BANKRUPTCY BILL

Order for Second Reading read.

The Minister for Law (Prof. S. Jayakumar): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, this Bill is to reform the law on bankruptcy in Singapore. It repeals the present Bankruptcy Act (Chapter 20 of the 1985 Revised Edition) which was enacted in 1888 and had remained substantially unamended all these years. The Act needs to be reformed in order to keep pace with social and economic developments in Singapore.

Therefore, in the Addendum to the President's Address to this House in January this year, I stated that my Ministry would, and I quote,

"introduce legislation to improve administration of the affairs of bankrupts and protect creditors' interests without stifling entrepreneurship. We will strike a balance between the interest of the debtor, the creditor and society. There will be greater accountability of bankrupts in the administration of their estates on the one hand, and speedier discharges of bankrupts on the other."

This Bill is the result of a fairly exhaustive review of the current position. In 1989, when asked in this House if Government would review our insolvency laws in view of developments in England, I replied that we would undertake such a review but also cautioned that it would take some time because of the complexity of this area of the law.

We have decided that no change, for the time being, be made in this exercise to our corporate insolvency legislation which seems to have worked fairly well. The reform in this Bill is, therefore, limited to the personal insolvency legislation, that is, our bankruptcy laws. In this regard, we studied the reforms in other jurisdictions, such as, the United Kingdom, Canada, Australia and Malaysia.

Let me state, at the outset, that I intend to refer this Bill to a Select Committee because it is a fairly technical Bill so that interested parties can give their views on the details of the provisions.

Let me, Sir, highlight, first, the main weaknesses of the present legislation which the Bill seeks to address. Firstly, the difficulty in obtaining a discharge from bankruptcy. It is now not possible for a bankrupt to be discharged unless he settles his debts in full or proposes a scheme of arrangement or composition which is acceptable to the creditors. Many creditors are also not prepared to accept realistic proposals for settlements. In short, there is very little incentive for the bankrupts to actively seek a discharge by disclosing their assets and cooperate with the Official Assignee in the administration of their estates.

Secondly, the difficulty in monitoring the large number of bankrupts. This difficulty, which I mentioned, in obtaining a discharge has led to an increasing number of undischarged bankrupts over the years. Since 1984, the number of undischarged bankrupts increased more than three-fold from 4,297 to 13,733 at the end of last year. As a result, it is extremely difficult to monitor the bankrupts' conduct and to recover assets.

Thirdly, the limited powers of the Official Assignee. What I have mentioned just now has severely hampered the Official Assignee in supervising the affairs of bankrupts. For example, the Official Assignee cannot adequately inquire into the bankrupt's affairs or conduct. Also, the bankrupt's movements outside Singapore cannot be effectively checked and action cannot be instituted for breach of his essential legal obligations.

Fourthly, there is a problem of present procedures being very cumbersome and complex. The present procedures are outdated and also too technical. They contribute to substantial delay in the administration of estates. These then are some of the problems.

Let me now highlight the main reforms contained in the Bill. Firstly, to reduce the instances where parties resort to bankruptcy proceedings and encourage, wherever possible, the settlement of debts. The present minimum debt for filing of a bankruptcy petition which was fixed in 1955 as $500 will be increased to $2,000, or in future, such other amount as may be prescribed.

The Bill introduces a voluntary arrangement scheme under which a nominee can be appointed under an interim order. Under the scheme, an insolvent debtor and his creditors can enter into a voluntary arrangement for the discharge of his debts. This scheme, which is modified from the equivalent United Kingdom insolvency legislation, hopefully will encourage debtors to settle their debts early so as to avoid bankruptcy. Its flexibility, as well as its lower costs as compared with bankruptcy administration, I think, will be attractive to both debtors and creditors.

The second main feature of this Bill is to encourage entrepreneurship where bankrupts who have become so through misfortune rather than malpractice will be subjected to a more practical and pragmatic regime of bankruptcy. A major innovation is the provision for a discharge by certificate of the Official Assignee. Under this scheme, where proven debts do not exceed $100,000, a debtor can be discharged from bankruptcy after five years. However, unlike the position in the United Kingdom and Australia, there will not be any automatic discharge. In deciding whether to issue a certificate, the Official Assignee will be guided by a number of factors, including the circumstances in which the debt was incurred, the bankrupt's conduct and the extent of cooperation given to the Official Assignee.

To facilitate easier discharges by the court in other cases, for example, beyond $100,000, the requirements for an application to the court have also been simplified and subject to certain safeguards.

The existing scheme and procedures for the settlement of debts through a scheme of arrangement or composition offer have been rationalised and improved. Hence, it will result in creditors recovering their moneys more quickly and will also expedite discharges.

The third feature is to enhance the Official Assignee's powers to enforce the bankrupt's essential legal obligations. Bankrupts who fail to perform their essential legal obligations will be taken to court. Currently, a bankrupt who fails to fulfil his legal obligations, such as, filing a six-monthly return of income and expenditure, or leaving the country without the Official Assignee's permission, is only liable to committal proceedings for contempt of court. This is a costly and circuitous process which also impedes the administration of the estate. The Bill will subject recalcitrant bankrupts to prosecution. Also, the Official Assignee will be empowered, if he thinks fit, to detain the passport, or other travel document of a bankrupt, or to request the Controller of Immigration to do so when a bankrupt attempts to leave the country without the Official Assignee's prior approval.

The fourth feature is to encourage unsecured creditors to assume a more active role in bankruptcy proceedings. Petitioning creditors can apply to a court for a trustee in bankruptcy to be appointed to administer the bankrupt's estate instead of the Official Assignee. A trustee may be appointed when there are sufficient assets in the bankrupt's estate and will be subject to the control of the Official Assignee.

A creditors' committee consisting of not more than three persons may be constituted to advise the Official Assignee or the trustee in bankruptcy on matters relating to the administration of the bankrupts' estates.

The fifth feature is to maximise the amount available in the bankrupt's estate for distribution amongst his creditors. Sir, difficulties in the recovery of assets disposed of by bankrupts in favour of related or associated persons will be removed. Transactions, such as, disposals by way of gifts, other voluntary dispositions with intent to defraud, unfair preferences and extortionate credit transactions will be closely monitored.

I should add that an Insolvency Assistance Fund will be established. It will be financed by unclaimed moneys in the Bankruptcy Estates Account administered by the Official Assignee. These are moneys not claimed by creditors and discharged bankrupts for more than seven years which are presently paid into the Consolidated Fund. The moneys in the Fund will be tapped to finance proceedings on behalf of a bankrupt's estate if the Official Assignee is satisfied that there are reasonable grounds for doing so but there are insufficient moneys in the bankrupt's estate for such a purpose. The recovery of moneys owed to a bankrupt by third parties in proceedings financed by these moneys will benefit both the bankrupt and his creditors.

Sixthly, Sir, the Bill streamlines and updates cumbersome, complex and archaic bankruptcy procedures. Sir, bankruptcy proceedings, bankruptcy administration and discharge from bankruptcy will be streamlined and simplified. This will result in greater efficiency and lower costs. For example, the single ground of inability to pay will replace the outmoded concept of acts of bankruptcy on which proceedings are based. Furthermore, a new 2-tier court process consisting of bankruptcy petition and bankruptcy order will replace the present 4-tier process of notice, petition and two court orders. These innovations have also been adopted by the United Kingdom.

Sir, this Bill deals mainly with substantive matters of policy and principle. There are many procedural matters, such as, meetings of creditors, proving of debts, appropriations of salaries and prescribing of fees payable, all of which will be dealt with through subsidiary legislation.

There will be two Schedules to the Bill. The First Schedule covers Transitional Provisions and Savings which, inter alia, determines the status of bankrupts under the present Act when repealed and uncompleted bankruptcy proceedings under the present Act. The Second Schedule deals with consequential amendments to a number of related legislation which will be affected by this Bill.

Sir, as I said, this Bill is a major piece of law reform. As such, in drafting it, relevant Government Departments and Ministries were consulted. Consultations were also held with representatives of the Law Society, the Law Faculty in the NUS and the Institute of Certified Public Accountants, all of whom have expressed support for the major provisions of this Bill.

However, since this Bill also introduces a significantly different bankruptcy regime and many of its provisions are technical in nature, I intend to submit it to a Select Committee so that all interested parties can submit their views.

Sir, I beg to move.

Question proposed.

Dr Tan Cheng Bock (Ayer Rajah): Mr Speaker, I rise in support of this Bill.

I just want to bring up a couple of points. During our meet-the-people sessions, it is not uncommon to come across people who are made bankrupts. But they are made bankrupts not because they were involved in a business. They were just, what I call, friendly guarantors. They are usually relatives or close friends invited to be sleeping partners in a business deal. When the company has failed, creditors go after that particular person and, in the course of the dealing, the poor person has got to pay a very heavy price.

There was a case of this old lady who wanted to go to China but she was a bankrupt because her son was a bankrupt. And because her name was in the company of the son, she was asked to pay up, but she could not pay up. So she had difficulty getting a passport to go to China. It is a pity because I do not think she had any intention to cheat. It was just that she was party to a business failure. I am so glad that this present Bill will give us a chance to look into all these aspects.

Then, of course, we get many young people who are also made bankrupt because of business failure, and they want to go abroad to do business. Again, because they are bankrupts, they have difficulty in getting employment and difficulty in getting passports, or if they are given a passport, it is always for a limited period. So this Bill, I hope, will also take into account the plight of all these people. As we are going regional, I am sure some of these people who have failed in their business should be given a chance. Of course, they must be punished for their involvement, but we should also consider their plight by giving them a lighter sentence. I notice that some criminals seem to get a lighter sentence than these people. Because when the criminal is released, he can go out and get a job. At least, he has got an opportunity to get a job.

Some of these bankrupts, I am afraid, sometimes it is for a lifetime, because I cannot imagine them paying up the large sums that are usually involved. Of course, in fraud cases, I suggest that the penalty for the guilty party should be severe. I have no sympathy for them. As I said, for genuine business failure and all these people who give friendly guarantees to do business, we should really look into these matters.

Dr Arthur Beng Kian Lam (Bedok GRC): Mr Speaker, Sir, I rise in support of this Bill.

As the Minister has stated, the existing bankruptcy laws have not kept pace with social and economic developments in Singapore. This Bill, with its new and significantly different structure, is long overdue and should be welcomed by all concerned. As the Bill will be referred to a Select Committee, I will not speak on the specific provisions.I have a few general observations to make.

Sir, this Bill has altogether 167 clauses and two Schedules. A tremendous amount of work and consultation must have taken place involving the Official Assignee's office, the Attorney-General and all those concerned in the administration of bankrupts and their estates. They have taken more than five years since 1989 when the Minister answered a Question in this House and I presume that the review must have commenced then before this Bill was completed. I would like to commend the Official Assignee and his officers for their commitment and effort in putting together this Bill.

I also observe from the comparative table at the end of this Bill that several clauses in this Bill have adopted or incorporated, with modifications, bankruptcy legislation in other jurisdictions like the United Kingdom, Canada, Australia and Malaysia, just to name a few. Although such reforms were carefully considered, I would like an assurance from the Minister that there has been no slavish adoption from such foreign reforms, especially when these were enacted against the background of varying economic and social conditions existing in those countries for which it was legislated.

Sir, I am pleased to note that we have not followed other jurisdictions, such as Australia where provisions on automatic discharges of bankrupts have been incorporated. This departure is welcome. Automatic discharges should not be allowed as it does nothing to encourage the settlement of debts and the maintenance of financial discipline and commercial morality. On the other hand, I applaud the scheme to enable bankrupts resulting from business failure to obtain discharges more easily. This will indeed promote our policy of encouraging business entrepreneurship without eroding financial discipline and commercial morality.

In summary, Sir, this new system is a major piece of law reform. It represents a significant milestone in updating our commercial laws. Rightly so, a prime consideration is to find the right balance between the interest of creditors in being paid and bankrupts who like to be financially rehabilitated to start over again and society in having legislation which promotes our overall economic and social objectives. This Bill will be welcomed by both the business community and the general public. I welcome the Minister's decision to commit the Bill to a Select Committee.

Sir, I support the Bill.

Mr Davinder Singh (Toa Payoh GRC): Sir, I declare my interest as a lawyer acting for parties who have an interest in the bankruptcy regime.

Sir, there are many purposes behind this Bill. Two of them are to simplify the regime as well as to strike a correct balance between the interests of creditors and the interests of debtors. But there are two other objectives which I think ought to be considered when deciding whether this should be passed as legislation. They are whether the provisions would create a heavier load on our court system. That is number one. Number two, whether we are actually discouraging people from attempting to take risks, albeit honestly.

There is no dispute that if you cannot pay your debt, you ought to be punished for it and, of course, the bankruptcy regime is available for that. You are made a bankrupt if you cannot pay up or cannot make a reasonable offer which is acceptable to your creditors. What I find difficult to accept is the new discharge provisions. The proposal is essentially two-fold. One is that the Official Assignee is entitled to discharge one group of bankrupts. There must be two conditions. One is that they are bankrupt for a period of not less than five years and, secondly, that the debt they owe must not exceed $100,000. That is one group. The second group which does not have the benefit of this discharge mechanism must make an application to court. The court will then review all the relevant circumstances which are listed out in the Act. And some of these circumstances include, eg, whether the bankrupt has brought the bankruptcy on account of his rash speculation or reckless behaviour. Or whether he has put up a frivolous defence in any claim that was brought against him for monies which defence was, of course, subsequently rejected.

We should take this opportunity to simplify procedures and decide what we are trying to achieve here. Bankruptcy is punishment. The question is: how long do we want to punish these people without affecting their ability to be rehabilitated, if you like?

In England, they have a very simple procedure. If you have not been made a bankrupt for the last 15 years, you are given a discharge after 3 years, subject, of course, to the court's discretion. If you are made a bankrupt, and this is your second bankruptcy in a space of 15 years, you have to wait for 5 years before the court can let you off.

I do not understand why in Singapore we have not followed a similar scheme. Because if you expect bankrupts to go to court to make applications to discharge themselves, then what you are going to have is a very heavy burden on the court. Because the court must go into all the circumstances of the case before deciding whether someone should be discharged from his bankruptcy. Why can we not have a simpler procedure where everyone is discharged after a fixed number of years? We are concerned, of course, with those who acted fraudulently or dishonestly. There is a way to deal with that. To the extent that there is fraud or dishonest conduct, create the necessary provisions which are loosely called bankruptcy offences and punish them for that conduct. If they are sufficiently punished for those offences, there is no reason, while they are being punished for that, to delay the discharge. It is not going to help creditors to delay the discharge because it is not going to increase the monies that will be available for distribution.

Also, I find the $100,000 ceiling, as it were, somewhat artificial. I would like to know why $100,000 was proposed. You can have a situation where there is one creditor who is owed $99,000 and the bankrupt is then discharged after five years on the certificate of the Official Assignee. He has hurt more than 20 creditors who are owed maybe $10,000 each, totalling $200,000, and the bankrupt then cannot get discharged because he has to make an application to court, because the amount is more than $100,000. I do not think really we should be setting a limit, whether it is $100,000 or any amount. We should look at what we are trying to address. If we are trying to deter dishonest conduct, punish them for it, but do not delay the bankruptcy discharge, as it were, on account of the fraudulent or dishonest conduct.

In addition, I have three questions for the Minister. First of all, arising from what I consider to be sophisticated frauds that are now committed which I believe this Bankruptcy Bill does not address. The essence of the prohibitions in the Bankruptcy Bill is that if you have been naughty, if in contemplation or in anticipation of bankruptcy, you start moving your assets around, you can be caught. You can be punished and those assets can be retrieved. That deals with the straightforward cases where you really have assets and you move them. For example, if you have shares in a company, you move them to your wife or to a relative, the provisions operate. But these days, there are more sophisticated ways of diluting your assets without actually moving them. For example, you may be a 60% or 70% shareholder in a company. Instead of transferring those 60% or 70% shares to another person so that the creditors do not get at them, what you do is you contrive a rights issue. You renounce your rights. The minority picks up the rights. He becomes the majority. You are diluted to a minority. The Bankruptcy Bill does not catch such conduct. That is fraud. That is dilution of assets. It is as fraudulent as you can get and I think that the Bill ought to address such new sophisticated forms of fraud. It is not really the moving of assets that we are interested in. It is the dilution of the value of the assets that you have at any one point of time before bankruptcy.

Another issue is the appointment of interim receivers. This Bill proposes that the court or the Official Assignee be entitled to appoint a receiver of your property during the period between a petition for bankruptcy is filed and the bankruptcy order. What a receiver can do is receive your property. He can take possession of your property. But what he cannot do is manage your property. And I suggest that this particular issue be addressed as well because it is important that when he receives property, he is also given the right to manage it. Otherwise, as in the example I gave earlier, the right to vote is not addressed.

I am glad the Bill is going to a Select Committee and it will be interesting to see how the amendments work out.

Sir, I support the Bill.

Prof. Jayakumar: Mr Speaker, Sir, I thank the three speakers who have spoken. Dr Tan Cheng Bock raised the question of the problems of people who became indebted for "innocent reasons", if I can use that phrase, where there is no intention to cheat and so on. He hoped that they will be dealt with more sympathetically. Of course, the reasons why people may end up in indebtedness can be very varied, including the situations that he mentioned. The fundamental principle, which this Bill does not disturb, is that people who owe others monies must discharge their debts. That principle is not affected. So whether one is innocent or found himself indebted due to cheating or dishonest means, both categories are still bound by that principle. As I have mentioned, this Bill seeks to distinguish between different categories of situations and a more pragmatic and sympathetic approach will be taken for those who were not dishonest, were not cheating, and so on. So I hope that takes care of his point.

Then he mentioned the problems of those bankrupts who have difficulty travelling and getting a passport. Let me assure him that it is not the intention of the Official Assignee to prevent every bankrupt from travelling. But I am sure he and other Members know of such a thing as "millionaire bankrupts". We have complaints from many financial houses and businessmen that they have travelled abroad and they found individuals travelling in first- class who were supposed to be bankrupts and were unable to meet the amounts which were due to the creditors. Others who have travelled elsewhere have found that bankrupts were wining and dining. When the Official Assignee has evidence of this, I think he is entitled to put his foot down.

Dr Arthur Beng comments about our reliance on provisions in other countries. Let me assure him that we have taken some time because we have to make sure, as best as we can, that where we adapt provisions from other countries they are suited for our own circumstances and our own society. He will note, for example, that we have not adopted the automatic discharge provisions, a point which Mr Davinder Singh seems to disagree with us on this Bill.

I have taken note of what Mr Davinder Singh has mentioned. He has raised a point of some detail but also a specific point of principle. I would say that the approach which he has commended was one of the options open to us to follow, namely the English approach. After examining the actual experience in England and elsewhere which have the automatic approach, we decided to be more cautious. We decided that, for our circumstances, it may not be suitable or wise to adopt the automatic discharge. In England there is automatic discharge after three years regardless of the amounts owing. We decided that the approach in this new Bill must not be based on automatic discharge, but there will be a discharge after a period of five years and if the debts do not exceed $100,000. One can have a debate whether it should be $100,000, $150,000 or $200,000. There may be some arbitrariness in the figure of $100,000, but that represents about 60% of bankruptcy cases in Singapore, which is quite a large number.

Does it over-burden the courts? I would have to look into this, but I think the present approach in the Bill is far better than the existing regime in the present Act where it is really very difficult, if not almost impossible, to get a discharge. When weighing automatic discharge as opposed to the approach in the new Bill, one comes to the fundamental question on whom should the onus be? Should the onus be on the individual who has become indebted to demonstrate that he has taken sufficient steps to arrange his financial affairs in such a way that will enable him to discharge his debts? Or should the burden be, as it appears to be in the United Kingdom, on the Official Assignee who has to make an appearance in court to object to a discharge? We think that, in terms of principle, it is important that the onus must still be on the individual to discharge this burden, of meeting his debts and to arrange his financial affairs and his proposals for meeting his debts. It should not be the other way round where there is automatic discharge and where it is for the authority to enter an appearance and object.

I have taken note of his two useful comments on what I would really consider the details of the provisions. He mentioned that he has three points, but perhaps he could let me know the third idea that he has. One is on the need for the Bill to deal with sophisticated frauds and the second is that if an interim receiver is appointed, we should also look into the need for such an interim receiver to manage the estate or property. I think it is a useful point which can be taken up in the Select Committee. If he and other Members have other suggestions, I will be very happy to receive them.

Question put, and agreed to.

Bill accordingly read a Second time.

Resolved,

That the Bill be committed to a Select Committee consisting of Mr Speaker as Chairman and such Members as the Committee of Selection may nominate. - [Prof. Jayakumar].