To qualify for the SIP, an MSC must fulfill the following requirements:
- An annual sales turnover which does not exceed $10 million;
- 30 or fewer employees;
- 50 or fewer creditors;
- A maximum of $2 million in liabilities; and
- Any other criteria that may be prescribed.
Simplified debt restructuring
The Bill allows MSCs to resort to a pre-packaged scheme of arrangement (“Pre-Packaged Scheme”). A typical scheme of arrangement requires two applications to the High Court -- one for leave to convene a creditors meeting to consider a proposed scheme and another for approval of the said scheme (once the requisite creditor approvals are obtained).
A Pre-Packaged Scheme however requires just one application to Court to approve a proposed scheme, without convening a creditors meeting. There are obviously various requirements, including notification obligations and proof of creditor support, that have to be satisfied. These requirements are currently found in Section 71 of the IRDA.
The Bill allows MSCs to resort to a Pre-Packaged Scheme as well. At present, there are advantages and disadvantages to an MSC pursuing a Pre-Packaged Scheme under the Bill, than under section 71 of the IRDA. One disadvantage is that the Bill imposes on an MSC a specific notification obligation to explain the effect of the scheme to creditors meant to be bound by it, such as any material interests of directors and the effect of the scheme on those interests (insofar as such effect is different from the effect the scheme has on the like interests of other persons). The current notification obligations under s 71 of the IRDA do not expressly mandate this. Conversely, an advantage of the Bill is that the Pre-Packaged Scheme must have the support of a majority of two-thirds in value of the creditors. By contrast, section 71 of the IRDA requires approval of the scheme by a majority of creditors representing at least 75% in value.
Aside from the Pre-Packaged Scheme, the restrictions on ipso facto clauses found in the IRDA will apply, on a temporary basis, to MSCs. Such restrictions (and the accompanying moratoria) will automatically be in place for a company that enters into simplified debt restructuring.
Simplified winding up programme
In addition to the aforementioned qualifying criteria, an MSC must also have a maximum of $50,000 in value of realisable assets (not including secured assets).
The simplified winding-up process is based on a voluntary one instead of being Court-ordered, which removes the need for a Court application to place the company into winding up. Under the IRDA, if a company wishes to voluntarily wind-up but is insolvent, it can only do so by way of a creditors’ voluntary winding-up, which would give creditors more control over the liquidation of the company.
Under the Bill, an MSC can make an application directly to the Official Receiver to be wound up under this programme.
- If a liquidator were to view that the assets of the company are insufficient to meet the expenses of winding up and that its affairs do not require further investigation, the company may be dissolved thereafter without the need to take further steps for the administration of the winding up;
- The scope of the liquidator's functions will be reduced, for example, creditors’ meetings will not be convened and the liquidator may only commence legal proceedings to preserve the rights of the company; and
- A company in the simplified winding up programme, if viewed as unsuitable for it thereafter, may be placed into a Court-ordered winding up (i.e. the existing “non-simplified” process) on the application of the Official Receiver or an interested party.
The SIP will be available for six months following the commencement of the proposed legislation, but it may be extended by the Minister of Law. The SIP will be administered by the Official Receiver, who may assign private insolvency practitioners to administer the cases that have been accepted to the SIP. There will be a co-payment component for applicant companies under the SIP.
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