|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.
|01 December 2013
|01 December 2013
17.1 There were not many cases on insolvency law in 2013, but noteworthy decisions included(on stay of a bankruptcy application); (on the extent of a provisional liquidator's lien); (on the nature of the statutory trust when a company is wound up); and , (on cross-border insolvency).
Stay of proceedings
17.2 In, the High Court had to consider the threshold to be crossed for a bankruptcy application to be stayed on the basis of a disputed debt. The High Court granted the stay on condition that the debtors provide security. The debtors appealed and the decision of the Court of Appeal was issued in early 2014 in . In the circumstances, this Ann Rev will cover the decision of the Court of Appeal even though it was decided in 2014.
17.3 The Court of Appeal affirmed the well-established principle that the applicable standard for obtaining a stay or a dismissal of an insolvency proceeding was no more than that for resisting a summary judgment application. This was because bankruptcy proceedings were not an appropriate means of enforcing a disputed debt and a bankruptcy court was generally not in the best position to adjudicate on the merits of a commercial dispute without a proper ventilation of the evidential disputes through a trial.
17.4 In this regard, the Court of Appeal added that the usual standard for the imposition of conditions to a grant of leave to defend in a civil suit applied to conditional stays of bankruptcy proceedings, namely, whether the case advanced by the defendant/debtor was shadowy. This was to protect the interests of meritorious creditors in situations where the debtor meets a bankruptcy application with a weak case, and to avoid requiring such creditors to take out a separate summary judgment application which would also waste judicial resources.
17.5 On the facts, the Court of Appeal affirmed the High Court's decision that the debtors' defences were shadowy and ordered a stay of the bankruptcy application.
17.6 On the question of the conditions to be applied for the stay, the High Court held that the starting point in considering the condition to be imposed on a defendant resisting an insolvency application is the full sum of the claim against it, but that this should be tempered with the court having to ensure that it does not order a defendant to provide security in an amount which it would find impossible to provide as this would defeat the purpose of the condition. On the facts, the learned judge was satisfied that there was no evidence that the guarantors were not able to furnish security in the sum claimed by the plaintiff company and no evidence that the guarantors' ability to resist the insolvency proceedings would be stifled if security in the sum claimed by the plaintiff company was ordered.
17.7 The Court of Appeal agreed with the amount that the learned judge imposed in the exercise of his discretion. The Court of Appeal, however, disagreed with the learned judge's approach on this point. The Court of Appeal held that the court's discretion to impose conditions on a stay of bankruptcy proceedings was unqualified and widely framed. Therefore, the court ought not to begin with any starting point in mind in determining the amount of security to be provided, and should instead exercise its discretion flexibly to meet the needs of the case before it. The court would have to mediate between various competing concerns in deciding what conditions ought to be imposed.
17.8 On this issue, the Court of Appeal observed that there is no inconsistency between the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) and the court's broad discretionary power to order a stay of proceedings under the Bankruptcy Act (Cap 20, 2009 Rev Ed). Rule 127 provides that the court:
… shall dismiss a creditor's bankruptcy application where … the statutory demand upon which [it] is based [would have been set aside] had the debtor made an application under rule 97(1).
However, this has to be read in the light of para 144 of the Supreme Court Practice Directions, which indicates that the court is not obliged to set aside a statutory demand where there is a genuine triable issue. Rather, it would only normally do so.
17.9 The Court of Appeal added that the criterion ‘grounds which appear to the court to be substantial’ under r 98(2)(b) of the Bankruptcy Rules, therefore, constituted a higher threshold than ‘genuine triable issue’. As such, the court had to examine all the facts to ascertain whether this threshold was met and would only set aside a statutory demand where the debtor was able to adduce sufficient evidence on affidavit. This also meant that not all triable issues had equal merit. That was why some defendants were granted unconditional leave to defend or an unconditional stay or dismissal of bankruptcy proceedings while other defendants were ordered to demonstrate their commitment through the imposition of appropriate conditions. The Court of Appeal explained that rr 127 and 98(2) of the Bankruptcy Rules were also consistent with the fundamental principle that the insolvency mechanism was not to be used as a parallel procedure to procure the payment of disputed debts. The obligation imposed by the Rules ensured that a presumption of indebtedness would not arise on the basis of a disputed debt.
Stay of bankruptcy order pending appeal
17.10 One of the issues that the High Court inconsidered and which was not reviewed by the Court of Appeal was the circumstances under which a bankruptcy order ought to be stayed pending an appeal.
17.11 On this point, the learned judge held that the onus is on the defendant to show why it would be appropriate to stay any insolvency proceedings and that a stay is not granted simply because an appeal has been filed. The learned judge referred to the decision by the English Chancery Court inwhich held that, as a matter of practice, a stay of execution of a winding-up order will not be granted pending an appeal against that order. The learned judge also did not consider the decision of , relied upon by the guarantors, to be persuasive authority because (a) any bankruptcy order made against the personal guarantors can be annulled if the personal guarantors are eventually found to be not liable under the guarantees given and (b) there is no evidence that the bankruptcy or winding-up orders would have any irreversible effects on the personal and corporate guarantors.
17.12 On the facts, the learned judge reasoned that to grant a stay of the insolvency proceedings would give the guarantors the benefit of a stay without having to satisfy the conditions that had been laid down earlier to address the shadowy defences raised. The learned judge also observed that there was in fact no evidence that the guarantors could not satisfy the conditions because they were not in a financial position to provide security or for reasons beyond their control. In the circumstances, the learned judge declined to grant the stay pending the appeal against the bankruptcy orders.
Presumption of insolvency
17.13 In, the plaintiff creditor served a statutory demand on the defendant company on a judgment debt. The defendant company failed to pay the sums demanded or any part thereof within three weeks and the plaintiff creditor filed a winding-up application pursuant to s 254(1)(e) of the Companies Act (Cap 50, 2006 Rev Ed), thereby triggering the presumption of insolvency pursuant to s 254(2)(a) of the Companies Act.
17.14 The defendant attempted to rebut the presumption of insolvency on the basis that it had substantial assets in the form of real estate and a factory building. The defendant also asserted that it had an offer from a bank to extend credit facilities that would exceed the amount due on the judgment debt.
17.15 The High Court was not satisfied that there was any evidence to support the defendant's contentions such as to...
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