Review Of Companies Act To Raise Salary Cap

Date: 14 May 2012

To ask the Deputy Prime Minister and Minister for Finance:

Whether his Ministry will consider reviewing Section 328(2) of the Companies Act in relation to the cap of 5 months' salary or $7,500, whichever is the lesser, which a worker can claim in the event of a company turning insolvent as the last amendment was made in 1993 when monthly salaries were significantly lower.

Reply by DPM and Finance Minister Tharman Shanmugaratnam:

1. Section 328(2) of the Companies Act sets out the cap on certain specified sums which are paid in priority to an employee when a company becomes insolvent. The intent of the cap is to strike a balance between the rights of employees and creditors of the company. It also serves to ensure that managers and executives do not receive in priority, disproportionate sums of retrenchment compensation relative to workers.

2. We agree that the current cap of 5 months’ salary or $7,500, whichever is lower, is outdated. The Ministry of Manpower is embarking on a review of the Employment Act. We will revise the structure and quantum of the cap in connection with that broader review. MOF will also take into account views from the Ministry of Law and the Insolvency & Public Trustee’s Office as the provision relates to insolvency matters which will be migrated to the new omnibus insolvency legislation in the future. We will complete the review by the end of the year.