More Rehabilitative Bankruptcy Framework to Take Effect from 1 August
27 Jul 2016 Posted in Press releases
Reforms to Singapore’s bankruptcy framework will come into force on 1 August 2016, to create a more rehabilitative environment for bankrupts and encourage creditors to exercise financial prudence when extending credit.
While the reforms apply only to bankruptcy applications filed on 1 August 2016 or later, the Insolvency Office will manage existing cases, where appropriate, to ensure some parity of treatment for existing bankrupts.
- Some of the key framework changes to be effected on 1 August are:
- Increased debt threshold
- The bankruptcy debt threshold, or minimum debt amount that needs to be owed before a person may be made bankrupt, will be increased 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.
- Expedited bankruptcy application
- After a demand for payment has been issued to a debtor, the creditor will no longer have to wait for a 21-day period to lapse before filing a bankruptcy application.
- However, the creditor must show a serious possibility that the debtor’s property or its value will be significantly diminished before the 21-day period ends.
- Mandatory appointment of private trustees by “institutional creditors” 
- Institutional creditors will be required to nominate private trustees to be appointed to administer the bankruptcy estate when applying to make a debtor bankrupt. Institutional creditors are well-placed to perform this function and have sufficient resources to do so. This will also incentivise them to undertake better risk assessments before granting credit.
- The vast majority of bankruptcies in Singapore are currently administered by the Official Assignee (OA). With this change, the OA will focus its resources on administering cases where the applicant is either an individual or a small business.
- Introduction of differentiated discharge regime
- The new differentiated discharge framework will create a more rehabilitative regime that sets out fixed exit points for bankrupts to be discharged. These clear timeframes will give bankrupts an incentive to adhere to their payment plan, their conditions of bankruptcy, and seek gainful employment as a means of achieving their discharge.
- First-time bankrupts will generally be eligible for discharge within five to seven years. Repeat bankrupts will generally be eligible for discharge within seven to nine years.
- A key consideration in a bankrupt’s eligibility for discharge will be whether he has paid his “Target Contribution” in full. The Target Contribution is determined based on the bankrupt’s earning potential.
- Other reforms relating to security realization, proofs of debt and bankruptcy records will also take effect on 1 August. Details of these other reforms can be found in Annex A (0.1MB).
- The reforms are in line with the recommendations made in the Insolvency Law Review Committee’s report submitted in 2013, and given legal effect through the Bankruptcy (Amendment) Bill passed in Parliament in July 2015.
- In reviewing the bankruptcy regime, MinLaw sought feedback on these changes through a public consultation from 16 January 2015 to 24 February 2015. Further closed dialogue sessions were also held in June 2015 and June 2016 with groups of stakeholders on operational details of the new framework.
MINISTRY OF LAW
27 JULY 2016
Infographic - New Differentiated Discharge Framework for Bankrupts (0.3MB)
 “Institutional creditors” are defined as either (i) banks and finance companies regulated by MAS; or (ii) business undertakings with annual sales turnover or more than $100 million and more than 200 employees.
Last updated on 27 Jul 2016