Insolvency Law

Citation(2003) 4 SAL Ann Rev 263
Publication Date01 December 2003
Date01 December 2003
AuthorLEE ENG BENG LLB (National University of Singapore), BCL (Oxford), Advocate and Solicitor (Singapore)
Introduction

14.1 Schemes of arrangement hogged the limelight in 2003, with four important cases being decided by the Singapore courts (Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd[2003] 3 SLR 629, Hitachi Plant Engineering & Construction Co Ltd v Eltraco International Pte Ltd[2003] 4 SLR 384, Re Econ Corp Ltd[2004] 1 SLR 273 and Chew Eu Hock Construction Co Pte Ltd v Central Provident Fund Board[2003] 4 SLR 137). These cases provide clear evidence of a recent trend, starting with the Court of Appeal”s decision in Daewoo Singapore Pte Ltd v CEL Tractors Pte Ltd[2001] 4 SLR 35 (‘Daewoo’), of creditors actively opposing the grant of court sanction for schemes of arrangement under s 210 of the Companies Act (Cap 50, 1994 Rev Ed), with a fair amount of success no less. Prior to Daewoo, there had been no reported Singapore case of a creditor opposing (successfully or otherwise) the grant of court sanction for a scheme of arrangement, apart from the decision in Re Halley”s Departmental Store Pte Ltd[1996] 2 SLR 70. These cases have provided a useful forum for the courts to restate, develop and refine the principles governing the grant of court sanction. Accordingly, this year”s review on schemes of arrangement is especially detailed.

14.2 It is interesting to note that the scheme of arrangement procedure has, since the late 1990s, been increasingly invoked in Singapore, with some success. In many other Commonwealth jurisdictions, the scheme of arrangement procedure has never been very popular and has been seen as time-consuming, costly and cumbersome, but the experience in Singapore has been different. The popularity of schemes of arrangement in Singapore has been largely due to the practical and commercial approach taken by the courts and the efficiency of the court system. The insolvency practitioners and advisers in Singapore have generally found that schemes of arrangement are an effective and practical option, as they may be implemented within reasonable time lines, and the cost and effort involved in preparing scheme documentation and obtaining creditors” approval and court sanction are not prohibitive. In particular, in many contexts, schemes of arrangement have emerged as the preferred alternative to judicial management, attracting less adverse publicity and allowing management to remain in possession of the company. The recent spate of cases involving creditor opposition to schemes of arrangement is probably a natural consequence of the increased use of

schemes of arrangement and a corresponding greater awareness on the part of creditors of their rights.

14.3 The avoidance provisions on transactions at an undervalue and unfair preferences continue to be a fertile source of litigation. This year”s contributions comprise a Court of Appeal decision (Mercator & Noordstar NV v Velstra Pte Ltd[2003] 4 SLR 667) and two High Court decisions (Re Tiong Polestar Engineering Pte Ltd[2003] 4 SLR 1 and ECRC Land Pte Ltd v Ho Wing On Christopher[2004] 1 SLR 105). Given that the relevant provisions were enacted less than a decade ago and their drafting is, as this reviewer has on many occasions pointed out, less than satisfactory, one may expect more cases in this area for some time to come.

14.4 The above should not detract from the fact that important decisions were also forthcoming on all other major areas of insolvency law. The Court of Appeal had the opportunity to consider the priority of indemnity legal costs incurred by a defendant in successfully defending against a claim brought by the liquidators of a company (Chee Kheong Mah Chaly v Liquidators of Baring Futures (Singapore) Pte Ltd, [2003] 2 SLR 571), the duties and liabilities of receivers and managers in the conduct of receivership and debenture holders in exercising their right of appointment of a receiver and manager (Roberto Building Material Pte Ltd v Oversea-Chinese Banking Corp (No 2)[2003] 3 SLR 217), and whether to allow the huge Asia Pulp & Paper Group to continue with its debt restructuring efforts or to place the holding company under judicial management (Deutsche Bank AG v Asia Pulp & Paper Co Ltd[2003] 2 SLR 320). The High Court ruled on the priority of Central Provident Fund contributions in judicial management in a much-publicised case, Chew Eu Hock Construction Co Pte Ltd v Central Provident Fund Board (para 14.1 supra), restated the rules of service of bankruptcy demands in United Overseas Bank Ltd v Ishak bin Ismail[2003] 3 SLR 302, compelled the managing director of a company to be examined by the liquidators on the affairs of the company in Re Lion City Holdings Pte Ltd[2003] 3 SLR 493, and analysed the meaning of insolvency and the duties of directors in the insolvency of a company in Chip Thye Enterprises Pte Ltd v Phay Gi Mo[2004] 1 SLR 434. All these cases are no less significant additions to Singapore”s insolvency law jurisprudence.

Liquidation
Leave to commence legal proceedings against company in winding up

14.5 Section 262(3) of the Companies Act states that, when a winding up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company

except by leave of the court and in accordance with such terms as the court imposes. The object of this provision is to ensure, so far as is possible, the orderly administration of the liquidation, to ensure that the assets of the company in liquidation should be administered in accordance with the statute, to ensure that no person should get an advantage to which he is not properly entitled and to enable the court effectively to supervise all claims brought against the company (Re Sydney Formworks Pty Ltd[1965] NSWR 645; (1965) 82 WN (Pt 1)(NSW) 558 at 562). The requirement of obtaining leave is to prevent the liquidator”s task from being made more difficult due to a scramble among creditors in taking action or obtaining decrees against the company or its assets (see, in the context of the corresponding moratorium provision in bankruptcy, Overseas Union Bank v Lew Keh Lam[1999] 3 SLR 393). A counterclaim against the company falls within this moratorium (Langley Constructions (Brixham) Ltd v Wells[1969] 1 WLR 503).

14.6 In Jumabhoy Rafiq v Scotts Investment (Singapore) Pte Ltd[2003] 2 SLR 422, a company in liquidation commenced legal proceedings against a defendant, who then filed a counterclaim against the company and applied for summary judgment on the counterclaim. The company objected on the basis that leave of the court under s 262(3) of the Companies Act for the prosecution of the counterclaim had not been obtained, and the defendant accordingly applied for leave. The two issues before the court were, firstly, whether the court had jurisdiction to grant leave retrospectively or nunc pro tunc, and, secondly, if so, whether the court should exercise such jurisdiction.

14.7 Woo Bih Li J determined both issues in the affirmative. The learned judge held that whether leave should be granted in any case depended on the particular circumstances of that case, and there was no general rule discouraging the exercise of the jurisdiction to grant leave. As there was only one party claiming against the company, and there was nothing to show that the procedure in liquidation would be quicker and less expensive, especially since the counterclaim had already gone some way in the legal proceedings, leave would be granted. On the other issue of granting leave retrospectively, Woo J declined to follow the earlier English authorities and accepted the position established by the Australian authorities and the later English case of In re Saunders[1997] Ch 60 that the court has the jurisdiction to grant leave nunc pro tunc. The learned judge pointed out that it would cause injustice and inconvenience if the court has no such jurisdiction, as a claimant might take steps in proceedings without finding out that the other party has been placed in liquidation. A claimant might also be encouraged or misled into commencing or continuing legal proceedings against the other party without obtaining the requisite leave, and it would not be correct for the latter to then assert that the legal proceedings were a nullity on the basis that the leave of the

court has not been obtained. The learned judge was also of the view that the fact that the jurisdiction to grant leave nunc pro tunc might assist a claimant to overcome limitation defences did not mean that there should be no such jurisdiction. It is not the purpose of s 262(3) to confer a windfall on a company in liquidation in this respect.

Rights of liquidator in respect of uncompleted execution against the company

14.8 Section 334(1) of the Companies Act states that, where a creditor has attached any debt due to the company and the company is subsequently wound up, he shall not be entitled to retain the benefit of the attachment against the liquidator unless he has completed the attachment before the date of the commencement of the winding up. However, s 334(1)(c) states that the rights conferred by s 334(1) on the liquidator may be set aside by the court in favour of the execution creditor to such extent and subject to such terms as the court thinks fit. In Re Tiong Polestar Engineering Pte Ltd (para 14.3 supra), the liquidator of a company applied to recover a sum which had been received by a judgment creditor of the company one day after the commencement of winding up, pursuant to a garnishee order absolute. The judgment creditor sought to invoke the jurisdiction of the court to set aside the right of the liquidator to recover this payment. The judgment creditor pointed out that its request for the payment of the sum had been made several days before the commencement of winding up, and that the cashier”s order by which the sum was paid was actually dispatched to it one day before, that is, the day of the commencement of...

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