BNP Paribas v Jurong Shipyard Pte Ltd

JudgeChan Sek Keong CJ
Judgment Date09 March 2009
Neutral Citation[2009] SGCA 11
Date09 March 2009
Subject MatterRegistration,Whether statutory demand ought to spell out debtor could pay sum demanded or to secure or compound for it,Whether court should grant injunction to restrain filing of winding-up petition,Winding up,Section 254(2)(a) Companies Act (Cap 50, 2006 Rev Ed),Companies,Whether winding-up petition could be filed,Alleged debtor offering to fully secure claim
Docket NumberCivil Appeal No 91 of 2008
Published date11 March 2009
Defendant CounselDavinder Singh SC, Blossom Hing, Lin Yan Yan and Joan Lim (Drew & Napier LLC)
CourtCourt of Appeal (Singapore)
Plaintiff CounselSundaresh Menon SC, Aurill Kam, Disa Sim and Paul Tan (Rajah & Tann LLP)

9 March 2009

Chan Sek Keong CJ (delivering the grounds of decision of the court):


1 This is an appeal against the decision of Lee Seiu Kin J (“the Judge”) in Originating Summons No 1727 of 2007, viz, Jurong Shipyard Pte Ltd v BNP Paribas [2008] 4 SLR 33 (“the GD”) granting Jurong Shipyard Pte Ltd (“JSPL”) an injunction to restrain BNP Paribas (“BNP”) from commencing winding-up proceedings against JSPL, which BNP had threatened to do after JSPL had failed to comply with BNP’s statutory demand for payment of approximately US$50m allegedly due and payable by JSPL to BNP arising from certain foreign exchange contracts to which BNP was a counterparty.

2 At the conclusion of the hearing of this appeal, we dismissed it and gave the following brief grounds:

1 Jurong Shipyard Pte Ltd (“JSPL”) entered into a number of FX contracts with one of its bankers, BNP Paribas (“BNP”), as counterparty. The instructions for the FX contracts were given by Mr Wee Sing Guan (“Wee”), who prior to October 2007 was a director of JSPL. Wee was also Group Finance Director of SembCorp Marine Ltd, JSPL’s parent.

2 JSPL’s board of directors came to know of these contracts and repudiated them on various grounds: one of which was that BNP was aware or ought to have been aware that Wee had no authority to enter into the FX contracts; another was that Wee and BNP had colluded to cover up the losses by entering into a further unauthorized FX contracts to cover up the losses.

3 BNP rejected JSPL’s allegations on the ground that JSPL directors have passed a resolution authorizing Wee to enter into FX contracts for the purpose of hedging or speculation.

4 JSPL and BNP mutually agreed to close out the FX contracts in order to crystallize the losses, with both parties reserving their respective rights and liabilities. After the close-out was completed under the terms of the Close-Out Agreement, the amount of the loss was crystallized at approximately US$50m.

5 BNP sent letters of demand to JSPL to pay the US$50m on the ground that there was an immediate payment obligation under the Close-Out Agreement, subject to a claw-back if JSPL could show that it was not bound by the FX contracts. BNP also claimed that JSPL was fully liable for the US$50m loss as it was their position that the FX contracts were authorized by JSPL.

6 On 20 November 2007, JSPL offered to place in escrow sufficient funds to cover the US$50m to meet any judgment obtained by BNP on its claim. This was made on the condition that BNP commence legal proceedings to recover the alleged debt. JSPL gave BNP up to 23 November 2007 to consider the offer. BNP rejected the escrow offer and served a statutory demand to JSPL for payment that same day.

7 On 23 November 2007, JSPL applied to the High Court for an injunction to restrain BNP from commencing winding-up proceedings on the ground that there were triable issues to BNP’s claim and that BNP was not entitled to present a winding up petition.

8 BNP responded that JSPL had no triable issue as (a) there was an immediate obligation to pay, subject to a claw-back under the Close-Out Agreement; and (b) there was ultimately a debt (equal to the close-out amount) under the Master Agreement.

9 The application was heard by Lee Seiu Kin J who found that JSPL had raised triable issues to BNP’s claim under the Close-Out Agreement and/or the Master Agreement.

10 BNP appealed to this court. We heard full arguments on the issues raised by BNP on appeal.

11 In our view, BNP should have accepted JSPL’s offer to pay the amount of the crystallized loss into an escrow account and thereafter commenced an action against JSPL to recover the alleged debt. We hold that in a case where a solvent company does not admit the debt and is prepared to offer security to defend the claim, the court should not as a matter of principle, in the exercise of its discretion, allow a claimant to file a winding up petition against the solvent company, with all the potentially disastrous consequences that may result from the filing of the petition. It is inappropriate to use the threat of winding up to force a company to pay the unadmitted debt, in such circumstances.

12 Accordingly, we make the following orders:

(a) the appeal is dismissed with costs, with the usual consequential orders;

(b) the injunction is continued subject to JSPL providing security for the amount of BNP’s claim (as per the statutory demand dated 20 November 2007) in a form to be agreed between the parties within 14 days from today, failing which we will make the requisite order; and

(c) if BNP fails to commence an action against JSPL within 12 weeks from the date hereof, the security shall be cancelled or returned to JSPL.

13 We express no views on the findings of Lee Seiu Kin J that JSPL has raised triable issues to the claim of BNP.

3 We now elaborate on why it was wrong of BNP to have threatened to resort to winding-up proceedings against JSPL in order to recover a contested debt instead of accepting the security offered by JSPL pending the resolution of BNP’s claim through court proceedings. In our brief grounds, we held that JSPL was entirely justified in applying for an injunction to restrain BNP from filing the petition. Although JSPL filed the petition on the ground that there were triable issues with respect to BNP’s claim for the US$50m crystallised loss, it was also our view that the condition of triable issues was not even necessary to justify the injunction. We will now elaborate on our conclusions.

The court’s power to wind up a company

4 We examine first the court’s statutory power to wind up a company under the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). Section 253(1)(b) of the Act provides that “[a] company … may be wound up under an order of the Court on the application of any creditor, including a contingent or prospective creditor, of the company” [emphasis added]. Section 254(1)(e) provides that the court may order the winding up of a company if it is unable to pay its debts. A company is deemed to be unable to pay its debts in the circumstances prescribed by s 254(2) of the Act as follows:

A company shall be deemed to be unable to pay its debts if —

(a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding $10,000 then due has served on the company by leaving at the registered office a demand under his hand or under the hand of his agent thereunto lawfully authorised requiring the company to pay the sum so due, and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor;

(b) execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) it is proved to the satisfaction of the Court that the company is unable to pay its debts; and in determining whether a company is unable to pay its debts the Court shall take into account the contingent and prospective liabilities of the company.

[emphasis in italics and bold italics added]

5 In the context of this case, the following points may be noted with regard to the combined effect of ss 253(1)(b) and 254(2). First, the use of the word “may” instead of “shall” indicates a discretionary power in the court to order a winding up (see [15] below). Second, a creditor may be an actual, contingent or prospective creditor (see [6] below). Third, the court may wind up a company under s 254(1)(e) only if the latter is unable to pay its debts (see [7] below). Fourth, the creditor has to prove that the company is unable to pay its debts, and it can do so by adducing evidence of actual inability to pay its debts (s 254(2)(c)) or evidence of a deemed inability to pay its debts (s 254(2)(a)) (see [7] below). Fifth, to prove a deemed inability under s 254(2)(a) of the Act, it is necessary for the creditor to have a “due” debt, which the debtor has for three weeks neglected to pay or to secure or compound to the reasonable satisfaction of the creditor, after it has been served with a statutory notice to pay. If the creditor claims that the security is not satisfactory and is determined to issue winding-up proceedings, the debtor may then apply to court for a restraining order so as to enable the court to determine on an objective basis what the reasonable satisfaction of the creditor should be (see [9] below).

6 Taking the second point first, in the present case, BNP took the position that it was an existing, and not a contingent or prospective, creditor with respect to the US$50m crystallised loss on the ground that the terms of the close-out agreement mentioned at [4] of our brief grounds (see [2] above) were such that JSPL had agreed to make payment for the crystallised loss of US$50m. Given the points we have highlighted, it was clear why BNP had to rely on s 254(2)(a) of the Act rather than s 254(2)(c), given that JSPL had offered to place US$50m in escrow. This was a patent indication that JSPL was both able and willing to pay in the event that the court determined that it was liable to do so. In other words, JSPL was not an insolvent company.

7 This impediment, viz, the fact that JSPL was in reality not an insolvent company but yet refused to admit BNP’s claim, led the latter to use a shortcut by the backdoor to try to enforce a contested claim by issuing a s 254(2)(a) statutory notice and threatening JSPL with winding up unless it made payment. In our view, had a winding-up petition been filed, it would have amounted to an abuse of the court’s winding-up jurisdiction. First, winding-up proceedings are intended only for cases where the company is insolvent or deemed to be insolvent. In the present case, BNP could not have proved that JSPL was insolvent because the fact was that it was not insolvent, and this was easily confirmed by its offer to secure BNP’s claim for the crystallised...

To continue reading

Request your trial
14 cases
  • Pacific King Shipping Pte Ltd and another v Glory Wealth Shipping Pte Ltd
    • Singapore
    • High Court (Singapore)
    • 7 June 2010
    ...the winding up petitions. Whether there is a bona fide and substantial dispute over the debt In BNP Paribas v Jurong Shipyard Pte Ltd [2009] 2 SLR(R) 949 at [15], the Court of Appeal held that the “general rule is that, where a company is unable or deemed to be unable to pay its debts, the ......
  • AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company)
    • Singapore
    • Court of Appeal (Singapore)
    • 7 April 2020
    ...not the appropriate forum to adjudicate on disputed claims that are subject to arbitration (see BNP Paribas v Jurong Shipyard Pte Ltd [2009] 2 SLR(R) 949 at [7]); as Etherton C observed in Salford ([30] supra) at [40], applying the triable issue standard: would inevitably encourage parties ......
  • BWF v BWG
    • Singapore
    • High Court (Singapore)
    • 26 March 2019
    ...R 1, 2006 Rev Ed)), rather than to companies dealing with threatened insolvency proceedings (see BNP Paribas v Jurong Shipyard Pte Ltd [2009] 2 SLR(R) 949 at [5] and [9]). Costs were ordered in favour of BWF. BWF asked for these to be ordered on an indemnity basis, on the footing that the C......
  • Perennial (Capitol) Pte Ltd and another v Capitol Investment Holdings Pte Ltd and other appeals
    • Singapore
    • Court of Appeal (Singapore)
    • 26 February 2018
    ...requirements of a winding-up application may lead to costly consequences. As noted in BNP Paribas v Jurong Shipyard Pte Ltd [2009] 2 SLR(R) 949 at [17] and [19], a winding-up application implies insolvency and presentation of one could damage the company’s creditworthiness or financial stan......
  • Request a trial to view additional results
5 books & journal articles
  • Bankruptcy and insolvency
    • United Kingdom
    • Construction Law. Volume III - Third Edition
    • 13 April 2020, see Re Sanpete Builders (S) Pte Ltd [1989] 1 SLR(R) 5 at [49]–[51], per Chao Hick Tin JC; BNP Paribas v Jurong Shipyard Pte Ltd [2009] 2 SLR(R) 949 (CA) and Wee, “Taking Stock of the Insolvency Tests in Section 254 of the Companies Act” [2011] Singapore Journal of Legal Studies 486. 22......
  • Building and Construction Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2021, December 2021
    • 1 December 2021
    ...Glass Enterprise Pte Ltd v Zhong Kai Construction Co Pte Ltd [2021] 2 SLR 510 at [73], citing BNP Paribas v Jurong Shipyard Ltd [2009] 2 SLR(R) 949 at [17]–[19]. 127 Diamond Glass Enterprise Pte Ltd v Zhong Kai Construction Co Pte Ltd [2021] 2 SLR 510 at [76]–[77]. 128 Diamond Glass Enterpr......
  • Insolvency Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2010, December 2010
    • 1 December 2010
    ...process to proceed with windingup applications where the underlying debt is seriously disputed: BNP Paribas v Jurong Shipyard Pte Ltd [2009] 2 SLR(R) 949. 16.11 On the cross-claim issue, the High Court applied the wellestablished rule that a debtor-company may rely on a cross-claim against ......
  • Insolvency Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2020, December 2020
    • 1 December 2020
    ...3 Re Design Studio Group Ltd [2020] 5 SLR 850. 4 Re PT MNC Investama TBK [2020] SGHC 149. 5 [2020] 1 SLR 1158. 6 [2020] SGHC 205. 7 [2009] 2 SLR(R) 949. 8 Cap 50, R 1, 2006 Rev Ed. 9 BNP Paribas v Jurong Shipyard Pte Ltd [2009] 2 SLR(R) 949 at [14]. 10 [2020] SGHC 108. 11 [2007] 2 SLR(R) 26......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT