Availability of third-party funding to judicial managers and liquidators. Specific legal advice should always be sought before taking or refraining from taking any action. On 1 April 2020, the Singapore government announced its plan to introduce the COVID-19 (Temporary Measures) Bill in Parliament in the next week to offer temporary relief to businesses and individuals who are unable to fulfil their contractual obligations because of COVID-19. The IRDA introduces the concept of wrongful trading, which provides that a company trades wrongfully if: a. the company, when insolvent, incurs debts or liabilities without reasonable prospect of meeting them in full; or Significantly, liability can apply to any person who was a party to the wrongful trading, regardless of whether they are a director and/or officer of the company. Five ex-remisiers charged for false trading of 55 SGX-listed securities | The Edge Singapore Woodhouse Farm, Directors and officers should also ensure that they receive regular financial reports on the company so that they are apprised of its financial position and cash flow. beyond a reasonable doubt) and this is a prerequisite before civil liability, where the standard of proof is based on the balance of probabilities. Wrongful Trading . The company can do so by reviewing their current contracts and possibly attempting to renegotiate key contracts (e.g. WRONGFUL TRADING SECTION 214 AND 246ZB INSOLVENCY ACT 1986: The claim: wrongful trading occurs where a company has gone into insolvent liquidation or administration, and at some time before the company's liquidation or administration, the directors knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation or administration; and These provisions herald a shift towards greater accountability, not just of directors and officers of the company. The government previously consulted on proposed changes to the UK’s insolvency framework and is now looking to introduce reforms including: In addition to this, the UK government has announced a temporary suspension of the wrongful trading regime, with retrospective effect from 1 March 2020, to remove the threat of personal liability for directors. Thereafter, such director can also be made personally liable for the whole or part of the debt under section 340(2) the Singapore Companies Act. The "wrongful trading" regime also abolishes the pre-requisite (present under the insolvent trading regime) of having to establish criminal liability first before the director could be made personally liable for the debt. The criminal penalty is a fine and/or a prison sentence of up to 5 years. The "wrongful trading" regime also abolishes the pre-requisite (present under the insolvent trading regime) of having to establish criminal liability first before … New wrongful trading provision; We have previously discussed that the IRDA introduced a new concept of "wrongful trading" under Section 239 of the IRDA, which replaces the old concept of "insolvent trading" under section 339(3) of the Companies Act. Hong Kong has no concept of “insolvent trading” or “wrongful trading”, although the Financial Services and the Treasury Bureau has indicated that such provisions may be included in a draft corporate rescue bill that will be put to the Legislative Council (“LegCo”) in the autumn. Further, the statutory minimum for the issuing of a statutory demand has been increased from AU$2,000 to AU$20,000 and the period for compliance with such a demand has been extended from twenty-one days to six months. The current regime is limited by the requirement for criminal liability to be found as a prerequisite before an application can be made to … d. any receiver who is not also a manager;e. any receiver and manager appointed by the Court;f. any liquidator appointed by the Court or by the creditors; org. Wrongful trading can be one of the most worrying aspects of company insolvency for the directors, as it may impose personal liability on them. Under that framework, an officer of the company would only be personally liable to pay the whole or part of the debt incurred by the company, if there was a criminal conviction under the Companies Act. This blog examines the impact of these measures alongside the current position in Hong Kong and Singapore. If fraudulent trading can be established, the courts may declare that any persons who were knowingly parties to the fraudulent carrying on of the business shall be personally responsible (without any limitation of liability) for the debts or liabilities of the company. The devil will be in the detail on the suspension of wrongful trading to ensure that it is not abused. Click to share on Twitter (Opens in new window), Click to share on LinkedIn (Opens in new window), Click to share on Facebook (Opens in new window). First, it provides some brief background to the wrongful trading provision. The Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) consolidates Singapore’s personal and corporate insolvency, restructuring and dissolution laws into one omnibus legislation. Notably, apart from the scheme of arrangement process, Hong Kong lacks any formal corporate rescue procedure such as can be found in some other common law jurisdictions. New wrongful trading provision. The IRDA introduces the concept of wrongful trading, which provides that a company trades wrongfully if: a. the company, when insolvent, incurs debts or liabilities without reasonable prospect of meeting them in full; or. The wording of the insurance policies should therefore be scrutinised to assess whether wrongful trading claims would also fall within the exclusions. Prior to this, the provisions pertaining to personal insolvency were contained in the Bankruptcy Act, while provisions related to corporate insolvency were contained in the Companies Act. Under existing law, civil liability for ‘insolvent trading’ only arises where there has been a criminal conviction. Zhao’s wrongful trading and the alleged Guangxin Agreement 13 In 2011, it was discovered that Zhao had traded wrongfully in breach of the agreed Trading Limit, resulting in massive losses to Vermont. The suspension of wrongful trading included in the Corporate Insolvency and Governance Bill is a temporary measure. The IRDA is an omnibus legislation housing all of Singapore’s insolvency and restructuring laws in one single piece of legislation. Companies in financial difficulties are, however, exposed to a variety of formal procedures including the appointment of a receiver, voluntary liquidation, and compulsory liquidation. The German government has passed a bill that contains wide ranging measures to provide individuals and businesses with sufficient liquidity to help them through the COVID-19 pandemic. Further, during a three month transition period, creditors are prohibited from commencing insolvency proceedings against businesses. On 28 March 2020 the UK government announced that it will introduce legislation at the earliest opportunity to, among other things, give businesses greater flexibility to help them emerge intact at the end of the pandemic. ZHAO’S WRONGFUL TRADING AND THE ALLEGED GUANGXIN AGREEMENT ... 6 Vermont was incorporated in Singapore in October 2009, and is owned by VGL (51%), Poh (24.5%) and Koh (24.5%). Now, under the IRDA, the only applicable standard of proof would be the civil standard of proof (of proving on a balance of probabilities) since there is no longer a prerequisite for criminal liability. Singapore: Wrongful Trading Under The Insolvency, Restructuring and Dissolution Act 2018. These measures may be extended by the government until no later than 31 March 2021. Is taking wrongful trading positions Is acting as the agent or partner of the person(s) who controls the company Under those circumstances, a court may decide to treat the company and one or more of its associated individuals (shareholders, directors, officers or employees) as one and the same and to hold them personally liable. You can contact the taskforce at here. It is not intended to be comprehensive, nor does it constitute legal advice. a new restructuring plan, binding creditors to that plan. Other more minor technical amendments, and various changes to the regulation making powers given in the Act, were also made during the parliamentary process. It consolidates and reforms Singapore’s corporate insolvency and bankruptcy regimes and includes new wrongful trading provisions. Key points to note are: Liquidators in a recent case failed to establish company's directors should pay over £2m as liability for wrongful trading. Under existing Singapore legislation, civil liability for insolvent trading only arises where there has been a criminal conviction. With the overriding objective of helping companies which need to undergo a financial restructuring or rescue process to continue trading, the proposed measures will give those businesses extra time and space to weather the storm whilst ensuring that creditors get the best return possible in the circumstances. directors’ duties & responsibilities (singapore) 2 “In practice, it can be said that the board is responsible for laying down matters of principle, and of accounting, statistical and management procedures. However, the IRDA appears to be silent on any defences for imposing criminal liability for the offence of wrongful trading. Wrongful trading. Directors and others dealing with distressed Singapore corporates will need to pay close attention to this new wrongful trading provision. countries such as the UK,1 Australia2 and Singapore3 recently announced a temporary suspension of wrongful trading provisions in their respective jurisdictions to discourage directors from pulling the plug early. Consequently, the earlier insolvent trading provisions were seldom relied on to hold company officers accountable. The Bill replaces the existing insolvent trading regime with a new 'wrongful trading' provision in Sections 239. Any attempt to do so would have been Singapore There is a concept of “wrongful trading” in Singapore and the operative provision is set out in Section 339 (3) of the Companies Act (Chapter 50 of Singapore) (“Singapore Companies Act”). legal and financial) teams to assist with the process; and. This blog examines the impact of these measures alongside the current position in Hong Kong and Singapore. You can also view other thought leadership, guidance, and helpful information on our dedicated COVID-19 / Coronavirus resources page. PRELIMINARY: Short title and commencement: 1. The wrongful trading suspension was initially not extended and ended on 30 September 2020, however a second suspension on wrongful trading applies for the period between 26 November 2020 and 30 April 2021. Businesses have been disrupted, cash flows have been interrupted and economies have been thrown into a huge negative shock. In practice, therefore, civil liability for insolvent trading liability is seldom, if ever, pursued in Singapore. As a result the article submits that reforms are needed. This Act is the Insolvency, Restructuring and Dissolution Act 2018 and comes into operation on a date that the Minister appoints by notification in the Gazette. The IRDA was passed in Parliament on 1 October 2018 but is currently not in force. The concept of (and liability for) wrongful trading applies to anyone undertaking the role of a director, whatever their title and whether or not registered as a director at Companies House, so includes shadow directors. before taking or refraining from taking any action. There is a concept of “wrongful trading” in Singapore and the operative provision is set out in Section 339(3) of the Companies Act (Chapter 50 of Singapore) (“Singapore Companies Act”). A corporate rescue procedure is something that has been mooted since 1996, but never implemented. It is also worth noting that the reintroduced suspension of wrongful trading is not retrospective and therefore directors could be responsible for any worsening of financial condition between the end of the first suspension on 30 September and the 26 November when the second suspension started. 30.2.34 However, wrongful trading requires a criminal conviction of the delinquent officer before civil liability, to pay the whole or part of the debt incurred by the company, can be triggered. On the facts, there was no wrongful trading. It is interesting that the IRDA provides a statutory defence only to civil personal liability, and not to criminal liability. The Bankruptcy Act and the relevant provisions in the Companies Act have since been repealed with the IRDA coming into force on 30 July 2020. 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