Insolvency Law

• Date: 01 December 2012
• Author: Kelvin POON LLB (Hons) (National University of Singapore); Advocate and Solicitor (Singapore); Partner, Rajah & Tann LLP. SIM Kwan Kiat LLB (Hons) (National University of Singapore), LLM (NYU); Attorney and Counsellor-at-Law (New York State), Advocate and Solicitor (Singapore); Partner, Rajah & Tann LLP.
• Published date: 01 December 2012

Introduction

17.1 The year 2012 saw far fewer cases on insolvency law as compared to previous years. Nevertheless, it had its fair share of important decisions that have addressed novel issues on bankruptcy (Cheo Sharon Andriesz v Official Assignee of the estate of Andriesz Paul Matthew, a bankrupt[2012] 4 SLR 89 (‘Cheo Sharon Andriesz’) – on avoidance of dispositions under a consent order after the filing of a bankruptcy application) and liquidation (Re Lehman Brothers Finance Asia Pte Ltd[2013] 1 SLR 64 (‘Lehman Brothers’) – on the relevant date for converting foreign currency debts to Singapore dollars).

17.2 The year 2012 also saw three important decisions of the Court of Appeal on schemes of arrangement (SAAG Oilfield Engineering (S) Pte Ltd v Shaik Abu Bakar bin Abdul Sukol[2012] 2 SLR 189– definition of ‘creditors’ under s 210 of the Companies Act (Cap 50, 2006 Rev Ed); The Royal Bank of Scotland NV v TT International Ltd[2012] 2 SLR 213 (‘The Royal Bank of Scotland NV’) – principles and procedures relating to a scheme of arrangement; and [2012] 4 SLR 1182– remuneration of scheme managers). The most important of the cases is probably the Court of Appeal's written grounds in The Royal Bank of Scotland NV. In that case, the Court of Appeal provides a comprehensive and detailed roadmap as to the principles and procedures that ought to be applied in passing a scheme of arrangement. That decision merits careful and detailed study.

Bankruptcy

Ratification of disposition of a bankrupt's property

17.3 In Cheo Sharon Andriesz, the court had to decide whether to ratify a bankrupt's disposition of interests in two properties. The interests were disposed of after a bankruptcy application had been made against the bankrupt but before the bankruptcy order was made. The disposition was made pursuant to an interim consent judgment made in divorce proceedings between the bankrupt and his wife. The disposition was made without consideration.

17.4 It was not disputed that the disposition was void pursuant to s 77(1) of the Bankruptcy Act (Cap 20, 2009 Rev Ed) unless it was ratified by the court. The High Court held that there were no good grounds to ratify the disposition. First, the disposition was made without any consideration and the lack of consideration was expressly stated in the interim consent order.

17.5 Second, the wife was not a person who acted in good faith and without knowledge of the bankruptcy proceedings against the bankrupt within the ambit of s 77(3) of the Bankruptcy Act. The High Court observed that the wife had filed an affidavit to set aside the statutory demand giving rise to the bankruptcy application. In that affidavit, she had stated that she knew that her husband had been served by a ‘bankruptcy document’ and that the bankruptcy application was on the cards if the amount claimed was not paid in time. Further, the wife was residing at the matrimonial property when the bankruptcy application was served personally on the bankrupt. The High Court further observed that when the wife first filed for divorce, she did not claim that the bankrupt should transfer his entire interests in the two properties to her. The agreement as to the disposition only came after service of the bankruptcy application on the bankrupt.

17.6 The wife also gave scant details of the reasons for the divorce and despite the allegations of adultery in the proceedings before the High Court she sought a divorce from the bankrupt on the ground of his unreasonable behaviour. In addition, after the commencement of divorce proceedings, the bankrupt had continued to reside at the matrimonial house with the wife even after the interim consent order had been entered into.

17.7 Third, the bankrupt's agreement to pay $21,000 per month as maintenance for the wife and their children, seen in the light of his stated monthly salary of less than US$5,000 per month, suggests that the bankrupt intended to put the funds out of the reach of his creditors.

17.8 The wife appealed against the decision of the High Court via Civil Appeal No 49 of 2012 where the appeal was dismissed. On 18 January 2013, the Court of Appeal released its grounds of decision in Cheo Sharon Andriesz v Official Assignee of the estate of Andriesz Paul Matthew, a bankrupt[2013] 2 SLR 297. On appeal, the wife adopted a different stance from that which she had taken before the High Court. In the High Court, the wife did not dispute that the disposition would be void under s 77(1) of the Bankruptcy Act unless the court ratified it. On appeal, the wife argued that the disposition was not caught by s 77(1) of the Bankruptcy Act because that provision was confined to dispositions voluntarily carried out by a bankrupt, and not dispositions carried out under the compulsion of a court order.

17.9 To support her argument, the wife argued that the English High Court decision in Re Flint (A Bankrupt)[1993] Ch 319 (‘Flint’) should not be followed in Singapore. She argued that the court in Flint had relied principally on an earlier English High Court decision in Re Abbott (A Bankrupt); Ex parte Trustee of the Property of the Bankruptcy v Abbott (PM)[1983] Ch 45 (‘Abbott’) which, in turn, was based on two provisions in the English matrimonial and bankruptcy legislation. The English provisions (s 39 of the Matrimonial Causes Act 1973 (c 18) (UK) (‘MCA 1973’)) state that a settlement or transfer of property in compliance with a property adjustment order does not prevent that settlement or transfer from falling within the scope of the avoidance provisions under the bankruptcy laws. The wife argued that in the absence of an equivalent provision in Singapore, Flint should not be applied here.

17.10 The Court of Appeal rejected the wife's argument. First, the Court of Appeal disagreed that the decision in Flint had relied principally upon Abbott. The Court of Appeal held that the decision in Flint (and its conclusion that property disposed under a consent order fell within the meaning of s 284 of the UK Insolvency Act 1986 (c 45) (which is the UK equivalent of s 77 of the Bankruptcy Act)) was arrived at on first principles and was not, as the wife had argued, based on Abbott or s 39 of the MCA 1973. The Court of Appeal also noted that a recent English High Court decision in Treharne v Forrester[2003] EWHC 2784 (Ch) (‘Treharne’) had applied Flint on very similar facts without considering s 39 of the MCA 1973.

17.11 The wife also argued (at [21]) that the phrase ‘made by him’ [emphasis added by the Court of Appeal] in s 77(1) of the Bankruptcy Act suggested that the provision only applied to voluntary dispositions and the fact that the UK Parliament saw the need to enact s 39 of the MCA 1973 was clear recognition that, in the absence of any legislation, a disposition under a court order was not one made by the bankrupt. The Court of Appeal also rejected this argument. It held that a court order requiring a transfer of property is a disposition by the person to whom the court order is directed. The Court of Appeal (adopting the analysis used in Treharne) held that only a person having a legal or equitable interest in the property disposed of could have made the disposition.

17.12 The Court of Appeal also noted that the definition of ‘disposition’ found in various law dictionaries entails an act of transfer effected by (here) the bankrupt. The use of the word ‘disposition’ in contradistinction from ‘sale’ in various provisions of the Bankruptcy Act indicates that the word ‘disposition’ captures both personal as well as court-ordered dispositions. Further, the Court of Appeal observed that the wife's argument would result in an unsatisfactory situation where an out-of-court settlement would be caught by s 77 of the Bankruptcy Act, but a settlement recorded in a consent order would not.

17.13 The Court of Appeal also rejected the wife's third argument that the proper statutory provision to invalidate the disposition is s 73B of the Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed). The Court of Appeal held that s 73B is intended to operate independently of bankruptcy law and does not limit the scope of s 77 of the Bankruptcy Act.

Failure to submit accounts

17.14 Kalaiarasi d/o Marimuthu Innasimuthu v Public Prosecutor[2012] 2 SLR 774 was an appeal against the District Court's decision to impose a term of imprisonment of eight weeks on the appellant for failing to submit to the official assignee (‘Official Assignee’) accounts of moneys and properties pursuant to s 82(1)(a) of the Bankruptcy Act (‘the I and E Statements’).

17.15 The appellant was adjudicated a bankrupt in 2000. Under s 82(1)(a) of the Bankruptcy Act, the appellant must submit to the Official Assignee the I and E statements once every six months or such other period as the Official Assignee may specify. The appellant knew of such a duty. Between April 2002 and March 2002 and between March 2002 and March 2003, the appellant's husband submitted the I and E statements on her behalf. After 2003, the appellant did not submit the I and E Statements as she had wrongly assumed that her husband, with whom she had by then become estranged, would submit them on her behalf. The appellant received two reminders – in May 2003 and July 2010. In October 2010, the Official Assignee proposed that the appellant pay $5,000 to expedite her discharge from bankruptcy. There was no mention of the appellant's failure to file the I and E Statements. The appellant was unable to raise $5,000 and offered a lower sum. Thereafter, the appellant was prosecuted for 30 counts of failure to file the I and E Statements. One charge was later dropped. The appellant pleaded guilty to three charges with the remaining charges taken into consideration for the purpose of sentencing.

17.16 At the hearing of the appeal, the Prosecution informed the High Court that it was not the practice of the Insolvency and Public Trustee's Office...