Speech on Occasion of the 2nd Reading of the Insolvency, Restructuring and Dissolution (Amendment) Bill

In my speech, I made the point that whilst the Government’s proposal to extend the requirement to appoint private trustees in bankruptcy (PTIBs) to cover non-institutional creditors and debtors, makes sense from the perspective of careful husbandry of government resources, we need to be mindful that costs do not escalate. In addition, we need to align the commercial interests of PTIBs with public interest. I also sought the view of the 2nd Minister for Law on how will the Government ensure that PTIBs will do a proper job in investigating the affairs of the bankrupt. I further made suggestions on how to increase the efficiencies of the process. My speech may be accessed below.

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Mr Murali Pillai (Bukit Batok): Mr Speaker, Sir, I would like to declare that I am a partner of a firm which has an insolvency practice.

I support the aims of the Bill. In my speech, I will focus on one of the aims that the hon Minister articulated, that is, to mandate the appointment of Private Trustees in Bankruptcy (PTIBs) in generally all bankruptcy cases. The key motivation behind this aim is to provide a more efficient use of the Public Service by focusing on the regulatory role of the Government and decanting non-regulatory service functions to the private sector.

I see this proposal as the final move in an orderly transformation of insolvency and bankruptcy processes that commenced in 2016. The hon Minister has already mentioned it in his speech, and I need only mention two milestones.

First, for corporate insolvencies, the Official Receiver has already stopped being the liquidator of last resort. In his place, private liquidators are appointed by the Court. With respect to bankruptcy applications by Institutional Creditors (ICs) such as retail banks, ICs are required to apply for PTIBs to be appointed to administer the bankruptcy instead of the Official Assignee (OA).

Seen against this background, it makes sense to complete the transformation by requiring that for all other bankruptcies — I understand they are about 60% of bankruptcies, in respect of which PTIBs have not been appointed — PTIBs be now appointed too.

Through this, we will be able to gain the full extent of the efficiencies by redeploying resources under the Insolvency and Public Trustee’s Office to perform regulatory functions. In essence, we are placing the core of the Government’s function within the civil service while allow the private sector to take care of some of its service functions.

For this system to work, however, we must be sure that the private sector has the capacity to provide such a function at a high level of competency and at affordable cost. This means that we need to ensure a strong supply of licensed insolvency practitioners who would be willing to undertake such assignments for fees that are not prohibitive.

Both outcomes, of course, can come about purely as a result of the operations of the free market. But this is by no means assured. This is where we need to be mindful about the market conditions and take the necessary steps to strike a proper balance.

On one hand, there should be sufficient commercial incentives to ensure that there is a ready pool of practitioners to tap on for such work. On the other hand, we need to ensure that costs are kept reasonable and the statutory objectives under the Insolvency, Restructuring and Dissolution Act (IRDA), particularly in relation to the investigation of the bankrupt’s affairs are met.

Currently, there are several firms providing PTIB services for ICs. Their practice, generally, is not to ask for any deposit from the ICs to cover their costs. They rely on the $1,850 deposit placed with the OA when the person brings a bankruptcy application. The provision of this sum itself is mandated under the Insolvency, Restructuring and Dissolution (Official Assignee’s Fees) Regulation 2020.

The idea is to work within the deposit amount. To make the model financially sustainable, the PTIBs engage in what can be described as a volume game. By agreeing to working within the deposit amount, the practitioners can be assured of a significant volume of cases from the ICs for which the practitioners may be appointed as PTIBs.

They can also benefit from being assigned cases which are referred to as “meaty” cases, where there is a good prospect for PTIBs to recover substantial assets and monies that form part of the estate of the bankrupt for distribution to creditors and get their costs to be paid from, as a matter of priority from the estate.

For non-ICs, I believe the considerations will be materially different. They cannot promise large volumes like institutions such as retail banks. How can we then ensure that the costs of petitioning creditors who are non-ICs are kept reasonable by reason of the privatisation move?

One group of people I am particularly concerned about are debtors who have just cause to apply for bankruptcy to avail themselves of the protection of bankruptcy laws. They may be put in a more difficult position. These debtors who apply to be bankrupts, by definition, do not have much money.

Currently, under IRDA, only creditors are allowed to apply for a practitioner to be appointed as PTIBs. In this Bill, it is proposed that debtors must also get practitioners to be PTIBs. Should the market move against them such that they are required to pay more than the current sum of $1,850 for the appointment of PTIBs, this may stymie the debtors’ efforts to get the protection of the bankruptcy laws.

Next, I would be grateful for the hon Minister’s clarification on the circumstances in which the OA is expected to administer the estate of the bankrupt. In clause 2 of the amendment Bill, it is provided that the OA may consent to be the trustee of the bankrupt’s estate. I did not see any elaboration on the circumstances in which the OA may give consent in the explanatory statement to the Bill. I am glad to note the hon Minister’s point that the OA is expected to give his consent in cases of public interest.

May I ask what would be the consideration before the OA provides consent to be the trustee? The hon Minister gave some examples. I have in mind situations where petitioning creditors or debtors cannot get practitioners to be appointed as PTIBs despite their best efforts or having regard to their specific financial circumstances. Would the OA be willing to consider on a case-by-case basis whether it would be in the public interest to provide consent to be the trustee of the bankrupt’s estate?

This question is related to my earlier point on the possible financial hardship on the debtor. If the difficulty relates to debtors facing financial hardship and being unable to pay for the PTIBs, what will be their recourse?

Another area that I seek clarification on is the OA’s role where the office of the PTIB becomes vacant, be it as a result of resignation, death and so on. To my understanding, the OA will have to step in to take over as trustee until the vacancy is filled. This provision that requires this — section 45 of the IRDA — is unaffected by the amendment Bill.

Having regard to the objective of this Bill, which is for the OA to exit the arena of administration of a bankrupt’s estate, save when it is in public’s interest, may I please ask how it is proposed that the OA will deal with such situations?

One final area which I want to touch on before moving to my next point concerns aligning the commercial interests of PTIBs with the aims under IRDA in relation to the administration of the bankrupt’s affairs. Currently, under section 22 of the IRDA, the OA has a responsibility to investigate the conduct and affairs of the bankrupt to check if the bankrupt has committed certain offences. This involves a matter of public interest. When the PTIB takes over these duties from the OA, how do we ensure that the PTIB will reasonably discharge these duties?

This is a general caveat when using the private sector as a partner to providing public services. While the incentive of the public sector is to safeguard the public interest, the private sector has no such incentive. PTIBs are not, prima facie, remunerated on the basis of the efforts expended to check the conduct and the affairs of the bankrupt. Instead, we must ensure that there are rules and incentives in place to ensure that the commercial interests of the PTIBs are motivated to align with the demands of public interest. For example, we could require specific audits and checks to be conducted on PTIBs.

I now turn to the part of the Bill that introduces measures to make it more efficient for PTIBs to conduct their work. This is welcomed. These efficiencies, I believe, will have a direct impact in ensuring that PTIBs’ fees will not become excessive. I particularly commend the provision of the default position in clause 3 of the Bill allowing creditors to have deemed to consent to the remuneration sought by the PTIB in the “prescribed manner” if they did not raise objection within the prescribed time. This resolves a big problem in practice because creditors often tend not to revert timeously on such issues, making it difficult for PTIBs to be paid.

With respect to what is meant by “prescribed manner”, I take it that it is intended to be provided in subsidiary legislation.

I suggest that the hon Minister consider prescribing that notices on remuneration may be sent by emails too. This will increase efficiency and reduce disbursements, especially when we have cases involving numerous creditors.

I also note that in the format of proofs of debt that creditors are supposed to file, contact details such as email addresses are already supposed to be provided. Hence, PTIBs should be able to use this information for notification purposes.

Clause 11 of the Bill provides for the OA to maintain a list of undischarged bankrupts with records of the particulars of the employment history of every undischarged bankrupt as well as the particulars of his current employment status. The OA may allow any person who needs access to such details, which conceivably will include a PTIB, for the purposes of administering the bankrupt’s estate. This is a good move and I support it.

The question that arises is what other information that a PTIB may reasonably need for the proper and efficient administration of the bankrupt’s estate. One possible area is the registered address of the bankrupt which can obviously change over time. Currently, under section 399(2) of IRDA, a bankrupt is deemed to have informed the OA of the change of his registered address when he makes a report of the change under section 10 of the National Registration Act 1965. There is also a deeming provision in section 399(3) of the IRDA which deems service of notice at the registered address as conclusive evidence of the fact of service.

I may be wrong but it seems to me that the OA has ready access to the database of registered addresses under the National Registration Act. If I am right, I should point out that PTIBs may not be in a similar position as the OAs.

I wonder if, instead of maintaining a definitive list of information that the OA can allow inspection of, it would be better to provide that the list may be expanded to contain information that the hon Minister in his discretion may prescribe through subsidiary legislation. In this way, the information that PTIBs need can be provided much faster, which will in turn allow for more efficiency and cost reduction. Such information can include the new registered address of the debtor or any other information that may be relevant for the administration of the bankrupt’s estate. This information can include names and contact details of related persons for PTIBs to investigate cases of unfair preferences and transactions at undervalue, something that the hon Minister is very well aware of since he was a well-noted lawyer dealing with insolvency work before he joined the front bench.

All the above are minutiae in themselves but added together, these little drops make a mighty sea. They make the administration of the insolvency process leaner, simpler and less costly. As a while, they ensure that the PTIB can go about with their duties efficiently which will in turn allow their fees to be kept as low as possible. If this cannot be done now, perhaps this is a suggestion that can be explored in the future.

Mr Speaker, Sir, the public interest is served by a fair administration of all the Government’s services to its people. If the private sector can carry out some of this in a reliable way, there is good reason for us to consider this as a viable option. The key is to ensure that we set up an architecture of incentives, so that the PTIBs, even as they pursue private commercial ends, bend to the public interest as their key performance indicator.