DB International Trust (Singapore) Ltd v Medora Xerxes Jamshid
| Jurisdiction | Singapore |
| Judge | Goh Yihan JC |
| Judgment Date | 04 April 2023 |
| Docket Number | Originating Application No 707 of 2022 and Summons No 583 of 2023 |
| Court | High Court (Singapore) |
[2023] SGHC 83
Goh Yihan JC
Originating Application No 707 of 2022 and Summons No 583 of 2023
General Division of the High Court
Insolvency Law — Winding up — Liquidator — Creditor applying for removal of liquidator — Whether removal of liquidator was in real, substantial and honest interest of liquidation — Whether liquidator failed to display sufficient vigour in carrying out his duties — Section 139(1) Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed)
Insolvency Law — Winding up — Liquidator — Creditor applying for removal of liquidator — Whether removal of liquidator was in real, substantial and honest interest of liquidation — Whether liquidator failed to obtain requisite approvals and comply with his statutory obligations — Section 139(1) Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed)
Insolvency Law — Winding up — Liquidator — Creditor applying for removal of liquidator — Whether removal of liquidator was in real, substantial and honest interest of liquidation — Whether there was conflict of interest in continued appointment of liquidator — Section 139(1) Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed)
Insolvency Law — Winding up — Liquidator — Creditor applying for removal of liquidator — Whether removal of liquidator was in real, substantial and honest interest of liquidation — Whether there was justifiable loss of creditors' confidence in liquidator — Section 139(1) Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed)
Insolvency Law — Winding up — Liquidator refusing to admit proof of debt for limited purpose of voting — Whether applicant was “creditor” who could request for creditors' meeting — Section 150(1) Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed)
Insolvency Law — Winding up — Liquidator refusing to admit proof of debt for limited purpose of voting — Whether liquidator justified in not admitting creditor's proof of debt on basis that debt was questionable — Rules 101(1) and 101(2) Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020
Held, granting the application in part:
(1) An applicant under s 139(1) of the IRDA had to establish that the removal of the liquidator was in the real, substantial and honest interest of the liquidation and would advance the purposes for which the liquidator was appointed. This was a two-stage test that was to be applied sequentially. The first stage involved the court assessing the purposes for which the liquidator was appointed, which would be co-extensive with the purposes of the liquidation. The second stage involved the court assessing whether the removal of the liquidator was in the real, substantial and honest interest of the liquidation, bearing in mind the purposes determined at the first stage. If the court concluded at the end of the two stages that the removal of the liquidator was in the real, substantial and honest interest of the liquidation, then the applicant would have shown cause for the liquidator concerned to be removed. This would enliven the court's discretion to remove the liquidator. The court would then have to consider if it should exercise its discretion to remove the liquidator. If the court had already concluded that the removal of the liquidator was in the real, substantial and honest interest of the liquidation, it would usually follow that the court would exercise its discretion to remove the liquidator concerned: at [12] and [13].
(2) As regards the question of whether the removal of a liquidator of an insolvent liquidation was in the real, substantial and honest interest of the liquidation, there were, broadly speaking, three purposes of an insolvent liquidation, namely: (a) providing a procedure that ensured an equitable and fair distribution of assets among creditors; (b) serving the community at large by not allowing insolvent companies to continue to trade; and (c) allowing for an investigation into the company's affairs by an independent and appropriately qualified person, especially in relation to the circumstances that led to the winding up. In relation to the possibility of an investigation, a liquidator in a compulsory liquidation might be reasonably expected to exercise his broad powers of investigation if he considered this to be necessary in his professional assessment. These purposes, which were by no means exhaustive, set the standards by which the actions of the Liquidator should be assessed in the present case: at [17].
(3) In considering whether the removal of a liquidator was in the real, substantial and honest interest of the liquidation, it was also necessary to consider who was primarily interested in the results of the liquidation, since this would directly inform what the interest of the liquidation was. An insolvent company was liquidated primarily in the creditors' interest, and the creditors were the primary stakeholders because their interests prevailed over the interests of other persons likely to be affected by the winding up, such as shareholders. As such, in the present case, predominant weight was given to the creditors' wishes in assessing whether the removal of the Liquidator was in the real, substantial and honest interest of the liquidation: at [18].
Whether the Liquidator failed to display sufficient vigour in carrying out his duties
(4) It would be in the best interest of the liquidation to remove a liquidator where it was found that the liquidator had failed to exercise sufficient vigour in carrying out his duties, which might have led to the company suffering loss. To make this finding, it was not necessary to conclude that the liquidator was at fault, or that he had acted wrongfully or ineptly: at [21] and [22].
(5) The Liquidator failed to exercise sufficient vigour in carrying out his duties. First, he had unjustifiably allowed Mr Taylor to act for and on behalf of KIPL in too broad a manner, which plausibly resulted in loss to KIPL in the form of the dilution of its shares in BPCI. Second, the Liquidator had unjustifiably not undertaken any personal investigations into the affairs of KIPL but had, instead, relied exclusively on KPMG to conduct the relevant investigations. As such, the removal of the Liquidator was in the real, substantial and honest interest of the liquidation, bearing in mind that one purpose for which the Liquidator was appointed was the value of KIPL's assets, which the Liquidator had failed to achieve in standing by while KIPL's primary assets were diluted: at [28], [33], [37], [41] and [42].
Whether the Liquidator failed to obtain the requisite approvals and comply with his statutory obligations
(6) In relation to the applicant's argument that the Liquidator failed to obtain the requisite approvals and comply with his statutory obligations, it was reasonable that there would be a justifiable loss of confidence by the creditors in a liquidator's ability to realise the assets of the company to their best advantage and to pursue claims with due diligence if a liquidator did not even know the approvals and statutory obligations that the operated under: at [43].
(7) However, the Liquidator had not completely failed to obtain the requisite approvals. The Liquidator did not need to seek the court's approval in entering into a funding agreement with Rasia FZE (Dubai). While the Liquidator failed to seek the court's approval for his appointment of solicitors, this was not a material breach in the overall scheme of things. Therefore, these two examples raised by the applicant were insufficient in showing cause to justify the Liquidator's removal: at [44] to [48] and [68].
(8) Nevertheless, the Liquidator adopted an erroneous position in relation to who a “creditor” was and unjustifiably chose not to admit the applicant's POD for the limited purpose of voting at a creditors' meeting. This finding was based on two issues which had to be answered. The first issue was whether the applicant was a “creditor” who could request for a creditors' meeting under s 150 of the IRDA. A “creditor” in the context of a winding up was a person who had a debt provable in the winding up of the company. As the applicant's POD filed on 5 May 2022 was a debt provable in the winding up of KIPL under s 218(2) of the IRDA, it was therefore a “creditor” for the purposes of s 150 of the IRDA and could request for a creditors' meeting. However, while the Liquidator did adopt an erroneous position in relation to who a “creditor' was, he did advance an arguable meaning of “creditor” that was not implausible. It could not be that a liquidator was liable to be removed for cause merely because he took a position of law that turned out to be incorrect: at [52], [53], [57] and [69].
(9) The second issue was whether, assuming that the applicant was a “creditor” so as to be able to request for a creditors' meting under that section, the Liquidator was justified in not admitting the applicant's POD under the terms of r 97(2)(b) of the Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020 (“the Rules”) for the limited purpose of voting at a creditors' meeting. While the Liquidator's case was that a majority of KIPL's debts were questionable, rr 101(1) and 102(2) of the Rules applied to the situation where a creditor had filed a POD in respect of which the chairperson was unsure whether to admit or reject. In such circumstances, the chairperson had to mark the POD as objected to and allow the creditor to vote, subject to the vote being declared invalid in the event of the objection being sustained. This would allow the POD to be regarded as “admitted” under the terms of r 97(2)(b) for the limited purpose of voting. Moreover, while, as a broader proposition, it would not be sensible to hold a meeting when there was...
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