Buildspeed Construction Pte Ltd (in liquidation) v Theme Corp Pte Ltd and Another

• Court: High Court (Singapore)
• Judge: Lim Teong Qwee JC
• Judgment Date: 24 February 2000
• Neutral Citation: [2000] SGHC 26
• Citation: [2000] SGHC 26
• Defendant Counsel: Sumitri M Menon and Raymond Lam (Jansen Menon & Lee),Latiff Ibrahim, Hariprasad Ratnagopal and Ivan Tan Chee Hui (Khattar Wong & Partners)
• Plaintiff Counsel: N Sreenivasan and Joseph Liow (Derrick Ravi & Partners)
• Published date: 19 September 2003
• Docket Number: Originating Summons No 877 of 1999
• Date: 24 February 2000
• Subject Matter: s 98 Bankruptcy Act (Cap 20, 1996 Ed),s 329 Companies Act (Cap 50, 1994 Ed),'Void or voidable',Transaction at undervalue,Winding up,Companies,Building company entering novation agreement with other company to take over building contract,Whether transaction in novation agreement was transaction at undervalue,Words and Phrases

: By this originating summons issued on 7 June 1999 the plaintiff (`Buildspeed Construction`) claims a declaration and other reliefs in respect of a novation agreement dated 18 March 1998 which it entered into with the defendants. At the conclusion of the hearing on 12 November 1999 I made an order for a declaration that the transaction between Buildspeed Construction and the first defendant (`Theme Corp`) contained in the novation agreement was void as a transaction at an undervalue. I adjourned the matter to a date to be fixed for directions for an account to be taken. Theme Corp has given notice of appeal and these are my written grounds.

Buildspeed Construction was incorporated on 8 May 1986. According to the report of its directors dated 30 April 1998 its principal activities for the year ended 31 March 1997 were those of general contractors in the building and construction industry, property development and investment holding. Note 24 to the accompanying statutory financial statements for that year stated:

Subsequent to the balance sheet date, the company intends to cease its operations.

The balance sheet date referred to was 31 March 1997.

Buildspeed Construction did cease its operations after 31 March 1997. On 29 April 1998 its directors passed a resolution for the appointment of provisional liquidators. On 29 May 1998 the present liquidators who bring these proceedings were appointed liquidators at a creditors` meeting in place of the provisional liquidators. The directors would have made and lodged with the Registrar of Companies a statutory declaration that complies with s 291(1) of the Companies Act and in accordance with s 291(6)(a) the winding up would have commenced when the statutory declaration was lodged. A resolution of the company for voluntary winding up would also have been passed on 28 or 29 May 1998 before the present liquidators were appointed at the creditors` meeting (see s 296) and alternatively in accordance with s 291(6)(b) the winding up would have commenced when the resolution for winding up was passed. Quite surprisingly the directors` report I have referred to was dated 30 April 1998 and presented to the shareholders after the appointment of provisional liquidators.

Buildspeed Construction was until 18 March 1998 the main contractor employed by the second defendant under a building contract dated 10 December 1996 for the construction, completion and maintenance of a substantial development at Sims Ave/Geylang East Ave 2. The contract sum was $103,850,000 and by February 1998 the architect had certified that works to the value of $70,289,962. 23 had been carried out as at 5 February 1998.

The novation agreement dated 18 March 1998 recited that Buildspeed Construction desired to be released and discharged from the building contract and that the second defendant as the employer agreed to release and discharge Buildspeed Construction `upon the terms, inter alia, of [Theme Corp] undertaking to perform the [building contract] in lieu of [Buildspeed Construction] and to be bound by the terms and conditions of the [building contract], in accordance with the terms and conditions set out in [the novation agreement]`.

Section 329 of the Companies Act (Cap 50, 1994 Ed)provides:

(1) Subject to this Act and such modifications as may be prescribed, any transfer ... or other act relating to property made or done by or against a company which, had it been made or done by or against an individual, would in his bankruptcy be void or voidable under section 98, 99 or 103 of the Bankruptcy Act 1995 (read with sections 100, 101 and 102 thereof) shall in the event of the company being wound up be void or voidable in like manner.

(2) For the purposes of this section, the date which corresponds with the date of presentation of the bankruptcy petition in the case of an individual shall be -

...

(b) in the case of a voluntary winding up, the date upon which the winding up is deemed by this Act to have commenced.

Section 98 of the Bankruptcy Act (Cap 20, 1996 Ed) provides:

(1) Subject to this section and sections 100 and 102, where an individual is adjudged bankrupt and he has at the relevant time (as defined in section 100) entered into a transaction with any person at an undervalue, the Official Assignee may apply to the court for an order under this section.

...

(3) For the purposes of this section and sections 100 and 102, an individual enters into a transaction with a person at an undervalue if -

...

(c) he enters into a transaction with that person for a consideration the value of which, in money or money`s worth, is significantly less than the value, in money or money`s worth, of the consideration provided by the individual.

Section 100 of the Bankruptcy Act provides:

(1) Subject to this section, the time at which an individual enters into a transaction at an undervalue ... shall be a relevant time if the transaction is entered into ... -

(a) in the case of a transaction at an undervalue, within the period of 5 years ending with the day of the presentation of the bankruptcy petition on which the individual is adjudged bankrupt;

...

(2) Where an individual enters into a transaction at an undervalue ... at a time mentioned in subsection (1)(a) ... that time is not a relevant time for the purposes of sections 98 and 99 unless the individual -

(a) is insolvent at that time; or

(b) becomes insolvent in consequence of the transaction...

(4) For the purposes of subsection (2), an individual shall be insolvent if -

(a) he is unable to pay his debts as they fall due; or

(b) the value of his assets is less than the amount of his liabilities, taking into account his contingent and prospective liabilities.

Relevant time

The date which corresponds with the date of presentation of the bunkruptcy petition is the date upon which the winding up is deemed by the Companies Act (Cap 50, 1994 Ed) to have commenced. No evidence has been given of the date of lodging the statutory declaration under s 291(1). The alternative date is the date when the resolution for winding up was passed. That evidence also has not been given. However it is not in dispute that on 29 April 1998 provisional liquidators were appointed and on 29 May 1998 the present liquidators were appointed in their place at a creditors` meeting. It is clear that Buildspeed Construction is being wound up voluntarily and that such winding up commenced some time between 29 April 1998 and 29 May 1998 and I find accordingly.

The novation agreement was entered into on 18 March 1998. This was well within the period of five years whether ending on 29 April 1998 or 29 May 1998 and the requirements of s 100(1)(a) of the Bankruptcy Act (Cap 20, 1996 Ed) are clearly satisfied. It remains to be proved that at the time at which the novation agreement was entered into Buildspeed Construction was either insolvent or became insolvent in consequence of the novation agreement.

Mr Chee Yoh Chuang is one of the two liquidators in the winding up. He is a certified public accountant. He said in his affidavit filed on 8 June 1999 that at or about 18 March 1998 Buildspeed Construction was insolvent within the meaning of s 329 of the Companies Act (Cap 50, 1994 Ed) and s 100(4) of the Bankruptcy Act (Cap 20, 1996 Ed) . He referred to the company`s management accounts as at 5 May 1998 and the audited accounts for the years ended 31 March 1996 and 31 March 1997. He also referred to the large number of actions in the High Court and the Subordinate Courts against Buildspeed Construction.

The management accounts show that the current liabilities (including a secured loan of $3. 35m) exceeded the current assets by more than $12m and the company had a negative working capital of about $4. 081m. The liabilities exceeded the value of the assets, both current and non-current, by about $4. 081m. Mr Chee said that in his opinion a negative working capital is indicative that a company is unable to pay its debts as they fall due. If no further capital was brought in then I would agree that a company with a negative working capital is likely to be unable to pay its debts as they fall due.

At 5 May 1998 Buildspeed Construction had ceased to carry on business. Its directors had stated in their report that the company intended to cease its operations subsequent to 31 March 1997. It had proceeded to a creditors` voluntary winding up and provisional liquidators were appointed on 29 April 1998. No further capital had been brought in. I think Buildspeed Construction was insolvent at 5 May 1998. It was clearly unable to pay its debts as they fell due. The value of its assets was also less than the amount of its liabilities. The shortfall was more than $4m.

Mr Chee also said that Buildspeed Construction`s audited financial statements indicated that the company had a negative working at 31 March 1996 and 31 March 1997. I think he was mistaken. The current liabilities exceeded the current assets by more than $3. 964m and $7. 868m at those dates but the financial statements show that the original paid-up capital of $5m had not been completely lost. The company suffered losses in those two years. At 31 March 1996 the capital was a little less than $4. 28m but at 31 March 1997 it had been reduced to less than $168,000.

The auditors` report on the financial statements for the year ended 31 March 1997 included this statement:

The accounts have been prepared on a going concern basis. This basis may not be appropriate because on 31 March 1997 the company`s current liabilities exceeded its current assets by $7,868,975. The company is currently relying on the support of its creditors, bankers and financiers and if this support is withdrawn and alternative finance is not made available it is unlikely that the company will be able to continue trading.

There is no evidence of any continuing support of...