Insolvency Law

Date01 December 2015
Citation(2015) 16 SAL Ann Rev 502
AuthorKelvin POON LLB (Hons) (National University of Singapore); Advocate and Solicitor (Singapore); Partner, Rajah & Tann Singapore 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 Singapore LLP. [The authors acknowledge the assistance of Wilson Zhu in preparing this article.]
Published date01 December 2015

17.1 2015 saw a fair number of noteworthy decisions covering a wide range of issues. Some decisions reaffirmed well-established principles (for instance, on statutory demands – see Bombay Talkies (S) Pte Ltd v United Overseas Bank Ltd[2016] 2 SLR 875); while others addressed novel issues such as the interaction between the statutory vesting of the bankrupt's property in the Official Assignee and the court's power to divide matrimonial assets under the Women's Charter (Cap 353, 2009 Rev Ed) (AVM v AWH[2015] 4 SLR 1274). There are also important judicial pronouncements on litigation funding for a company in liquidation (Re Vanguard Energy Pte Ltd[2015] 4 SLR 597), remuneration of insolvency office holders (Liquidators of Dovechem Holdings Pte Ltd v Dovechem Holdings Pte Ltd[2015] 4 SLR 955 and Kao Chai-Chau Linda v Fong Wai Lyn Carolyn[2016] 1 SLR 21), and schemes of arrangement (Re Conchubar Aromatics Ltd[2015] SGHC 322, Re Sembawang Engineers and Constructors Pte Ltd[2015] SGHC 250 and Re Punj Lloyd Pte Ltd[2015] SGHC 321).

Statutory demands
Composition of debt

17.2 In Bombay Talkies (S) Pte Ltd v United Overseas Bank Ltd[2016] 2 SLR 875, the Court of Appeal held that for purposes of s 254(2)(a) of the Companies Act (Cap 50, 2006 Rev Ed), a debt is compounded when it is discharged or rendered unenforceable pursuant to an agreement between the debtor and the creditor.

17.3 Thus, the Court of Appeal held that an arrangement where a creditor affords a debtor an opportunity to pay by instalments while expressly reserving its right to proceed with the winding-up action if the instalment plan was breached would not amount to a composition of the debt.

17.4 In arriving at this decision, the Court of Appeal declined to follow the decision of the Federal Court of Australia in Commonwealth Bank of Australia v Parform Pty Ltd(1995) 13 ACLC 1309 at [4] where it had held (obiter) that ‘to compound for a debt is to accept an arrangement for payment of the amount of the debt or of a different amount’.

Third-party security

17.5 In Chan Siew Lee Jannie v Australia and New Zealand Banking Group Ltd[2015] SGHC 157 (‘Chan Siew Lee Jannie (HC)’), the applicant had given a personal guarantee to the respondent bank to secure a loan that the bank had advanced to the principal debtor.

17.6 In the statutory demand that the bank subsequently issued against the applicant, the bank did not specify the pledge that the principal debtor had given to secure the loan. The applicant argued that the statutory demand ought to be set aside because the pledge given by the principal debtor was ‘security for the debt’ or ‘security in respect of the debt’ within rr 94(5) and 98(2) of the Bankruptcy Rules (Cap 20, R1, 2006 Rev Ed). Specifically, the applicant argued that the exclusion of the pledge was unfair to her because if both the guarantor and the principal debtor came under the bankruptcy regime, the bank would have to take into account the pledge by the principal debtor in bankruptcy proceedings against the principal debtor but does not have to do that in bankruptcy proceedings against the guarantor.

17.7 The High Court held that the expression ‘any security for the debt’ in r 94(5) of the Bankruptcy Rules and ‘security in respect of the debt’ in r 98(2) of the Bankruptcy Rules should be read narrowly such that only security provided by the debtor to whom the statutory demand was issued needed to be specified. In arriving at his decision, the learned judge followed the earlier High Court decisions in Re Loh Lee Keow, ex parte Keppel TatLee Bank Ltd[2000] 3 SLR(R) 283 (‘Re Loh Lee Keow’) and Sia Leng Yuen v HKR Properties Ltd[2001] 3 SLR(R) 587 (‘Sia Leng Yuen’).

17.8 The High Court's decision in Chan Siew Lee Jannie (HC) was affirmed by the Court of Appeal on 21 January 2016. The Court of Appeal issued its full reasons on 6 April 2016 (see Chan Siew Lee Jannie v Australia and New Zealand Banking Group Ltd[2016] 3 SLR 239). This is an important decision as it affirms the earlier High Court decisions of Re Loh Lee Keow and Sia Leng Yuen. It also helpfully explains the principles underpinning the Bankruptcy Act (Cap 20, 2009 Rev Ed) which were not addressed in the earlier High Court decisions.

17.9 The Court of Appeal clarified that the subject of s 63 of the Bankruptcy Act is the regulation of the bankrupt's estate and the object of the provision is to prevent secured creditors – who stand in a privileged position by virtue of the security which they hold – from starting bankruptcy proceedings unless they are willing to give up their security to augment the bankrupt's estate.

17.10 However, third-party securities, even if given up, will not form part of the eventual estate of the debtor divisible among his creditors. They are accordingly irrelevant for the purpose of determining if a creditor may present a bankruptcy application and consequently there is no reason why a creditor who holds third party securities should be precluded from presenting a bankruptcy application.

17.11 The Court of Appeal also addressed the perceived unfairness that a guarantor could be made a bankrupt when the principal debtor (because the value of the security he provided exceeds the value of the debt) could not be. The Court of Appeal explained that it has long been the position under the common law that a creditor with several remedies at his disposal can choose whether to enforce and, if so, which one to enforce, at what time, in which order, and in whatever way, subject only to the rule that he cannot recover more than is due to him.

17.12 There is, however, no principle in law which requires a creditor to first realise the security it holds in respect of the debt before issuing a bankruptcy application against the guarantor. The Court of Appeal also noted that the guarantee in question expressly provided that the bank may exercise its rights under the guarantee without first taking proceedings against the principal debtor.

Extension of time to set aside statutory demand

17.13 In Chan Siew Lee Jannie (HC), the applicant applied for an extension of time to apply to set aside a statutory demand 70 days after it had been served. Referring to Rafat Ali Rizvi v ING Bank Hong Kong Branch[2011] SGHC 114, the High Court held that the delay of 70 days was substantial and the reason given that the delay was due to ongoing without prejudice negotiations was not a sufficient reason. The learned judge also noted that the grounds for setting aside the statutory demand were unsound. As such, while it appeared that little prejudice would result if time were extended, the learned judge placed greater weight on the other factors and found that the applicant did not make a case for time to be extended. On appeal, the Court of Appeal agreed substantially with the reasoning and analysis of the learned judge ([2016] 3 SLR 239).

Amount of debt due on date of demand

17.14 Rule 94(1) of the Bankruptcy Rules provides that a statutory demand shall be in Form 1 which requires the creditor to state ‘the exact sum due as of date of demand’. In Ramesh Mohandas Nagrani v United Overseas Bank Ltd[2016] 1 SLR 174 (‘Ramesh Mohandas Nagrani’), the High Court held that a statutory demand which had stated an amount different from that actually owing by the debtor as at the date of the statutory demand was defective and was a ground for the statutory demand to be set aside pursuant to r 98(2)(d) of the Bankruptcy Rules.

17.15 On the facts, however, the High Court declined to set aside the statutory demand. Following Re Rasmachayana Sulistyo, ex parte The Hongkong and Shanghai Banking Corp Ltd[2005] 1 SLR(R) 483 (‘Re Rasmachayana Sulistyo’) at [24], the learned judge held that the legislative intent of the Bankruptcy Act and the Bankruptcy Rules is to accord precedence to substance over form and/or technicalities and that ‘any prima facie inference raised by [words such as “shall” or “must”] may be dislodged after taking into consideration the scope and objectives of the legislation and the consequences arising from alternative constructions’: Ramesh Mohandas Nagrani at [11].

17.16 The learned judge noted that there was no evidence of any injustice suffered by the debtor as a result of the defect. If the debtor had paid the amount stated in the statutory demand, it would have been spent. In the circumstances, the learned judge held that non-compliance with r 94(1) of the Bankruptcy Rules was not fatal and he declined to set aside the statutory demand.

Property of the debtor

17.17 Rule 94(5) of the Bankruptcy Rules provides that, if the creditor ‘holds any property of the debtor or any security for the debtor’, the demand shall specify the nature and value of the security or the assets. In Ramesh Mohandas Nagrani, the debtor argued that the bank creditor ought to have specified in the statutory demand the value of the car that the bank creditor held as security for a hire-purchase agreement or the debtor's interest therein.

17.18 The learned judge held that r 94(5) of the Bankruptcy Rules is triggered only where the creditor holds the ‘property of the debtor’. It was common ground that the debtor did not own the car under the hire-purchase agreement. As such, it was not ‘property of the debtor’ within r 94(5) of the Bankruptcy Rules. To the extent the debtor argued that his interest in the form of an option to purchase the car under the hire-purchase agreement ought to have been specified in the statutory demand, the learned judge held that while it was ‘property’ of the debtor, it was an interest that the debtor himself (and not the creditor bank) held. Again, this fell outside r 94(5) of the Bankruptcy Rules.

17.19 Further, the learned judge, following the High Court decision in Goh Chin Soon v Oversea-Chinese Banking Corp Ltd[2001] SGHC 17, held that r 94(5) does not apply to all property of the debtor that is held by the creditor. The...

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