How Amendments to the Bankruptcy Act Impacts High Net Worth Investors
On 11th May 2015, the Singapore government saw a proposal to amend the bankruptcy act.
Published on 28 June 2015
The potential changes are relevant to more than just bankrupts and creditors – there could be wide ranging implications for the rest of us as well. Here’s what might happen:
Proposed amendments to the bankruptcy act
The proposed amendments are as follows:
The bankruptcy threshold is the minimum amount of debt someone must accumulate to be declared bankrupt. By raising this threshold, it become more difficult for creditors to have someone declared bankrupt.
The (hoped for) effect is that more debt cases will be resolved through alternative arrangements, rather than actual bankruptcy declarations.
Bankruptcy ends when a debtor receives an official certificate of discharge. At present, there are no hard rules about when the discharge will occur. It is determined by the Official Assignee (OA) – a servant appointed by the Court to oversee the financial resources of the bankrupt. The OA can submit a report requesting the bankrupt’s discharge every three years, and will do so based on the conduct of the bankrupt.
(The OA’s conditions are usually based on the repayment of a target amount, which is pegged to the bankrupt’s earning capacity).
Under the proposed amendment, there will now be a specific time frame for discharge. This is five to seven years for first time bankrupts, and seven to nine years for repeat bankrupts.
Some banks and financial institutions have objected to this, on the grounds that having a fixed time frame makes bankruptcy less of a threat to irresponsible debtors. However, the Ministry of Law (MinLaw) asserts that the long time frames are sufficient to deter such behaviour.
Note that, even after receiving the certificate of discharge, a former bankrupt might have to wait up to five years to receive credit from banks again.
Managing the affairs of a bankrupt is a costly activity to the government. If the new amendment is passed, companies that meet the following criteria will have to appoint and pay for their own trustees (e.g. their own lawyers and accountants) to handle bankruptcy issues:
This is the amendment that could impact everyone, bankrupt or not.
The consequences of the amendments
The amendments place much more financial and administrative demands on the creditors. MinLaw has been quite clear that this is the intent – they have expressed that tax payer dollars should not bear the burden of loosely issued loans.
As a result of this, we foresee three main effects:
First, the borrowing rates are likely to rise. This will reflect the increased risk stemming from default, and we can expect interest rate hikes.
Second, loan application processes will become more rigid. Borrowers with less than stellar credit, or with thin credit files, might no longer qualify for the loans they need.
This is a long term worry, as it forces some individuals toward lenders of last resort (e.g. unlicensed money lenders).
Third, high net worth investors might be encouraged to approach private banks rather than retail banks for loans. Private banks are less likely to be worried about the proposed amendments, as they deal with much fewer bankruptcy cases than mass market retail banks. If you qualify, you should consider talking to them about their loan options (we can put you in touch with some of their top bankers in minutes. Just use our quick questionnaire).