BNY Corporate Trustee Services Ltd v Celestial Nutrifoods Ltd

• Jurisdiction: Singapore
• Judgment Date: 06 August 2014
• Date: 06 August 2014
• Docket Number: Companies Winding Up No 195 of 2010 (Summons No 2473 of 2013)
• Court: High Court (Singapore)

BNY Corporate Trustee Services Ltd

Plaintiff

and

Celestial Nutrifoods Ltd

Defendant

[2014] SGHC 155

Judith Prakash J

Companies Winding Up No 195 of 2010 (Summons No 2473 of 2013)

High Court

Insolvency Law—Winding up—Liquidator—Liquidator of insolvent company discovering suspicious transactions warranting further investigation—Liquidation involving foreign-incorporated subsidiaries—Liquidator unable to obtain assistance from company's directors—Whether company auditor should be ordered to disclose working papers to facilitate liquidator's identification of potential claims against third parties—Section 285 Companies Act (Cap 50, 2006 Rev Ed)

This application was made by the liquidator of Celestial Nutrifoods Ltd (‘the Company’), Mr Yit Chee Wah (‘Mr Yit’), for the Company's former auditor, Pricewaterhouse Coopers LLP (‘PwC’) to disclose its working papers and also for PwC's representatives, Mr Tham Tuck Seng and Mr Tan Boon Chok, to be orally examined. The Company was formerly listed on the Singapore Stock Exchange and its insolvency was complicated because the Company held British Virgin Island-incorporated subsidiaries that in turn held Peoples' Republic of China-incorporated (‘PRC-incorporated’) subsidiaries and it was through the PRC-incorporated subsidiaries that most of its business was effected. Mr Yit made this application as he had discovered several suspicious transactions that warranted further investigation but was unable to obtain meaningful assistance from the Company's directors or from the British Virgin Island subsidiaries.

PwC's solicitors argued that Mr Yit's application should be disallowed as (1) Mr Yit had not been objective in carrying out his duties; (2) Mr Yit's true motivation was to obtain evidence for a negligence suit against PwC; (3) granting the application would expose PwC to civil and criminal liability in the PRC and (4) Mr Yit's request was too wide. PwC relied heavily on the presence of a funding agreement (‘the Funding Agreement’) that was signed between the Company and its major creditors (‘the Blackrock creditors’) under which the Blackrock creditors would partly pay for Mr Yit's fees, fund the Company's costs of examination and discovery proceedings to identify viable claims against third parties and when viable claims were discovered, increase the funding amount to fund the litigation of those viable claims. It also submitted that the application should be denied as it had previously disclosed documents in three lever-arch folders which were sufficient for Mr Yit to carry out his duties effectively.

The issue that had to be decided was whether in the circumstances Mr Yit's application should be granted under s 285 of the Companies Act (Cap 50, 2006 Rev Ed).

Held, granting the application in part:

(1) The Singapore courts have adopted an expansive approach towards s 285. The legislative intent behind the provision was to assist the liquidator in his accumulation of facts, information and knowledge to facilitate the discharge of his duties. While it could not be used for a collateral purpose that accords no benefit to the company in liquidation, it could be invoked for any proper purpose that would benefit the company and which was within the statutory powers of the liquidator and the legislation's scheme. In deciding whether to exercise this coercive power, the court had to support the liquidator while policing his conduct and balance between the purpose and intent of the application or any oppression, inconvenience and disadvantage that might be caused to the proposed examinee. Section 285 should not be used as a way to prove a case against the examinee himself: at [15] and [16] .

(2) The fact that the liquidator was represented by the same solicitors who acted for the plaintiff trustee (‘BNY’) in another suit could not by itself establish the liquidator's lack of objectivity. Since the liquidator's function was to collect assets for the company and protect the unsecured creditors' interests, there was an identity of interests between BNY and Mr Yit. It could not show any lack of objectivity on Mr Yit's part: at [27] and [28] .

(3) One of Mr Yit's functions was to maximise the recovery of claims for the Company's creditors. The fact that the Blackrock creditors were funding the exercise was irrelevant as Mr Yit would be in breach of duties if he did not seek to identify viable claims despite having the funds to do so. There was nothing suspicious about the Funding Agreement. While the funds were provided by the Blackrock creditors, all the benefits would be shared rateably among the unsecured creditors. If Mr Yit found and substantiated any viable claim, he should not be hindered from doing his job by allegations of bias just because he might also benefit. He was an officer of the court, and also had to consider his own professional reputation which was at stake. In any case, if Mr Yit pursued frivolous claims, the court could make a personal costs order against him. Lastly, no allegations of misconduct had been made against Mr Yit: at [29] to [31] .

(4) There was no evidence that Mr Yit's true motivation was to identify claims against PwC. The fact that he had originally identified three areas of concern and was now asking for documents relating to seven areas of concern was a completely neutral fact because he had been carrying on investigations since December 2010 and might have obtained information, which led him on to other areas of concern. Next, this objection was too vague, as Mr Yit had never said anything that insinuated PwC's quality of work was bad or that he was considering a potential suit against PwC. Mr Yit's position was simply that he had not settled on any view as to whether claims existed against PwC and this was not a bar to an examination order. In the circumstances, PwC appeared unduly defensive: at [36] to [38] .

(5) While it was true that the working papers belonged to PwC and contained their proprietary information meant for their internal use, that did not preclude the disclosure of the working papers. In relation to civil liability, it was unlikely that PwC would be in breach of any contractual confidentiality obligations if it merely provided historical documents relating to the Company which was previously accessible to the Company. It was also unlikely to be criminally liable since no evidence was cited that showed that that was so: at [41] , [48] , [50] , [54] , [57] and [58] .

(6) The scope of the documents requested by PwC was not too wide. Whether to order disclosure or not was essentially a balance between (a) the public interest in assisting a liquidator in the execution of his duties and (b) the prejudice that would be caused to the proposed examinee if an order for disclosure was granted. Here, Mr Yit needed more information to correctly assess the transactions identified and to determine who should be held responsible if there was any wrongdoing uncovered. The Company conducted most of its business overseas and there were large obstacles preventing Mr Yit from obtaining information from the Company's foreign-incorporated subsidiaries. The documents which PwC had would assist him in building up the picture of the Company's operations and indicate not just the background but also how the members of the Company's group of companies conducted themselves: at [68] and [69] .

(7) It was premature to order the oral examination of Mr Tham Tuck Seng and Mr Tan Boon Chok. Mr Yit could examine the documents disclosed and, if he had questions, inquire by way of letter first. If that was still insufficient, he could then make an application to court for their oral examination in relation to those matters which had not been answered adequately: at [82] .

British & Commonwealth Holdings plc v Spicer and Oppenheim [1993] AC 426 (refd)

Chesterfield United Inc, Re [2013] 1 BCLC 709 (refd)

Joint and Several Liquidators of the New China Hong Kong Group Ltd, The v Ernst & Young [2003] 3 HKC 252 (folld)

Kong Wah Holdings Ltd, Re [2004] 2 HKC 255 (folld)

Korea Asset Management Corp v Daewoo Singapore Pte Ltd [2004] 1 SLR (R) 671; [2004] 1 SLR 672 (distd)

Lion City Holdings Pte Ltd, Re [2003] 3 SLR (R) 493; [2003] 3 SLR 493 (refd)

Liquidator of W&P Piling Pte Ltd v Chew Yin What [2004] 3 SLR (R) 164; [2004] 3 SLR 164 (folld)

Rolls Razor Ltd (No 2) , Re [1970] Ch 576 (refd)

Sasea Finance Ltd v KPMG [1998] BCC 216 (folld)

Companies Act (Cap 50, 2006 Rev Ed) s 285 (consd)

Hing Shan Shan Blossom, Chan Wei Meng, Mohan Gopalan and Ang Yao Long Ronnie (Drew & Napier LLC) for the plaintiff

Alvin Yeo SC, Jenny Tsin and Wendy Lin (Wong Partnership LLP) for the defendant.

Judgment reserved.

Judith Prakash J

Introduction

1 Under s 285 of the Companies Act (Cap 50, 2006 Rev Ed) (‘the Act’), when a company is in liquidation, the court may summon before it any person whom the court considers capable of giving information concerning the promotion, formation, trade dealings, affairs or property of the company. Such person may be examined on oath regarding the aforesaid matters and the court may also require him to produce any books or papers in his custody or power relating to the company. The application before me concerns the exercise of that power.

2 The application is made by Mr Yit Chee Wah (‘Mr Yit’ or ‘the Liquidator’), the liquidator of Celestial Nutrifoods Limited (‘the Company’). He wants the court to examine the Company's former auditors, Pricewaterhouse Coopers LLP (‘PwC’) and its relevant representatives including, but not limited to, Mr Tham Tuck Seng and Mr Tan Boon Chok. PwC resists the application on the basis that the Liquidator is acting oppressively, that to comply with the disclosure orders might require it to do acts that are illegal under Chinese law and that its working papers are not reasonably required by the Liquidator. This judgment will explore those issues.

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