Re International Formwork & Scaffolding Pte Ltd

• Jurisdiction: Singapore
• Judge: Quentin Loh J
• Judgment Date: 28 October 2013
• Neutral Citation: [2013] SGHC 225
• Court: High Court (Singapore)
• Docket Number: Companies Winding Up No 160 of 2012 (Summons No 2313 of 2013)
• Year: 2013
• Published date: 10 December 2013
• Hearing Date: 23 May 2013,18 September 2013
• Plaintiff Counsel: Sim Kwan Kiat, Mark Cheng Wai Yuen and Zhu Ming-Ren Wilson (Rajah & Tann LLP)
• Defendant Counsel: Paul Wong and Ravin Periasamay (Rodyk & Davidson LLP)
• Subject Matter: Insolvency Law,winding up,provisional liquidator
• Citation: [2013] SGHC 225

Quentin Loh J:

The provisional liquidators of International Formwork & Scaffolding Pte Ltd (“the Company”) bring this application, Summons No 2313 of 2013, for an order that the liquidators of the company pay them their fees and expenses incurred in the provisional liquidation of the company.

This application raises questions about the entitlement of a provisional liquidator to an equitable lien over the assets of the company and the extent of that equitable lien. I am told by counsel that there is no decided case in Singapore covering this point.

Facts

By an order of court dated 11 October 2012, Timothy James Reid, Tan Aik Kiat and Ng Yau Yee Theresa were appointed provisional liquidators (“the Provisional Liquidators”) of the Company. The Provisional Liquidators’ appointment was made, inter alia, on the back of affidavit evidence suggesting that a particular group of creditors and their related parties had made several attempts to misappropriate the Company’s assets and records.

After their appointment, one of the Company’s creditors, which was also its landlord, refused to allow the Provisional Liquidators to enter its premises to secure its assets and records. An urgent application was made to the court for an order that the landlord grant the Provisional Liquidators the access it sought. This was granted on 17 October 2012. Upon securing access to the Company’s books and assets, the Provisional Liquidators carried out extensive work for the Company. They said that these included reviewing all of its books and records, organising and accounting for all of its assets against the books and records, transporting its assets to alternative premises, convening a creditors’ meeting, handling its employment matters, and managing the sale of some assets.

On 7 November 2012, Tay Yong Kwang J made an order winding up the Company. Abuthahir Abdul Gafoor and Chee Yoh Chuang were appointed liquidators of the Company (“the Liquidators”). In the winding up order, it was expressly ordered that: 4. the [Provisional Liquidators’] costs and expenses including their legal fees to be agreed with the [Liquidators] failing which to be taxed and paid from the assets of the [Company]. Further, that the [Provisional Liquidators’] lien over the [Company’s] books and assets be preserved and protected by the [Liquidators].

On 30 November 2012, a breakdown of the Provisional Liquidators’ fees and expenses was provided. This amounted to S$202,270.39. One creditor, which was related to the landlord which had to be compelled by the court to allow the Provisional Liquidators access to the Company’s premises, objected. The Liquidators refused to pay the Provisional Liquidators’ fees and expenses, and requested that they be taxed. The Provisional Liquidators and their solicitors filed their bills for taxation on 1 February 2013 in Bill of Costs No 15 of 2013 (“BC 15/2013”) and Bill of Costs No 18 of 2013 (“BC 18/2013”) respectively. Notices of Dispute to both BC 15/2013 and BC 18/2013 were filed by the Liquidators on 19 February 2013. Subsequently, the Liquidators proposed by way of a letter that that the sums of S$90,000 plus disbursements and S$50,000 plus disbursements be paid “in lieu of taxation” for each bill in BC 15/2013 and BC 18/2013 respectively. This was accepted by the Provisional Liquidators on 21 March 2013.

Pursuant to this agreement, the Provisional Liquidators wrote to the Liquidators on 1 April 2013 requesting payment of: S$97,417.67 to the Provisional Liquidators (inclusive of GST and disbursements); and S$57,324.59 to the solicitors of the Provisional Liquidators (inclusive of GST and disbursements). However, by a letter dated 3 April 2013, the Liquidators refused to make payment of these sums, saying that they would respond only when the costs of the winding up application have also been agreed.

The application before me

The Provisional Liquidators accordingly filed this application against the Liquidators on 3 May 2013 for an order that the Company and the Liquidators pay the abovementioned sums for professional fees and expenses incurred in the provisional liquidation of the company without further delay.

The application before me was heard in chambers on 23 May 2013. After hearing arguments by counsel for the Provisional Liquidators and for the Liquidators in response, I granted an order in terms with costs fixed at $7,500 to the Provisional Liquidators.

On 28 May 2013, the Liquidators applied by way of a letter for further arguments to be heard pursuant to s 28B of the Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed). I heard the further arguments made by counsel in chambers on 18 September 2013 after which I reserved my decision. I now give the reasons for my decision on 23 May 2013 and my decision upon hearing the further arguments.

The Liquidators’ arguments

By the time of the hearing of the further arguments, the Provisional Liquidators and Liquidators agreed that the law confers an equitable lien in favour of the Provisional Liquidators in respect of their costs and expenses incurred in the provisional liquidation of the Company. What they dispute is the extent of that equitable lien.

The Liquidators’ case is that the lien extends only insofar as the assets that were realised by the Provisional Liquidators in the course of their appointment. They contend that insofar as these assets are insufficient to satisfy the Provisional Liquidator’s claims, the outstanding would fall to be distributed as a preferential debt under ss 328(1)(a) and 328(3) of the Companies Act (Cap 50, 2006 Rev Ed) (“CA”), and thus rank pari passu with the costs and expenses of the Liquidator (see also [20] below).

A provisional liquidator’s equitable lien

Counsel for the Provisional Liquidators, Mr Sim Kwan Kiat (“Mr Sim”), relied on Re Pac-Asian Services Pte Ltd [1987] SLR(R) 717 (“Re Pac-Asian Services”) as authority for the proposition that a provisional liquidator enjoys an equitable lien over the assets of a company out of which he is entitled to be paid his just remuneration and expenses. Chao Hick Tin JC (as he then was) explained that a provisional liquidator stands in an analogous position to a court-appointed receiver, and so, like the latter, is entitled to have his fees, costs and expenses paid out of the assets under his administration. Like a court-appointed receiver, a provisional liquidator is an officer of the court subject to the direction of the court and not the parties. The effect of this is that a provisional liquidator has an indemnity over the assets of the company in respect of his fees, costs and expenses properly incurred and so is entitled to an equitable lien over them (see Re Pac-Asian Services at [16], citing with approval the Australian decision in Re Central Commodities Services Pty Ltd (1984) 8 ACLR 801 at 803). This puts the provisional liquidator in a position of priority to the other unsecured claims against the company’s assets.

The Liquidators objected to the Provisional Liquidators being made a secured creditor by the existence of such an equitable lien. Instead, they argued that a provisional liquidator’s fees, costs and expenses rank equally with those claims which fall under s 328(1)(a) of the CA. These include the costs of the application for the winding up order as well as the remuneration of the liquidator:

Priorities 328.—(1) Subject to the provisions of this Act, in a winding up there shall be paid in priority to all other unsecured debts — (a) firstly, the costs and expenses of the winding up including the taxed costs of the applicant for the winding up order payable under section 256, the remuneration of the liquidator and the costs of any audit carried out pursuant to section 317; (b) secondly … …

Mr Sim’s response to this was the Australian case of Shirlaw v Taylor (1991) 5 ACSR 767. There, a provisional liquidator was appointed and later, he was discharged and a liquidator appointed in his place. The question before the Federal Court of Australia was whether the provisional liquidator was entitled to an equitable lien over a trust fund of the company in his hands amounting to $175,000 for his fees and expenses and whether such lien made him a secured creditor giving him priority over the other unsecured debts (including the liquidator’s remuneration and expenses). The liquidator argued that by reason of s 441(1) of the Companies Act 1981 (Cth) which statutorily sets out the priority of certain unsecured creditors (the corresponding provision in Singapore being s 328 of the CA), the provisional liquidator could not rank ahead of the liquidator. Section 441(1)(a) and (b) provided: 441(1). Subject to the following provisions of this Subdivision, in the winding up of a company the following debts shall be paid in priority to all other unsecured debts: (a) first, the costs, charges and expenses of the winding up, including the taxed costs of an applicant payable under section 366, the remuneration of the liquidator and the costs of any audit carried out under section 422; (b) if the winding up was preceded by the appointment of a provisional liquidator-second, the costs, charges and expenses properly and reasonably incurred by the provisional liquidator during the period of his appointment and the remuneration of the provisional liquidator;

…

[emphasis added]

The full court rejected the liquidator’s argument. It held that the equitable lien was one granted under general law, and so was in no way inconsistent with the statutory scheme. The reference to the provisional liquidator’s fees costs and expenses in s 441(1)(b) was to be invoked by the provisional liquidator only if the lien over the assets of the company was insufficient to satisfy what is owed to him (see Shirlaw v Taylor at 777–778).

I agree. The equitable lien which a provisional liquidator is entitled to stands outside...