Insolvency Law

• Published date: 01 December 2014
• Citation: (2014) 15 SAL Ann Rev 390
• Author: Kelvin 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.
• Date: 01 December 2014

Introduction

17.1 There were a number of interesting decisions in 2014 which considered certain legal issues for the first time in Singapore. They include Manharlal Trikamdas Mody v Sumikin Bussan International (HK) Ltd[2014] 3 SLR 1161 (Manharlal) (legal standing of a bankrupt to enforce ss 76(1)(c) and 105 of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (BA) and the assign ability of the right to enforce such provisions); Interocean Holdings Group (BVI) Ltd v Zi-Techasia (Singapore) Pte Ltd[2014] 2 SLR 485 (Interocean Holdings) (effect of a stay of a voluntary winding-up); and Tang Yong Kiat Rickie v Sinesinga Sdn Bhd[2014] SGHCR 6 (effect of a Malaysian bankruptcy order on a Singapore bankruptcy).

Bankruptcy

Setting aside statutory demand

17.2 In Thu Aung Zaw v Norb Creative Studio[2014] SGHC 67, a guarantor applied to set aside a statutory demand on the ground that the debt underpinning the demand was disputed.

17.3 The creditor objected to the application on the ground that the application was made more than four months after the service of thestatutory demand instead of the 14 days stipulated by r 97(1)(a) of the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) and there was no application for an extension of time filed.

17.4 The learned judge held that the court has discretion to waive the procedural irregularity if it is satisfied that the creditor would suffer no substantial prejudice or injustice as a result of the non-compliance. On the facts, the learned judge decided to exercise his discretion to allow the application as the debtor had raised important objections to the validity of the guarantee. Given that these arguments could be raised in the bankruptcy proceedings, they will be addressed then in any event. As such, the creditor would not be prejudiced as a consequence of the procedural irregularity.

17.5 In deciding whether the statutory demand ought to be set aside on the merits, the learned judge applied the test laid down in Tan Eng Joo v United Overseas Bank Ltd[2010] 2 SLR 703 that a statutory demand ought to be set aside if there are triable issues to go to trial. In this regard, the learned judge also followed the judicial approach espoused in Wong Kwei Cheong v ABN-AMRO Bank NV[2002]2 SLR(R) 31 that the court should not conduct a full hearing of the dispute and adjudicate on the merits. All the debtor needs to show is that his dispute of the debt on substantial grounds raises a triable issue, that is, that there is a genuine case for asserting that the guarantee was void for want of consideration. On the facts, the learned judge found that there were triable issues and accordingly set aside the statutory demand.

17.6 For completeness, the learned judge also addressed two other arguments that the guarantor had made to support his application. The guarantor argued that the quantum of the debt was misstated in thestatutory demand. The learned judge held that the misstatement of the debt quantum would not have, in itself, been a sufficient ground to setaside the statutory demand as the undisputed quantum of debt exceeded the threshold of $10,000.

17.7 The guarantor also argued that it would be unjust if the statutory demand were not set aside as his rights to seek contribution from his co-guarantor (who was not served with a statutory demand) would be extinguished if he were to be made a bankrupt. The learned judge held that this would not have been sufficient to set aside the statutory demand pursuant to r 98(2) (e) of the Bankruptcy Rules because the guarantee in question was a joint and several guarantee. Further, the bankruptcy of the guarantor would not extinguish his claim against the co-guarantor as the claim would vest in the official assignee (OA).

17.8 In Tan Hup Yuan Patrick v The Griffin Coal Mining Co Pty Ltd[2014] 4 SLR 221, a judgment debtor applied to set aside a statutory demand that was issued for its failure to pay the sums due under a consent judgment made in the Singapore court. Relying on r 98(2) (e) of the Bankruptcy Rules, the judgment debtor argued that the debt was substantially disputed on the basis that the consent judgment ought to have been entered against it as it was the wrong party sued in the Singapore court proceedings. The judgment debtor also argued that it had a valid cross claim against the judgment creditor in respect of an alleged breach of an agreement entered into before the consent judgment was made.

17.9 While r 98(2)(e) states that the court shall set aside a statutory demand if the debt is disputed on grounds which appear to the court to be substantial, the learned judge held that the rule was to be read with para 144 of the Supreme Court Practice Directions (1 January 2013 release) which states that:

on an application to set aside a statutory demand based on a judgment or an order, the Court will not go behind the judgment or order and inquire into the validity of the debt.

The learned judge added that even though the practice directions do not have the force of law, they are directions from the court nevertheless and a court will not normally depart from its directions unless there is a good reason for doing so. As such, the judgment debtor was precluded from asking the court to go behind the consent judgment and to inquire into the validity of the debt.

17.10 The learned judge also held that the judgment debtor was prevented by cause of action estoppel and the extended doctrine of res judicata from arguing that the sums under the consent judgement were not due or that it had a valid cross-claim given that the alleged cross-claim was in substance a defence to the judgment creditor's claim in the Singapore court proceedings. In the circumstances, the learned judge held that the debt was not disputed on grounds which appeared to be substantial or that there were any genuine triable issues. Accordingly, the judgment debtor's application to set aside the statutory demand was dismissed.

Cross-border bankruptcy

17.11 In Tang Yong Kiat Rickie v Sinesinga Sdn Bhd[2014] SGHCR 6 (above, para 17.1), the plaintiff filed an originating summons in bankruptcy for the annulment of a Singapore bankruptcy order. The plaintiff's main contention was that, at the time the Singapore bankruptcy application was filed, and later, when the Singapore bankruptcy order was granted, he was already adjudged bankrupt in Malaysia.

17.12 The learned assistant registrar decided not to annul the Singapore bankruptcy order. The court considered a number of provisions in the BA, mainly the annulment provisions in ss 123(1)(a),123(1)(c) and 123(1)(d). The court also considered the effect of the vesting provisions in ss 152(2) and 152(3), as well as the relationship between ss 65(2)(e) and 123(1)(a).

17.13 As a preliminary point, the court stated that the power to make a bankruptcy order under the BA belongs wholly to the Singapore court.Whether or not leave was required from the Malaysian courts to file a bankruptcy petition in Singapore did not affect the power of the Singapore courts to make the bankruptcy order under the BA.

17.14 The court first considered the effect of s 65(2)(e) of the BA when read with s 123(1)(a) of the same Act. Section 65(2)(e) reads: The court may dismiss the [bankruptcy] application if [i]t is satisfied that for other sufficient cause no order ought to be made thereon. The court referred to a number of case authorities where sufficient cause was found, and noted that there was no case which held that the fact that a person had already been declared a bankrupt in a foreign jurisdictionwas, without more, sufficient cause that a local...