Christie, Hamish Alexander v Tan Boon Kian

• Jurisdiction: Singapore
• Judge: Tan Siong Thye J
• Judgment Date: 30 March 2021
• Docket Number: Bankruptcy No 533 of 2018 (Summons No 5249 of 2020)
• Year: 2021
• Court: High Court (Singapore)

Christie, Hamish Alexander (as private trustee in bankruptcy of Tan Boon Kian)

and

Tan Boon Kian and others

[2021] SGHC 62

Tan Siong Thye J

Bankruptcy No 533 of 2018 (Summons No 5249 of 2020)

General Division of the High Court

Insolvency Law — Avoidance of transactions — Tests for insolvency — Debtor receiving requests for payment from creditor and being unable to pay — Debtor indirectly owning hotel — Debtor providing guarantees for company's liabilities — Whether cash flow test and balance sheet test for insolvency satisfied — Valuation of indirect ownership of hotel — Valuation of contingent and prospective liabilities — Section 100(4) Bankruptcy Act (Cap 20, 2009 Rev Ed)

Insolvency Law — Avoidance of transactions — Transactions at an undervalue — Debtor transferring money to siblings to show appreciation and gratitude for financial support — Whether presumption of desire to prefer rebutted — Sections 99(4) and 99(5) Bankruptcy Act (Cap 20, 2009 Rev Ed)

Insolvency Law — Avoidance of transactions — Unfair preferences — Debtor transferring money to daughter to pay for wedding expenses — Whether transfers were gifts — Whether court should exercise discretion to decline to make order restoring pre-transfer position — Sections 98(2) and 98(3) Bankruptcy Act (Cap 20, 2009 Rev Ed)

Held, granting the application in part:

Whether TBK was insolvent at the time of the transfers

(1) Under s 100(4) of the Bankruptcy Act, an individual was insolvent if: (a) he was unable to pay his debts as they fell due (the “cash flow test”); or (b) the value of his assets was less than the amount of his liabilities, taking into account his contingent and prospective liabilities (the “balance sheet test”). These two tests were to be read disjunctively: at [23].

The cash flow test

(2) Cash flow insolvency would be established if an unequivocal request for payment had been made by a creditor, there was no bona fide dispute as to indebtedness on the part of the debtor, and the debtor was not able to pay. While TBK's family members might have been prepared to give him time to repay the loans they had extended to him, HEP's letters contained unequivocal and repeated requests for the payment of their bills. These bills were not disputed by TBK and he was unable to pay them. Therefore, TBK was cash flow insolvent at the time of the transfers: at [25] and [28] to [31].

The balance sheet test

(3) The valuation report relied on by TBH and TPS (“HVS's valuation”) did not accurately reflect the actual value of the Hotel at the time of the transfers, for two reasons. First, it was premised on highly optimistic and unrealistic assumptions which were unlikely to hold true. Second, it did not accurately reflect the significant capital expenditure for the Hotel or take into account the capital depreciation of the Hotel. HVS's valuation was also considerably higher than the valuations of the Hotel's market value relied on by the Private Trustee (the “Colliers International and Knight Frank valuations”) and the eventual sale price of the Hotel in 2018, and was uncorroborated by any external evidence of the Hotel's likely value. In the absence of expert evidence, a more accurate estimate of the value of the Hotel at the time of the transfers was the average of the market value estimates provided in the Colliers International and Knight Frank valuations: at [37] to [39] and [41].

(4) As the Hotel was owned by Treasure Resort, and the value of the Hotel was less than Treasure Resort's liabilities, there would have been no surplus sale proceeds from the Hotel for distribution to TBK if it had been sold at the time of the transfers. Therefore, the value of TBK's indirect ownership of the Hotel was negligible: at [42] and [43].

(5) The refund of TBK's Central Provident Fund funds, the reimbursement of his ex-wife for various arrears, and Australian capital gains tax had to be deducted from TBK's share of the sale proceeds of the White House Park Property, the Ocean Drive Property and the Melbourne Property in ascertaining their value at the time of the transfers. These were prospective liabilities which would certainly become due in the future and which TBK already had at the time of the transfers: at [46], [48] and [50].

(6) The Maybank-Treasure Resort Contingent Debt and the NAFA-Treasure Resort Contingent Debt should be included among TBK's liabilities as the sale proceeds of the Hotel would not have been sufficient for Treasure Resort to discharge its liabilities to both Maybank and NAFA: at [57].

(7) A contingent liability should be valued in full if there was a real prospect that the relevant contingency would occur. As there was a real prospect that Treasure Resort would default on its debts to Maybank and NAFA and that TBK's guarantees would be called upon, both the Maybank-Treasure Resort Contingent Debt and the NAFA-Treasure Resort Contingent Debt should be valued in full: at [60] and [61].

(8) As the amount of TBK's liabilities far exceeded the value of his assets, TBK was balance sheet insolvent at the time of the transfers: at [64].

Unfair preferences – TBH and TPS

(9) TBH and TPS were creditors of TBK and the transfers put them in a better position upon TBK's bankruptcy than they would otherwise have been in because they received partial repayments of the loans they had extended to TBK. Therefore, the transfers to TBH and TPS were unfair preferences under s 99(3) of the Bankruptcy Act: at [20] and [65].

(10) As TBK's brother and sister respectively, TBH and TPS were associates of TBK pursuant to ss 101(2) and 101(7) of the Bankruptcy Act. Under s 99(5) of the Bankruptcy Act, it was presumed that TBK was influenced by a desire to prefer them in making the transfers. The burden of rebutting this presumption lay on TBH and TPS: at [11], [19] and [65].

(11) TBH and TPS failed to rebut this presumption. The fact that TBK made the transfers to TBH and TPS to show his appreciation and gratitude to them, as the family members who had been the most financially supportive of him, evinced a clear desire to place them in a preferential position: at [69] and [70].

(12) Even if the possibility that he might be facing bankruptcy never crossed TBK's mind, this did not negate a finding that he was influenced by a desire to prefer: at [72].

Transactions at an undervalue – FT

(13) The transfers to FT were transactions at an undervalue under s 98(3)(a) of the Bankruptcy Act as they were gifts. The fact that TBK gained something personally from giving these sums to FT for her wedding did not make them any less gifts, and there was no evidence that the transfers were conditional. Further, gifts were not limited to moneys for the recipient to keep: at [78].

(14) It was implicit in the court's power under s 98(2) of the Bankruptcy Act to “make such order as it thinks fit” that it had discretion not to make an order restoring the position to what it would have been if TBK had not entered into these transactions: at [79].

(15) However, the circumstances of this case did not justify the court exercising this discretion. The facts of the English cases relied on by FT were wholly exceptional and provided no analogy to FT's situation. There was no evidence that FT would suffer any particular hardship or unfair prejudice as a result of the order. Furthermore, FT had provided no consideration for the transfers to her. Declining to make the order sought by the Private Trustee against FT would be tantamount to allowing FT to receive an unqualified windfall at the expense of TBK's creditors: at [82] and [88] to [91].

Whether the transfers should be declared void

(16) The orders granted for TBH, TPS and FT to transfer the sums they had received to the Private Trustee within 14 days from the date of the judgment were sufficient for the Private Trustee to claw back these sums for distribution to TBK's creditors. It was not necessary to declare the transfers void. The relevant provisions of the Bankruptcy Act did not refer to transactions at an undervalue or unfair preferences being void: at [94].

Case(s) referred to

Buildspeed Construction Pte Ltd v Theme Corp Pte Ltd [2000] 1 SLR(R) 287; [2000] 4 SLR 776 (folld)

CCM Industrial Pte Ltd v Chan Pui Yee [2016] SGHC 231 (folld)

Coöperatieve Centrale Raiffeisen-Boerenleenbank BA v Jurong Technologies Industrial Corp Ltd [2011] 4 SLR 977 (folld)

DBS Bank Ltd v Tam Chee Chong [2011] 4 SLR 948 (folld)

Gordon Robin Claridge, Trustee in Bankruptcy of v Claridge [2011] All ER (D) 27 (Aug) (distd)

Kon Yin Tong v Leow Boon Cher [2011] SGHC 228 (folld)

Leun Wah Electric Co (Pte) Ltd v Sigma Cable Co (Pte) Ltd [2006] 3 SLR(R) 227; [2006] 3 SLR 227 (folld)

Living the Link Pte Ltd v Tan Lay Tin Tina [2016] 3 SLR 621 (folld)

Parakou Shipping Pte Ltd v Liu Cheng Chan [2017] SGHC 15 (folld)

Peter Herbert Fowlds, Re; Bucknall v Wilson [2020] All ER (D) 153 (May) (distd)

Progen Engineering Pte Ltd, Liquidators of v Progen Holdings Ltd [2010] 4 SLR 1089 (folld)

Seah Chee Wan v Connectus Group Pte Ltd [2019] SGHC 228 (folld)

Facts

In November 2016 and January 2017, Mr Tan Boon Kian (“TBK”) transferred substantial sums of money to his brother, Mr Tan Boon Hock (“TBH”); his sister, Mdm Tan Poh Swan (“TPS”); and his daughter, Ms Tan Seo Teng Felicia (“FT”).

Prior to the transfers, TBK's family members (including TBH and TPS) had made several loans to TBK which had fallen due for repayment but had not been repaid. By the time of the transfers, TBK had also received two letters from Harry Elias Partnership LLP (“HEP”) requesting the payment of their bills. However, these bills remained substantially unpaid.

At the time of the transfers, TBK's main assets were his indirect ownership of a luxury hotel (the “Hotel”) and properties at White House Park, Ocean Drive and Melbourne (the “White House Park Property”, the “Ocean Drive Property” and the “Melbourne Property” respectively). The Hotel was owned by Treasure...