As recently reported, in the first half of 2024, the number of people declared bankrupt increased by 11% on the same period in 2023. Given the stigma and potentially serious repercussions which can accompany bankruptcy, like restrictions on overseas travel and taking on certain roles and jobs, it is understandable that individuals may want to do their level best to avoid a bankruptcy order being made against them.
Under the Insolvency, Restructuring and Dissolution Act 2018 (“the IRDA”), an individual may make a proposal to their creditors on how they intend to settle their debts, called an “Individual Voluntary Arrangement” (“IVA”). To give themselves some breathing room, the individual can apply to the Court for an “interim order” (“the Interim Order”), preventing any bankruptcy application from being proceeded with against them, until the IVA can be presented to the creditors at a meeting and voted upon. If an IVA is approved by the creditors and sanctioned by the Court, an insolvent debtor may be able to restructure their debts and avoid the consequences of bankruptcy.
This is not to say however that IVAs are a panacea, or that Interim Orders will be handed out willy-nilly. Only “serious and viable” proposals will justify an Interim Order.
In a recent decision of Re Yap Shiaw Wei (RHB Bank Bhd and others, non-parties) [2024] SGHC 232 (“Re Yap Shiaw Wei”), the Singapore High Court dismissed the insolvent debtor’s application for an Interim Order, holding that her proposal was “far too vague to be given any serious consideration… [which was] long on professions of optimism but exceedingly short on concrete specifics”.
Brief Facts
The debtor, Ms Yap Shiaw Wei (“the Debtor”), personally and indirectly (i.e. through corporate vehicles), owned 18 different residential and retail/commercial properties, 13 of which were located at Centrepoint Orchard (collectively, “the Centrepoint Properties”) and 5 of which were located at Midpoint Orchard (collectively, “the Midpoint Properties”).
In the course of building up and operating her portfolio of properties the Debtor obtained a swathe of secured and unsecured loans from various banks, though most of these were in the form of business and commercial loans by the companies with the Debtor as personal guarantor. 2 of the banks i.e. CIMB Bank Bhd (“CIMB”) and RBH Bank Bhd (“RHB”) (collectively, the “Petitioning Creditors”), being owed approximately S$8.4 million and S$25.9 million respectively, commenced bankruptcy proceedings against the Debtor under the IRDA.
The Debtor did not dispute her liability for the loans and amounts owed. Instead, she applied for an Interim Order and sought to stay the bankruptcy applications.
In her application, the Debtor sketched out a proposal for repayment which involved 3 prongs: (a) the bulk or collective sale of the Centrepoint Properties; (b) the sale of the Midpoint Properties; and (c) generating revenue from one of her operating companies, which ran a communal residential business under the “Hovoh” brand, and selling her equity stake in Hovoh.
At first instance, the learned Assistant Registrar dismissed the application, finding that it did not cross the threshold of being “serious and viable”. The Debtor appealed the AR’s decision to a High Court Judge, who dismissed her appeal, essentially agreeing with the AR that the application lacked seriousness or viability.
The High Court’s findings
The High Court set the stage by emphasizing that its role was not to simply “rubber stamp” a debtor’s proposal. Rather, the Court has a supervisory role in assessing whether any proposal is both “serious” and “viable”. In this regard:
- For a proposal to be “serious”, it must have substance and be one which is capable of serious consideration by the creditors. The Court further observed that a “serious” proposal would invariably be anchored by detailed, verifiable specifics and the onus lay with the applicant to provide full and frank disclosure of all material facts.
- For a proposal to be “viable”, it had to be “realistic and capable of being implemented”, which meant that it had include a detailed strategy that would align with practical constraints such as available resources and timeframes, and be alive to prevailing conditions.
Indeed, the Court went so far as to hold that where it is satisfied that the evidential foundations for a proposal are non-existent, or that they are mired in a haze of non-information, the Court becomes “duty bound” to dismiss the Interim Order application, so as not to delay the inevitable and waste the time and resources of the Court and the creditors.
On the facts of the case, the High Court held the Proposal was high on optimism but “exceedingly short on concrete specifics” and “entirely untethered to the practical realities.”
For instance, in respect of the proposed sale of the Centrepoint Properties, Midpoint Properties and equity stake in the Hovoh company, the Court was unimpressed by the lack of any details relating to the potential purchaser(s) and the lack of any explanation as to how the sales could be realistically achieved within the timeframes suggested by the Debtor. Amongst other things, she had suggested – without any evidence – that there could be a collective sale of the entire Centrepoint development within 9 – 10 months, instead of years (as would be expected).
The Court was also unconvinced by the Debtor’s inflation of the value of the Midpoint Properties (she claimed that they were worth a collective quantum of S$42.5 million, over 50% of the actual market value as evidenced by valuation reports), and her claims that she was somehow “central” to the collective sale process of the Centrepoint Properties, such that the putative sale would be scuttled if she were made bankrupt, which the Court held was “speculative at best, woven out of whole cloth at worse”.
The Court also took into account the fact that the Debtor’s proposal was overwhelmingly opposed by the petitioning creditors and Maybank, holding 77.4% and 49.4% of the secured and unsecured debt respectively, with not a single creditor expressing support for the proposal.
Ultimately, the Court held that the Debtor’s proposal was hopelessly under-particularised, largely based on speculatively valuations, self-evidently going to be considerably more protracted that it is represented to be, did not provide any meaningful or clear exit strategy, and couched in secrecy on the premise that everything critical to making an informed decision must be withheld on grounds of confidentiality, such that it was “an essay in make believe“.
The Court therefore dismissed the application, finding that it was clearly not serious and had no reasonable prospect of being viable.
Conclusion
Re Yap Shiaw Wei is a welcome decision. Debtors should be aware that IVAs represent a potentially viable option to restructure their debts, with the result that all interested parties, including the creditors, are better off than in the debtor’s bankruptcy. However, the onus lies on the debtor to provide sufficient information and details of their proposal, such that the creditors can assess the viability thereof.
Spinning fairytales will not delay the inevitable.