Singapore’s Simplified Insolvency Programme for Companies

On 7 January 2025, the Insolvency, Restructuring and Dissolution (Amendment) Bill was passed to revamp the Simplified Insolvency Programme (SIP). The new SIP (SIP 2.0) aims to help a larger number of companies by simplifying Singapore’s insolvency process and making it more cost-effective. This SIP 2.0 will be permanently incorporated into the Insolvency, Restructuring and Dissolution Act 2018 (IRDA).

This article will explain how the SIP has changed in relation to the new amendments enacted in January 2025. The main points addressed will include:

• What is the Simplified Insolvency Programme (SIP)?
• How will the SIP be revamped under the new law?
• How might SIP 2.0 interplay with existing insolvency laws/legislation in Singapore?
• What else should businesses note about the new regime?

What is the Simplified Insolvency Programme (SIP)?

First introduced on 29 January 2021 as a temporary measure, the SIP was designed to assist eligible micro and small companies (MSCs) facing financial difficulties during the COVID-19 pandemic. It aimed to provide a streamlined, cost-effective process for debt restructuring or winding up. This was deemed necessary as MSCs are likely to lack the resources to independently pursue debt restructuring or winding up.

The SIP comprises 2 programmes:

1. Simplified Debt Restructuring Programme (SDRP)
2. Simplified Winding Up Programme (SWUP)

The SDRP targets viable businesses by facilitating the debt restructuring and recovery process. On the other hand, the SWUP aims to aid non-viable businesses – such as businesses nearing bankruptcy – by providing a structured process for winding up.

The effectiveness of the SIP is demonstrated by the number of successful applicants under the programme. As of 25 October 2024, a total of 116 applications were submitted under the existing SIP, with 77 successful applications. Among them, 60 MSCs in severe financial distress successfully received assistance. This programme has since been extended thrice and will end on 28 January 2026.

Furthermore, the SIP significantly reduced the time required for both winding up and debt restructuring. A standard winding-up process typically takes 3-4 years, whereas the SWUP shortened this to an average of 9 months. Similarly, the SDRP expedited debt restructuring, with one case completed in under 6 months— this was an exceptionally swift resolution,  as debt restructuring cases may typically span a few years depending on the complexity of the restructuring. The accelerated process saves costs and also ensures creditors can obtain their dividends promptly.

SIP 2.0 will modify both programmes to also benefit companies that are not MSCs. Additionally, the revised programme will be fully administered by licensed insolvency practitioners (IP), aligning it with other corporate insolvency processes under the IRDA, which are overseen by private liquidators who also happen to be licensed IPs.

How Will the SIP be Revamped Under the New Law?

Key improvements to the Simplified Debt Restructuring Programme (SRDP)

Simpler eligibility criteria 

First, there are simpler eligibility criteria for SDRP. Previously, there were 4 criteria, namely:

1. The company must have an annual sales turnover below $10 million;
2. The company must have a maximum of 30 employees;
3. The company must have a maximum of 50 creditors; and
4. The company’s total liabilities must not exceed $2 million (including prospective and contingent liabilities).

Now, there is only one general eligibility criterion, where the company’s total liabilities must not exceed $2 million. This will allow companies that are not MSCs to also benefit from the SRDP.

Furthermore, the company must not be subject to any circumstances that would make it unsuitable for the SDRP. This includes situations where it is unlikely to propose a compromise with creditors or secure the agreement of a two-thirds majority (by value) of its creditors to the proposed compromise, within the moratorium period after entering the SDRP.

Fewer supporting documents required 

Second, there will be a reduction in the number of supporting documents for a SDRP application. Previously, the company had to submit 4 mandatory supporting documents, including financial statements, a list of creditors, a special resolution that authorised the application for the SDRP, and a document that details cash flow projections of the company.

Under the revamped SDRP, the only mandatory supporting document is a special resolution passed in a general meeting authorising the company’s entry into the simplified debt restructuring programme. An IP that is appointed by the company will evaluate whether the company meets the requirements for the SDRP and may request additional documents if needed.

No repeated applications 

Third, repeated applications for SDRP will no longer be allowed. A company that fails to successfully complete the SDRP will be barred for 5 years before they can apply for the same programme again. This prevents abuse of the SDRP and protects creditors by preventing the company from shirking its obligations to creditors.

Shortened moratorium period 

Fourth, the moratorium period, which generally speaking is the period the company is prohibited from undertaking any transactions, will be shortened from 90 days of acceptance into SDRP to 30 days from the IP’s appointment. This moratorium is extendable once for up to 30 days. The shortened moratorium period allows creditors to undertake any enforcement actions against the company more quickly if necessary, while the extension gives the company reasonable time to propose a debt restructuring plan.

No court sanction 

Fifth, the debt restructuring proposal will no longer require Court sanction. The approval of the debt restructuring proposal by the IP will be an out-of-court process by the company’s creditors at a meeting summoned by the IP. When the proposal is approved by two-thirds of the creditors present and voting at the meeting, it becomes binding on all creditors.

To maintain fairness to all creditors, the formality requirements of the notice to summon the meeting must be met. The notice must be given to every creditor of the company and include:

• Details of proposal
• A statement of how the proposed debt restructuring will impact the creditor’s rights
• A comparison of creditors’ expected returns under the proposal versus the likely outcome if the compromise or arrangement does not become binding
• The  IP’s remuneration

The strictness of the notice requirements is to ensure that all creditors are well-informed of the terms of the proposal ahead of the meeting.

Only one voting class

Sixth, there will only be one voting class consisting of only unsecured creditors as they are bound by the debt restructuring arrangement. This means that secured creditors as well as preferential and ordinary creditors are not entitled to vote at the meeting, except for applicable creditors of preferential debts of the company. Since unsecured creditors may receive little to no repayment in a company’s winding up, they are the most affected by a restructuring plan. As a result, they are granted voting rights in the approval process.

Secured creditors with an admissible debt exceeding the value of the security interest will be bound by the debt restructuring proposal, but only to the extent of their unsecured debt. A secured creditor that has an admissible debt equal to or below the value of the security interest may also be bound by the debt restructuring proposal if he consents to it.

Transitioning into other liquidation processes 

Seventh, if a debt restructuring plan is not approved, the SDRP may transition into other liquidation processes to ensure that unviable companies are efficiently liquidated and dissolved. This differs from the old SDRP where the company has to be discharged from the SDRP after 30 days or beyond an extension period.

Judicial safeguards under the SDRP

Since the debt restructuring proposal becomes binding on all creditors once it secures a two-thirds majority vote, concerns may arise from dissenting creditors where they may not agree with the proposal or find that the meeting did not comply with the rules. To protect their interests, judicial safeguards have been put in place.

A creditor bound by the proposal may apply to the Court to object on specific grounds, where:

• There are material procedural irregularities related to the company and creditor meetings or the approval process. Such situations may arise when:
  • Any of the contents of the notice to summon the meeting are materially false or misleading.
  • There is a material omission in the contents of the notice.
  • There is a defect in the manner in which approval has been obtained from the creditors.
• There is a need for reclassification of creditors to ensure the proposal is fair and equitable.
• The proposal is contrary to the interests of all creditors as a whole.

Where the application to object is approved, the Court may:

• Revoke or suspend the compromise or arrangement in the proposal.
• Direct the Restructuring Adviser to present modifications for creditor consideration, except that material commercial terms of the proposal may not be altered.

Summary of changes to SDRP (taken from the MinLaw website)

Key Improvements to the Simplified Winding Up Programme (SWUP) 

Simpler eligibility criteria

Similar to the SRDP, there are simpler eligibility criteria for SWUP. Previously, there were 5 criteria where:

1. The company must have an annual sales turnover below $10 million;
2. The company must have a maximum of 30 employees;
3. The company must have a maximum of 50 creditors;
4. The company’s total liabilities must not exceed $2 million (including prospective and contingent liabilities); and
5. The value of realisable assets of the company (excluding any asset that is subject to security) must not exceed $50,000.

Now, there is only one general eligibility criterion, where the company’s total liabilities must not exceed $2 million. This will allow companies that are not MSCs to also benefit from the SWUP.

Exception to special resolution to wind up: Directors’ statement 

Second, instead of passing a resolution to voluntarily wind up a company on the ground that the company is unable to and will not be able to pay its debts in full, the company may submit a directors’ statement to the nominated liquidator that the eligibility criterion has been met if the company has insufficient or incomplete financial records. This is subject to the conditions that:

1. The company, exercising reasonable diligence, was unable to contact enough members to hold the majority in value of its shares for a period of 3 years or more prior to the date of the directors’ resolution;
2. The company’s operations have been dormant for at least 3 consecutive years prior to the date of the directors’ resolution; and
3. The company is unable to hold an extraordinary general meeting to wind up the company as the requisite quorum cannot be met as a result of (1).

Fewer documents

Third, as a result of the above amendment, the number of documents required to support a SWUP is reduced. Previously, 3 supporting documents were required, including the special resolution of the company in general meeting authorising the SWUP, financial statements and a copy of the Statement of Affairs of the company. However, under the revamped SWUP, where a company has incomplete financial statements, they are to complement incomplete financial records with Directors’ declaration that eligibility criterion is met.

Fewer platforms for notifications 

Fourth, to reduce the cost of administration, only 2 platforms will be used to publish notifications, which are the Official Receiver’s website and the Registrar of Companies’ Bizfile under the Accounting, Corporate and Regulatory Authority (“ACRA”). Under the old SWUP, there were 2 additional platforms including the Government e-Gazette and the local newspaper.

Liquidator’s powers to dissolve a company 

Lastly, a liquidator may dissolve the company without further investigative steps if a liquidator does not receive the necessary fundings from creditors to recover assets. Furthermore, if the liquidator determines that the company is not suitable for simplified winding up, they may transition to other liquidation processes, such as a Court-ordered winding up or a creditors’ voluntary liquidation.

Summary of changes to SWUP (taken from the MinLaw website)

How Might the Revamped SIP Interplay with Existing Insolvency Laws/Legislation in Singapore?

As the revamped SIP 2.0 will be incorporated into the IRDA, it introduces a new way for eligible companies to be wound up, with vastly differing requirements from the typical insolvency process. For example, in a member’s voluntary winding up, the majority of the directors must make a declaration that the company is still solvent before sending the notice for the meeting for the resolution of the winding up. However, under the SWUP, this requirement is not necessary as a company may still be wound up despite having incomplete financial statements, meaning that it may not be clear to members or the director that the company is solvent or insolvent.

The broad specifications under SIP 2.0 offer eligible companies more pathways for winding up or debt restructuring, which helps reduce the number of dormant companies in Singapore by providing solutions for companies that do not meet certain criteria for winding up or debt restructuring under the IRDA. A dormant company refers to a company that does not carry on business and is not actively generating income.

Furthermore, the option for companies to switch or convert their SDRP and SWUP to other liquidation processes expands the range of measures available to eligible distressed companies, where they are able to reap the benefits of both the SIP 2.0 and traditional insolvency processes under the IRDA.

What Else Should Businesses Note about the New Regime?

Foreign companies 

As with the old SIP, only a Singapore-incorporated company that is foreign-owned may be eligible for the SIP provided that they fulfil the eligibility criterion, the company’s total liabilities must not exceed $2 million.

Number of applications 

A company may only submit an application for either the SWUP or SDRP. The company should apply for only one programme to avoid confusion among creditors, as a Notice of Application will be sent to the company’s creditors and published on the MinLaw website when the eligibility criteria are met. It is only if the application to one programme has been unsuccessful that the company may then make a fresh application for the other programme.

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In conclusion, the SIP 2.0 improves the predecessor SIP by further simplifying the eligibility criteria and application process while enhancing creditor protection. The new amendments will allow more companies to be eligible for SRDA and SWUP and reduce losses to companies by saving time and costs.

For readers who require additional legal advice or guidance on whether they are eligible for SIP 2.0, you can reach out to an insolvency lawyer here.