BNY Corporate Trustee Services Ltd v Celestial Nutrifoods Ltd

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 06 August 2014
• Neutral Citation: [2014] SGHC 155
• Court: High Court (Singapore)
• Docket Number: CWU No 195 of 2010 (Summons No 2473 of 2013)
• Published date: 19 September 2014
• Year: 2014
• Hearing Date: 07 March 2014,24 September 2013,24 February 2014
• Plaintiff Counsel: Hing Shan Shan Blossom, Chan Wei Meng, Mohan Gopalan and Ang Yao Long Ronnie (Drew & Napier LLC)
• Defendant Counsel: Alvin Yeo SC, Jenny Tsin and Wendy Lin (WongPartnership LLP)
• Subject Matter: Insolvency law,winding up,liquidator
• Citation: [2014] SGHC 155

Judith Prakash J: Introduction

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.

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, PricewaterhouseCoopers 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.

In the application as originally filed, the Liquidator sought orders under s 285 not only against PwC but also against various other persons. These included Mr Ming Dequan (“Mr Ming”), the chairman of the Company, and three individuals in the People’s Republic of China (“the PRC”) who were the legal representatives of the Company’s subsidiaries. These latter persons did not appear at the first hearing of the application and I made the orders sought against them. They have not appealed against those orders. Accordingly, I need say no more about the reasons for making those orders. In this judgment, I am dealing only with the Liquidator’s application against PwC and its representatives.

Background

The Company was incorporated in Bermuda in 2003. It was an investment holding company for several subsidiaries, all incorporated in the British Virgin Islands (“the BVI Subsidiaries”). The BVI Subsidiaries in turn owned subsidiaries incorporated in the PRC (collectively called “the PRC Subsidiaries”). The operations of the Group (comprising the Company and its subsidiaries) were carried on in the PRC by the PRC Subsidiaries who also owned the physical and financial assets of the Group. The Group’s main business activity was producing soybean protein-based foods under the “Sun Moon Star” brand. The Company was listed on the Singapore Stock Exchange (“SGX”) on 9 January 2004 and raised some S$33m from this exercise.

On 12 June 2006, the Company raised S$235m from investors by issuing Zero Coupon Convertible Bonds (“the Bonds”). The bondholders were granted put options which allowed them to compel the Company to redeem all or some of the Bonds at 116.5% of their face value. On 23 May 2009, a majority of the bondholders exercised their put options and the Company was required to redeem the Bonds on 12 June 2009. Shortly thereafter, the Company announced it would be unable to meet this obligation. On the due date, it failed to redeem any of the Bonds.

On 23 November 2010, BNY Corporate Trustee Services Ltd (“BNY”), the trustee of the Bonds, issued a statutory demand against the Company for the amount due under the Bonds. When this was not satisfied, BNY commenced winding up proceedings against the Company via CWU 195/2010 (“CWU 195”). BNY thus became the plaintiff in CWU 195. Mr Yit was appointed the Company’s provisional liquidator on 24 December 2010. A year later, the Company was wound up and Mr Yit then became the Liquidator. The winding up order was made on 2 December 2011.

After taking control of the Company in December 2010, the Liquidator discovered that the Group’s operating companies, management and directors were based in the PRC. Despite his efforts, he was unable to obtain any meaningful assistance from them with regard to the affairs of the Company or of its subsidiaries. He also ascertained that the Company’s main assets, namely the PRC Subsidiaries, appeared to have been diverted to third parties in a series of suspicious transactions. The Liquidator considered that the Company’s shareholders and creditors had been left holding shares in a worthless company whose assets had been completely stripped away.

The Liquidator also discovered that the Company did not have funds to investigate suspicious transactions or to commence legal proceedings against other parties to recover money and assets that were allegedly paid out wrongfully. The Liquidator therefore entered into a Funding Agreement (“the Funding Agreement”) with several creditors (collectively referred to as “Blackrock creditors”) who are members of a group identified as the Blackrock Group. Blackrock creditors hold the majority of the Bonds. Under the Funding Agreement, Blackrock creditors are to provide: US$507,122 to the Liquidator as part payment towards his outstanding fees and costs; an additional US$230,000 for costs incurred in examination and/or discovery proceedings commenced by the Liquidator; and another US$507,122 to pay for the Liquidator’s remaining outstanding fees and costs and additional funding to commence proceedings if the Liquidator identifies any potential claim which Blackrock creditors decide to pursue.

This application was filed after the Funding Agreement was concluded. The Liquidator maintained that the purpose of the application was not simply to obtain information to enable him to bring legal action against any party. The application had the wider purpose of obtaining further documents and information to enable the Liquidator to carry out his statutory duty to: reconcile the accounts of the Company and reconstitute the state of the Company’s knowledge; investigate the circumstances that led to the Company’s eventual collapse, including certain suspicious transactions identified by the Liquidator; and upon ascertaining the true financial position of the Group and the true cause of the Company’s collapse, consider whether claims should be pursued to recover the Company’s assets and/or for breaches of duty by the Company’s officers. Whilst the application is drafted in general terms, before me, counsel for the Liquidator, Ms Blossom Hing, clarified that there were seven specific areas in respect of which the Liquidator considered that PwC’s information and records would be particularly helpful. According to the Liquidator, the documents and information that he had already obtained had come primarily from the following sources: the Company’s corporate secretary; the Company’s registered agent in Bermuda; the Company’s independent directors in Singapore, Mr Lai and Mr Loo; the corporate regulatory authorities in Daqing, PRC; KPMG Singapore (“KPMG”), the independent accountants appointed by the Company on 25 September 2009 to conduct an independent review of the Company’s financial position to facilitate a restructuring of the Bonds; and PwC who had provided three arch-lever files of documents.

Turning to PwC, its role in regard to the Company was set out in the affidavit of Mr Tan Boon Chok. PwC was engaged to audit the consolidated financial statements of the Company for the financial years (“FY”) 2004 to 2009. It issued audit reports for FY 2004 to FY 2009.

As the Company’s auditors, PwC was responsible for examining the Company’s consolidated financial statements so as to express an opinion on the same. Broadly, this entailed PwC performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements in accordance with the Singapore Financial Reporting Standards (“SFRS”). PwC’s audit also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. PwC emphasised that as auditors of the Company it did not participate in any management or executive decisions of the Company including its trade dealings, affairs or property.

PwC issued the FY 2009 audit report on 29 March 2010. According to Mr Tan, it did not commence any audit work for FY 2010 thereafter. PwC took the view that the Liquidator’s real motivation in bringing the application is to obtain advance evidence in order to gain an unfair advantage in any claim which he intends to bring or contemplates bringing against PwC.

In dealing with this application, I shall take the following approach: I shall first consider the law. I shall then consider the objections made by PwC and the relevant facts relating to the application.

The general legal principles

The extent and purpose of s 285 of the Act have been considered on several occasions by the court. The leading authorities in Singapore are Liquidator of W&P Piling Pte Ltd v Chew Yin What and others [2004] 3 SLR(R) 164 (“W&P Piling”) and Re Lion City Holdings Pte Ltd [2003] 3 SLR(R) 493. Foreign judgments on similar legislation which have been found persuasive in Singapore include Re British & Commonwealth Holdings plc v Spicer and Oppenheim [1993] 1 AC 426 (“British & Commonwealth”) and In Re Rolls Razor Ltd (No 2) [1970] 1 Ch 576.

The Singapore courts have adopted an expansive approach towards s 285. As emphasised by V K Rajah JC in W&P Piling, the legislative policy behind s 285 was that the power given by the section should be used to assist the liquidator in accumulating facts, information and knowledge that would enable him to discharge his statutory duties. The judge pointed out that s 285 is couched in extremely generous terms and should not be interpreted in a constricted manner. Whilst it cannot be used for a collateral purpose that affords no benefit to the company, it may be invoked for any proper purpose that would benefit the company and which is...