Private Trustees in Bankruptcy – Singapore, UK, Australia and China

1. Private Trustees in Bankruptcy – Singapore, UK, Australia and China A/P Wee Meng Seng

2. Overview • Private practitioners lie at the heart of the insolvency systems in UK, Singapore, Australia and most Commonwealth systems. • Public officials, called official receivers in UK, Singapore, act where there is no private practitioner in office, either initially or because no private practitioner is willing to accept appointment or when a vacancy arises. • Issues that arise: • How to ensure that the private practitioners possess the requisite knowledge and skills? • How to regulate this profession? • Appointment and removal of private practitioners in insolvency proceedings • Remuneration of the practitioners A/P Wee Meng Seng

3. Historical roots • History of bankruptcy administration in the UK has been the ebb and flow of “officialism”. The thinking seemed to be that, unless necessary, the State should not be involved in the administration of the estate of bankrupts. • In 1883, UK Parliament recognized that the administration of bankruptcy involved a public interest element and is not merely a matter for the debtor and his/her creditors. The Insolvency Service (IS), as a department of the Board of Trade, was created. • The IS is now an executive agency of the Department for Business, Energy & Industrial Strategy. The official receiver is an officer in the IS. ORs are attached to different courts in the UK. An OR is an officer of the court to which he/she is attached. A/P Wee Meng Seng

4. Growth of the accounting/insolvency profession • The Bankruptcy Act of 1831 listed accountants, but not solicitors, as one of the possible occupations that could act as official assignees. • Insolvency work provided British accountants with their first professional boost – income and professional organisation. • The Insolvency Act of 1986 took the next step of development and created a new profession, the insolvency practitioners (IPs). A/P Wee Meng Seng

5. Monopoly of insolvency practitioners • Insolvency Act 1986 provided that only IPs may be appointed office-holders in all the insolvency proceedings: • All types of liquidation, ie winding-up • Administration (gives company a moratorium to pursue restructuring or a more beneficial liquidation) • Company voluntary arrangements (restructuring regime) • Administrative receiverships (enforcement by creditor with global security package) • Bankruptcies (for individuals) • Scheme of arrangement has become very popular in restructuring debts of insolvent companies, but it is not an insolvency proceeding and so non-IPs can act as scheme managers. A/P Wee Meng Seng

6. Appointment and removal of office-holders • Compulsory liquidations: resolved by creditors and certified by court • Voluntary liquidations: resolved by company and confirmed/replaced by creditors • Receivership: appointed by secured creditor • Administration: appointed by secured creditor, company/ directors (with consent of secured creditor), court • Company voluntary arrangement: appointed by directors • In general, the appointing body that appoints the office-holder has the power to remove the office-holder. The court has the power of removal in most cases. Where the office-holder is an officer of the court, the court may give directions to the office-holder. A/P Wee Meng Seng

7. Professional qualifications to be an IP • Only individuals, not firms, may apply to be an IP. • To be an IP, an individual must belong to be a member of one of the Recognised Professional Bodies (RPBs). • The RPBs are the Association of Certified Chartered Accountants (ACCA), Institute of Chartered Accountants in England and Wales (ICAEW), Institute of Chartered Accountants in Ireland (ICAI), Institute of Chartered Accountants in Scotland (ICAS), Insolvency Practitioners Association (IPA). • The insolvency profession is not a discrete profession. Most IPs are accountants. Lawyers act as legal advisers to the IPs. • There are centrally organised examinations for aspiring IPs, whichever RPB they belong to. They must also satisfy a minimum level of appropriate experience to become an IP. A/P Wee Meng Seng

8. Regulation of the RPBs • There are now around 1500 IPs in UK, and about 1200 take appointments • RPBs act as self-regulators to monitor and discipline their members, but they are in turn subject to government regulation. • Several rounds of study and consultation from early 2000s revealed widespread criticisms over a swathe of issues, including too many regulators, deficiencies of self-regulation, excessive IP remuneration, weak protection of interests of unsecured creditors. • IPs and RPBs opposed strenuously external regulation and the setting up of a single complaints body. UK government opted for a compromise in the 2015 reforms. A/P Wee Meng Seng

9. New regulatory structure in UK • Introduction of regulatory objectives for the Secretary of State to follow in regulating the RPBs, and also for the RPBs to follow in regulating IPs. • New powers are given to Secretary of State to give directions to, impose a financial penalty on or reprimand a RPB or revoke its recognition, or apply to court to sanction an insolvency practitioner in public interest cases. • New power is also given to Secretary of State to investigate the conduct of an RPB or IP so that the Secretary of State may determine whether it is appropriate to exercise any of its powers. A/P Wee Meng Seng

10. New rules on IP remuneration • New rules on IP remuneration were introduced in 2015. Emphasise upfront control, greater creditor engagement and control. • An IP is now required to provide an estimate of fees and an estimate of expenses to all creditors where the IP proposes time-cost as the basis or one of the basis for remuneration. The relevant body (creditors’ committee or creditors) must approve the basis, and if relevant, the estimate of fees. • The IP is required to seek approval from the relevant body in order to exceed that estimate of fees. • Where time-cost is not used, the IP will be required to provide details of the work that the IP proposes to undertake and an estimate of expenses. These will not require creditor approval but are for information only. A/P Wee Meng Seng

11. Licensing of insolvency office-holders in Singapore • Singapore is a former colony of the British Empire. Old law was retained when Singapore gained independence in 1965. • English roots but much smaller economy and hence much smaller market for insolvency services and much smaller professional body. • On the licensing of individuals to act in insolvency proceedings, no equivalent concept of acting as insolvency practitioner as in UK. Closest concept is approved liquidator. • Licensing authority is the Minister, but this function has been delegated to the Registrar of Public Accountants, who is by law the Registrar of Companies, but is now more commonly known as the chief executive of the Accounting and Corporate Regulatory Authority (ACRA). A/P Wee Meng Seng

12. Licensing of insolvency office-holders in Singapore • ACRA is the statutory board in the Ministry of Finance that oversees the regulation of companies and public accountants in Singapore. • The Insolvency Practitioners Association of Singapore Ltd was set up in 2005, but so far it has no licensing or disciplinary role. Provides mainly education and training of its members. • Thus, unlike UK, licensing is by government, not the professional bodies themselves. A/P Wee Meng Seng

13. Approved liquidators • Generally, only approved liquidators may act in the following: • Liquidation • Judicial management (company given moratorium to pursue rescue or a more advantageous realization than winding up) • Receivership (enforcement mechanism by secured creditor) • In practice, almost all insolvency practitioners are accountants, like in the UK. • Unlike in UK, approved liquidators have no monopoly over all insolvency proceedings. A/P Wee Meng Seng

14. ACRA and IPTO • ACRA is not the government body overseeing the administration of personal bankruptcy and corporate insolvency in Singapore. That body is the Insolvency and Public Trustee’s Office (IPTO) is a agency within the Ministry of Law. • The head of IPTO is the Official Receiver and Public Trustee. The functions of the OR in Singapore are largely similar to that in the UK. • Splitting of functions between ACRA and IPTO is not ideal. • Government has agreed that the licensing function and disciplinary function of insolvency practitioners would be transferred to the Official Receiver in the new Insolvency Act. A/P Wee Meng Seng

15. Appointment and removal of insolvency administrators • Generally similar to the UK model. • Thus creditors or secured creditors are usually the appointing authority, but a creditor or member who is not satisfied with the performance of the insolvency administrator may apply to court to remove him/her. A/P Wee Meng Seng

16. Remuneration of insolvency practitioners • The statutory provisions are outdated and too brief. • The court in Kao Chai-Chau Linda v Fong Wai Lyn Carolyn, building on earlier cases, created a structure for fixing the fees and expenses of insolvency practitioners and gave detailed guidelines. • The court proposed a system of costs scheduling. A costs schedule is a summary of the estimated costs of an appointment. • All court-appointed insolvency practitioners whose fees are subject to court approval should submit a cost schedule upfront, within a month of appointment. If the amount expected to be claimed exceeds the pre-approved sum by 15 per cent, the insolvency practitioner would be required to submit an updated costs schedule. A/P Wee Meng Seng

17. Conclusion • Shape of insolvency profession in UK and Singapore is heavily influenced by historical, cultural and societal factors. • Current issues are mainly concerned with the effective, efficient and fair regulation of the profession. • Related issue of remuneration of insolvency practitioners • Need to see the public interest element in the administration of insolvent companies and related investigations. Essential to ensure proper functioning of economy. So government should fund proper expenses in this area. A/P Wee Meng Seng