official Assignee (OA) before they can travel and it is for a good reason, a key reason of which is to enable him to effectively monitor the bankrupt's movements, so that he can properly administer the bankrupt's affairs for the benefit of his creditors. Such monitoring will prevent the bankrupt from hiding income earned or acquiring or disposing his assets overseas.

As Ms Lee recognises, the OA seeks to strike a fair balance between the bankrupt's interest and those of his creditors. As much as there are bankrupts who complain that their requests to travel have been denied, there are also creditors who complain that some bankrupts travel too freely. To ensure that the bankrupts are aware of this requirement - whether bankrupts do in fact willy-nilly travel without knowing that they are breaching this requirement travel – I think that is point that she has made – the Insolvency and Public Trustee's Office (IPTO) has taken a number of measures to achieve this. This is one of the areas where improvements have been made over time. Apart from the briefings which every bankrupt is required to attend, and this has been going on for some time, IPTO now also highlights these responsibilities and restrictions on its information materials and website. Also, starting from mid-2007, IPTO has been writing to persons facing bankruptcy proceedings, ie, even before they are adjudged bankrupts, to inform them of the responsibilities and restrictions should they subsequently be made bankrupt. Typically, this is done at least two weeks before the making of the bankruptcy order.

I agree with Ms Lee that bankrupts who genuinely want to travel overseas to

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work should be given an opportunity to do so. Indeed, as she suggests, since 2002, IPTO has facilitated this process by providing bankrupts with an online travel application service on its website. Moreover, since June 2003, applicants who have been cooperative in the administration of the bankruptcy estates are granted immediate permission to travel upon the submission of the online application. Furthermore, the OA readily grants approval for compassionate reasons or when it is shown that such travel enables the bankrupt to earn income for the benefit of his creditors. The statistics bear this out because last year (2008), some 45,329 applications to travel were made. Of these, 14,541 were for the purposes of employment, and of these applications for travel for employment purposes, 91% were approved. Hence, the bankrupts who had complained to Ms Lee are really a minority. And the key reason why the rest were rejected was because the bankrupt had failed to provide sufficient documentary evidence of employment overseas.

Another point that Ms Lee makes is on the perceived treatment of bankrupts by some IPTO officers in handling these applications. Now and then, we do receive feedback like this, sometimes at the MPS. First, I should say that I can empathise that bankrupts and IPTO officers are often in difficult conversations regarding travel rejections and other bankruptcy affairs. Bankrupts can face difficult and sometimes demanding questions which they may feel sensitive or even embarrassed about. However, bankrupts should be assured that IPTO officers have nothing against them personally. I think they must be professional in their approach. And the officers are aware of the need to handle such applications with civility and the right attitude. So this is an assurance I

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can give Ms Lee in response to her feedback. Also, where applications to travel are turned down, IPTO does so for good reasons. If the bankrupt has been uncooperative in the administration of his estate in bankruptcy, eg, he has not been making regular contributions to his bankruptcy estate for the benefit of his creditors, his applications are likely not to be approved. I understand that bankrupts whose applications are rejected are informed of the reasons which will give them an opportunity to remedy the situation.

On what Ms Lee says about punitive punishments imposed on bankrupts who travel without permission, the OA will press for prosecution only after a careful consideration of all the relevant circumstances.

If a bankrupt, however, chooses to knowingly flaunt the law despite being given sufficient notice of the responsibilities and restrictions on travel, in view of the bankruptcy, then the OA will be required to take the necessary enforcement action against him to ensure that the laws underpinning our bankruptcy regime remain credible. And that is why several prosecutions were conducted against such egregious offenders late last year, which were highlighted in the media.

Ms Lee suggests that measures be put in place to prevent all bankrupts from leaving Singapore in the first instance. Mdm Deputy Speaker, I think the current approach of placing the onus on the bankrupts to apply for approval, having of course informed them of this requirement – thus exercising personal responsibility on their part, and where IPTO's processes have been streamlined to expedite consideration of this request, coupled with prosecution of egregious offenders – is a better approach. We have about 26,000 bankrupts. It will not be practical or indeed necessary to tack them at the checkpoints to prevent them from leaving

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Singapore. Indeed, that may slow down the processing of checkpoint clearance to the detriment of the many other travellers. What we have implemented is to screen bankrupts regularly for offences of unauthorised travel with the Immigration and Checkpoints Authority.

In summary, in response to Ms Lee, it is important to bear in mind that the OA needs to balance the legitimate interests of creditors and the genuine needs of bankrupts in the administration of bankruptcies, including this area of travel. Where there are good reasons to support applications for travel, there is no reason why the OA will reject such applications. However, for our bankruptcy administration to remain credible, the laws in place need to be observed and enforced against those who breach them.

Ms Lim supports the DRS but would like to see the DRS having a wider reach to include debtors, like people in a partnership or sole proprietorship who may be doing business. As I have explained in my speech, a key requirement of the DRS is that there should be a regular stream of income. Do not forget that here we must also consider the creditors' interest. The creditors are, in a sense, forbearing to sue because, indeed, a bankruptcy petition would have been made and then the court looking at all the criteria, if the criteria are satisfied, would send it to the Official Assignee to consider more carefully, get more information to see whether or not the DRS is the best route to take. I think we should have this balanced approach where the creditors would have some assurance that if they proceed with the DRS, they would get a regular income monthly over a certain period of time which may last over five years. As we know, if you are in business, it would be difficult to assure that. Even the most well-meaning of businessmen will have to face situations when their cashflow will be up or down, or they will have other

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costs that they will have to meet in the course of doing their business. So it is better to keep it focused, targeted and directed at debtors who have a regular income. Indeed, this is one of the key objectives of the Debt Repayment Scheme, which is to keep a debtor or a potential bankrupt in a job. That is how I started my speech, because we know that once he loses the job, it is difficult for him to get back into one, once he has been declared a bankrupt. Indeed, like I have said in my speech, the potential reach of the DRS, even excluding this group, is already very wide, perhaps 800 or 1,000 to start with. I think we should let the OA do his job well in conjunction with these people.

Another point she made is on the Appeal Panel. The Appeal Panel will be manned by outsiders who are experienced people, people in the marketplace who are experienced in the field, for example, insolvency practitioners or certified accountants. I think the OA also has plans to invite, for example, former Official Assignees who can come and man this Appeal Panel. So the assurance is that it will be a professional job. It will be manned by people who will know the job well.

Question put, and agreed to.

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Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Assoc. Prof. Ho Peng Kee].

Bill considered in Committee.

Assoc. Prof. Ho Peng Kee:

The Chairman: The citation year "2008" will be changed to "2009", as indicated in the Order Paper Supplement .

Clauses 1 to 18 inclusive ordered to stand part of the Bill.

Bill reported without amendment; read a Third time and passed.