By MP for Aljunied GRC, Sylvia Lim
[Delivered in Parliament on 13 July 2015]
Over the years, I have encountered residents who were made bankrupts due to business failure, or simply because they were trying to be helpful to a relative by signing off as guarantor for a loan. They languished for many years in their status, with diminished career prospects and demoralised, as either the debt was too large or they were simply unable to make sufficient payment to satisfy their creditors.
I am thus supportive of this Bill’s purpose of seeking to inject some efficiency and timelines into bankruptcy administration. I also welcome the increase in the bankruptcy debt threshhold from $10,000 to $15,000, in view of the rise in costs since the threshhold was last set.
However, I wish to seek some clarifications on two areas viz. private trustees, and the time limits for discharge of bankrupts.
Private trustee administering bankruptcy in place of the OA
I note that the Bill requires “institutional creditors” to nominate a private trustee in place of the Official Assignee (OA) when bringing a bankruptcy application. The “institutional creditors” include banks and finance companies regulated by the Monetary Authority of Singapore and business undertakings with annual turnover of more than $100 million and more than 200 employees.
Over the past few years, I came across several residents in bankruptcy who complained about slow responses from the OA’s office. I hope that this proposal of private trustees taking over significant workload from the OA will improve the response times and efficiency of bankruptcy administration overall.
Will costs of private trustees increase debt burden or be disproportionate?
One potential issue relates to the costs of private trustees.
Under the Act, the fees of the private trustees are to be borne by the bankrupts. This will be an item added to the debt under the bankruptcy. The private trustees’ costs will be paid from the bankrupts’ monies and properties, in priority to creditors’ claims.
Will the additional burden of high private trustees’ fees delay or hinder the bankrupts’ rehabilitation and discharge? I am thinking of certain scenarios e.g. where a person is made bankrupt on a small debt of say, $20,000 – how much additional fees would be added for him to pay by way of private trustee’s charges? High trustee’s charges could also come at the expense of creditors’ recovery, since the trustee’s charges will be paid in priority to creditors’ claims.
Further, it is foreseeable that institutional creditors such as banks may appoint larger law firms or accounting firms as private trustees. These larger firms’ fees are generally much higher than smaller firms’.
Should there be some regulation or capping of private trustee’s fees to ensure that they are proportionate to the debt or at least, reasonable and necessary?
How will private trustees be accountable?
Besides their fees, I would like clarification on how these private trustees will be held accountable for their work.
Under Section 39 of the Act, the OA has supervision over the private trustee in that the OA will take cognisance of the conduct of a private trustee, inquire into any complaint made and conduct investigations where needed. In addition, according to a MinLaw explanatory note on the Bill, once a bankrutcy exceeds its 5-year mark or 7-year mark in the case of repeat bankruptcies, a private trustee will have to submit reports to the OA every year.
I would like the Ministry to confirm that a bankrupt does not need to wait for the 5 or 7 year mark respectively before making a complaint to the OA.
In addition, before complaining to the OA, the bankrupt may want to resolve matters with the private trustee first. If such residents were to come to see their Members of Parliament (MPs) for assistance, should MPs write to the private trustee directly, or should such correspondences be channelled through the OA’s office? Is the private trustee expected to reply to MPs’ letters?
Time frames for discharge of bankruptcy
The Bill sets out a differentiated discharge framework, with time frames for discharge of bankruptcy: for first time bankrupts, they are eligible for discharge in 5 to 7 years, while repeat bankrupts are eligible for discharge in 7 to 9 years. Under this framework, bankrupts are told that they should keep up their monthly contributions to reach the Target Contribution, so as to be discharged earlier rather than later. However, bankrupts who have not paid their Target Contributions in full may still be discharged after 7 years for first-time bankrupts and 9 years for repeat bankrupts.
I see the benefit of the framework of injecting more certainty for bankrupts to work towards their discharge.
Nevertheless, I note that the periods of time proposed are long compared with some countries. One example at the other end of the spectrum is the United Kingdom, where bankrupts are automatically discharged after one year, to promote rehabilitation of bankrupts and to encourage entrepreneurs to try again. While having a regime of one year automatic discharge is probably too drastic a change and unfair to creditors, how did the government arrive at the time frames it decided upon?
Secondly, under the differentiated framework of this Bill, repeat bankrupts are treated more harshly compared with first-time bankrupts. Repeat bankrupts would have to pay 76 monthly contributions to meet their Target contribution, compared with 52 monthly payments for first-time bankrupts.
Would the Ministry be able to tell us whether there are significant numbers of repeat bankrupts, or give other indicators of the size of the problem, to warrant such a blanket treatment for all repeat cases?