Speech by Mr. Derrick Goh, MP for Nee Soon Link, at the Second Reading of the Insolvency, Restructuring and Dissolution (Amendment) Bill (Bill No. 36/2020) and COVID-19 (Temporary Measures) (Amendment No. 3) Bill
Mdm Deputy Speaker, I would like to thank the Second Minister for Law for the swift action taken on the amendments to the Insolvency, Restructuring, and Dissolution (Amendment) Bill and the courage to introduce the COVID-19 (Temporary Measures) (Amendment No 3) Bill.
The amendments taken together is a holistic approach as the Bills are complementary and reinforce each other to assist small and micro businesses. However, we must keep in mind the reality that some micro and small businesses will never recover.
The good part, Mdm Deputy Speaker, is that my understanding is that these Bills are essentially for these entities to elect. So, I am a bit confused when the honourable Member Jamus Lim spoke about the challenges in terms of the use of independence and additional lawyers to support the move to essentially recover from the challenges posed by the pandemic for these small and micro businesses. In fact, the Simplified Insolvency Programme or SIP seeks to help businesses that need to recover quickly, restructure their debt obligations to keep the businesses going or to have a simplified and orderly exit if there is no better alternative.
The existing insolvency process today, while useful, takes time and is expensive. And in this case, the amendment allows more than micro businesses that are already struggling and cannot afford more costs. As such, the SIP is a welcome response to meet the urgent needs under this pandemic condition. That is why I said, it is an option and Small and Micro businesses that do not feel that it benefits them, need not move and elect for these remedies in this Bill.
I now turn to the COVID-19 (Temporary Measures) (Amendment No 3) Bill. The intent is to help eligible businesses impacted by this pandemic to focus on the future and not be stuck in unproductive positions is a positive move. On this, I wish to raise three areas: two on the eligibility criteria and the third on how the current Bill works with the rental relief framework, that will impact the effectiveness and execution of the Bill, for Minister’s consideration and clarification.
On the eligibility criteria, the use of (a) revenue drop to identify businesses impacted and (b) business size to ringfence this remedy for smaller companies is logical. However, I would request the Minister to ensure that such interventions are well calibrated to ensure a balanced and fair approach to all businesses.
The reason for this is that our Government must advocate for our businesses that sit on both sides of the contract. A clear example would be in the area of leases, where there is a clear need to take care of not just tenants, but also landlords. So, there is a need minimise interference in the risk-taking between parties that is at the heart of business activities and the spirit of entrepreneurship.
Further, for this amendment Bill to be helpful, the criteria for the revenue drop should not be too conservative, else it would only cover companies that are already deeply in the red, facing imminent solvency issues.
In the example of a successful small businesses in the F&B industry, with a healthy 30% profit margins last year, this means that with a 30% drop in revenue this year, the business would already be bottom-line break-even. Under this pandemic situation, small businesses operating at half of its previous turnover is not uncommon. This means that a high revenue drop eligibility criteria requirement would be of little assistance to businesses that are already struggling.
Further to the above, I also seek the Minister’s consideration on calibrating reliefs for certain agreements. I believe that for example, tenants that are stuck in fixed rental lease agreements are in greater need of the present reliefs tabled compared to those leases which vary with the turnover of the tenant.
Regardless of what the eligibility criteria might be, this amendment Bill might potentially have a negative impact on some businesses that narrowly miss the threshold. I think Minister gave some examples earlier on and these examples are not unlikely to happen, where in the case of a tenant-landlord relationship, as an example, it is probable that the position of a landlord of a non-eligible business might harden. He may be emboldened not to negotiate as the landlord would be aware that the tenant will not be eligible to terminate his lease without incurring sizeable penalties. This can potentially happen, which runs contrary to the good intentions of this Bill.
I now turn to the last part, which is my query on the interoperability of the earlier rental relief framework and the present framework.
I understand that there have been businesses that have availed themselves to the rental relief framework but have continued to perform poorly and have been incurring substantial financial losses. Such businesses may now wish to then invoke the reliefs under the present framework to exit their businesses notwithstanding the previous assistance they had benefited from. Can Minister clarifying whether such entities can still benefit from this Bill?
In concluding, Mdm Deputy Speaker, the Bills represent a proactive step by the Government, which I believe will be welcomed by the public. It is tough to find the exact balance to avoid under or over-correction. Under-correcting will lead to helping fewer deserving entities, while over-correcting will distort the market. But we cannot fear to act, to do the right thing. Hence, the courage that I spoke about earlier of the Government and Second Minister for Law for tabling these Bills.
For the policy intent of these Bills to be effective on the ground, the various criteria need to be calibrated appropriately where a conservative starting point ought to be held without being too conservative should be considered and sufficient latitude be given to the expert assessors to achieve a just and fair outcome for deserving cases. Mdm Deputy Speaker, I stand in support of these Bills.
Watch the speech here