AREAS OF UNCERTAINTY IN THE JUDICIAL MANAGEMENT MORATORIUM

• Author: TERENCE TAN
• Citation: (1993) 5 SAcLJ 161
• Published date: 01 December 1993
• Date: 01 December 1993

The aim of this article is examine uncertainties in the moratorium granted in relation to judicial management in Singapore, in particular in the area of intellectual property licensees and tenancies granted to companies in judicial management.

Judicial management aims to provide a breathing space for companies in short term difficulties.1 For this to be effective, the company is granted a moratorium from the date of the petition of the application for judicial management to the date of the court’s decision whether or not to grant the judicial management order — S 227C of the Companies Act2 (all further references to sections will be to this Act unless stated otherwise) -

“S 227C Pre-judicial management prohibitions

During the period beginning with the presentation of the petition for a judicial management order and ending with the making of such order or the dismissal of the petition - …

(b) no steps shall be taken to enforce any charge on or security over the company’s property or to repossess any goods in the company’s possession under any hire purchase agreement, chattels leasing agreement or retention of title agreement except and subject to such terms as the Court may impose; and

(c) no other proceedings and no execution or other legal process shall be commenced or continued and no distress may be levied against the Company or its property except with leave of Court and subject to such terms as the Court may impose.”

This moratorium is continued by s 227D if the court decides to put the company into judicial management -

“S 227D Effect of a judicial management order -

(4) During the period for which the judicial management order is in force - …

(c) no other proceedings and no execution or other legal process shall be commenced or continued and no distress may be levied against the Company or its property except with the consent of the judicial manager

or with leave of Court and (where the Court gives leave) subject to such terms as the Court may impose; and

(d) no steps may be taken to enforce security over the company’s property or to repossess any goods under any hire purchase agreement, chattels leasing agreement or retention of title agreement except with the consent of the judicial manager or with leave of Court and (where the Court gives leave) subject to such terms as the Court may impose.”

Judicial management and tenancies

A landlord whose tenant is in default of the rental payments may take the usual remedies such as distress, forfeiture, etc.3 However, where the tenant is a company in judicial management, these remedies would not be allowed because of s 227D(c) since they would be legal proceedings.

However, one step that could be taken would be to lock out the tenant. Where the tenant (whether a company or an individual) is in default of rent, would this be a legal step? Some lawyers think not but could not point to a specific rule of common law or a specific statute in Singapore that rendered such an act illegal. The locking out must not of course occur while there are persons on the premises, for in that situation, the tort of false imprisonment may have been committed.4 Other than this circumstance, in normal cases, the lock-out is a legitimate weapon of a landlord (see the case of Exchange Travel Agency Ltd v Triton Property Trust plc, discussed below).

s 227B defines “property” as “including money, goods, things in action and every description of property, whether REAL or personal, … and also obligations and every description of interest whether present or future or vested or contingent arising out of or incidental to, property” (emphasis added by author).

Since there is an express reference to real property, there is no doubt that land is covered. Land is, according to economists, a factor of production. If the company is in the manufacturing business, it would require factory premises; if it is involved in the sale of goods or the provision of a service, it would require premises for the management of its operations. In addition, where the practice of the company is to attract customers to its premises, if the company is evicted, it may mean financial ruin since there will be great difficulty in its customers locating it in its new location.

The issue that arises here is whether the landlord’s right of re-entry is within

the scope of the moratorium; in other words, whether he is “enforcing his security”, within the words of s 227D, by exercising his right of re-entry.

As there are few local cases on judicial management. and since the amendments to the Companies Act relating to judicial management were modelled on the English Insolvency Act 1985 — see Re Job Associates (Pte) Ltd (under judicial management) [1992] 2 SLR 430, we may refer to the case of Exchange Travel Agency Ltd v Triton Property Trust plc and Another [1991] BCLC 396 for guidance on whether the landlord’s right of re-entry would contravene the moratorium, While not stating that the local courts would invariably follow the English court’s decisions, in Re Job Associates, Goh JC did state that “important principles [would] no doubt be laid down by [the English courts and the local courts]”. In the United Kingdom, the procedure of judicial management is referred to as administration. In this article, the two terms will be used interchangeably.

The facts of Exchange Travel Agency Ltd v Triton Property Trust plc and Another are as follows: The applicant (“Exchange” or the “company”) had leased a shop (the premises) for 15 years from Triton Pty Trust Ltd (the landlord). Later, the company failed to pay the quarterly rent as required. It was also placed under administration for the purpose of achieving a better realization of its assets than in a winding up. Following the making of the administration order, the administrators of the company started conducting negotiations for the sale of the leasehold interest in the shop. However, they received a letter from the agents of the landlord informing them that the latter had re-entered the premises and changed the locks due to the company’s failure to pay the rent. Further, the landlord had re-let the premises to another party. The administrators of the company then sought an injunction to restrain the landlord from occupying the premises and to similarly restrain the new tenant. This was based on the claim that the right to re-entry was covered by the moratorium imposed by s 11 of the United Kingdom Insolvency Act 1986. The Singapore...