Hong Leong Bank Bhd v Soh Seow Poh

• Jurisdiction: Singapore
• Judgment Date: 05 August 2009
• Date: 05 August 2009
• Docket Number: Civil Appeal No 144 of 2008
• Court: Court of Appeal (Singapore)

Hong Leong Bank Bhd

Plaintiff

and

Soh Seow Poh

Defendant

[2009] SGCA 37

Chao Hick Tin JA

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeal No 144 of 2008

Court of Appeal

Insolvency Law–Bankruptcy–Discharge–Whether to grant unconditional discharge from bankruptcy where bankrupt gave unfair preference to creditor–Section 124 (4) (c)Bankruptcy Act (Cap 20, 2000 Rev Ed)

This was an appeal by a creditor against the decision of the High Court judge (“the Judge”) for having unconditionally discharged the respondent from bankruptcy under s 124 of the Bankruptcy Act (Cap 20, 2000 Rev Ed) (“the Act”).

The respondent (“Soh”) stood as guarantor to loans taken out by several property development and construction companies in which he was a shareholder or director. The companies were unable to repay the loans due to the Asian financial crisis. Together with other loans, Soh owed a debt of $31,126,626.06 in total and was made bankrupt in 2001. The Official Assignee (“the OA”) applied to the High Court for Soh to be discharged from bankruptcy. The OA submitted several reports stating that (a) the administration of Soh's bankruptcy was complete; (b) a third party had proposed to pay $40,000 towards the settlement of Soh's debt; and (c) that there was nothing to warrant a refusal to discharge Soh from bankruptcy. However, the Judge below found that Soh had given unfair preference to one of his other creditors, and the case thus fell within the special fact of s 124 (5) of the Act. In these circumstances, under s 124 (4) (c) of the Act, the court could make an order discharging the bankrupt subject to such conditions as it saw fit to impose. The question was whether, in such a case, the court would still have the discretion to discharge the bankrupt without imposing a condition. The judge thought so and proceeded to grant Soh an unconditional discharge from bankruptcy.

Held, dismissing the appeal:

(1) A balance has to be maintained between the financial rehabilitation of the bankrupt and the protection of creditors and society at large. The aim of s 124 (4) of the Act was to guard against fraudulent, improper and irresponsible conduct and to demonstrate that a bankrupt who has been guilty of such conduct is expected to do more before he could be discharged. What conditions should appropriately be imposed had to depend on the circumstances of each case, bearing in mind the degree of a bankrupt's culpability and the deterrent value of each condition: at [32] and [37].

(2) There was no reason to impose conditions that were of little or nominal deterrence value. The court could be relied upon to ensure that fraudsters or reckless traders did not take advantage of the discharge regime by imposing, if need be, severely punitive conditions commensurate with the degree of culpability of the bankrupt. Taking a purposive interpretation of the Act, it was permissible under s 124 (4) (c)to grant an unconditional discharge where no harm would thereby be caused to creditors and the broader public interest of deterrence would not be undermined: at [38] and [44].

(3) The OA's reports were to assist and enable the court to come to a fair and just decision on the discharge application. The Judge below found the OA's reports to be adequate. As far as this appeal was concerned, any inadequacy in the OA's reports could not have materially affected the Judge's decision as the information that was alleged to be missing was in fact provided in Soh's affidavits and by his counsel: at [49] and [50].

(4) The Judge did not err in deciding to grant Soh an unconditional discharge. The Act was not designed to punish bona fide business activities. Soh did not misbehave during his bankruptcy. The primary cause of Soh's financial collapse was the Asian financial crisis. Soh's single act of giving unfair preference to one creditor was not entirely blameworthy. There was no benefit in ordering Soh to continue repayment of $250 per month given the third party's proposal to repay immediately $40,000 to Soh's creditors: at [61] and [63] to [66].

Aziz v Knightsbridge Gaming and Catering Services and Supplies Ltd [1982] TLR 364 (refd)

Barrett Bros (Taxis) Ltd v Davies Lickiss and Milestone Motor Policies at Lloyd's, Third Parties [1966] 1 WLR 1334 (refd)

Gaskell, In re [1904] 2 KB 478 (refd)

Harding, Re (1981) 57 FLR 320 (distd)

Jeyaratnam Joshua Benjamin v Indra Krishnan [2005] 1 SLR (R) 395; [2005] 1 SLR 395 (distd)

Jeyaretnam Joshua Benjamin v Indra Krishnan [2007] 3 SLR (R) 433; [2007] 3 SLR 433 (refd)

Kelvin Lee See Fooi, Re; ex p BSN Commercial Bank Malaysia Bhd [2006] 3 MLJ 683 (distd)

Lau Kah Lay & Anor, Re; ex p Cold Storage (M) Bhd [2001] 6 MLJ 311 (distd)

Lee Chee Wei v Tan Hor Peow Victor [2007] 3 SLR (R) 537; [2007] 3 SLR 537 (refd)

R (on the application of Edison First Power Ltd) v Central Valuation Officer [2003] 4 All ER 209 (refd)

Siah Ooi Choe, Re [1997] 3 SLR (R) 706; [1998] 1 SLR 903 (distd)

Vishva Apurva, The [1992] 1 SLR (R) 912; [1992] 2 SLR 175 (refd)

Bankruptcy Act (Cap 20, 2000 Rev Ed) s 124 (4) (c) (consd);ss 21, 124, 124 (3), 124 (3) (c), 124 (4), 124 (4) (a), 124 (4) (b), 124 (5), 124 (5) (d), 124 (5) (h), 124 (5) (j), 124 (5) (l), 125, 126 (6), 126 (6) (a)

Bankruptcy Act 1995 (Act 15 of 1995)

Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) r 48

Companies Act (Act 42 of 1967) s 406 (a)

Bankruptcy Act 1967 (Act 360) (M'sia) s 33 (3)

Chong Kuan Keong and Tan Joo Seng (Chong Chia & Lim LLC) for the appellant

Eric Tin Keng Seng (Donaldson & Burkinshaw) for the respondent

Malcolm Tan for the Official Assignee

.

Chao Hick Tin JA

(delivering the grounds of decision of the court):

Introduction

1 This was an appeal against the decision of the High Court judge (the “Judge”) who affirmed the decision of the assistant registrar (the “AR”) to grant the respondent Mr Soh Seow Poh (“Soh”) an unconditional discharge from bankruptcy under s 124 of the Bankruptcy Act (Cap 20, 2000 Rev Ed) (“the Act”) (see Re Soh Seow Poh, ex parte Hong Leong Bank Bhd [2009] 2 SLR (R) 35 (“the Judgment”)). The appellant, Hong Leong Bank Berhad (“HLB”), was one of Soh's creditors and the only creditor objecting to Soh's discharge from bankruptcy. After hearing counsel for both parties, we affirmed the Judge's decision. These are our reasons for dismissing the appeal.

2 One significant fact about this case was that the Judge had determined that Soh gave unfair preference to one of his creditors, which would be a consideration under s 124 (5) of the Act (also known as a “special fact”) to be taken into account in the court's decision to discharge a bankruptcy. This finding was not disputed before us. The existence of this special fact meant that the Judge could only grant a discharge under ss 124 (4) (b) or 124 (4) (c), both of which on a plain reading seemed to contemplate the discharge of bankruptcy subject to the imposition of some sort of condition. Nonetheless, the Judge chose to discharge Soh unconditionally as she felt there was no appropriate condition to impose in this case. This issue, ie, whether the court was entitled to grant an unconditional discharge, was the main issue in contention in this appeal.

Background facts

3 Soh was indebted to HLB on account of personal guarantees which he gave to Hong Leong Finance Berhad (“HLFB”), the predecessor of HLB, in respect of loans which HLFB had granted to four Malaysian companies in which Soh was a director and shareholder. These four companies were engaged in property development and construction. Due to the Asian Financial crisis, the companies were unable to repay the loans. In turn, HLFB looked to Soh for the repayment of the total outstanding of $26,353,903.26.

4 Soh also borrowed extensively from several companies he owned including a certain Wei Sin Construction Pte Ltd (“WSCPL”). Together with his debts to HLFB, Soh's total liability came up to $31,126,626.06. He was adjudged a bankrupt in August 2001.

5 After being made a bankrupt, Soh contributed $100 per month to the Official Assignee (“OA”) towards his debt. From 1 July 2002, Soh found employment and earned a gross salary of $5,000 per month, of which $4,700 went into family expenses. From November 2003, he increased his contribution to the OA to $200 per month, and, from November 2004, his contributions increased further to $250 per month. From 1 September 2005 to 31 July 2007, Soh's salary from his employment increased to $6,100 a month. Before the application was made for his discharge from bankruptcy, he was employed in China earning $7,000 a month.

History of the proceedings

6 On 21 September 2007, the OA applied to the High Court for Soh to be discharged from bankruptcy. In his report on Soh's bankruptcy submitted in support of the application (“the First Report”), the OA stated that a third party had proposed to pay $40,000 to settle part of Soh's debts. The First Report further stated that the administration of Soh's bankruptcy had been completed, the case was more than five years old, and that Soh had become unemployed with medical problems. HLB challenged the application on two main grounds, namely, that there were special facts within s 124 (5) of the Act and that Soh's conduct during bankruptcy was not satisfactory.

7 In response, Soh filed an affidavit dated 28 November 2007 (“Soh's first affidavit”) explaining that his bankruptcy was a result of the Asian financial crisis and not due to any personal fault of his. The OA also filed a second report (“the Second Report”) stating that Soh had not travelled without the OA's authorisation and that Soh's conduct during bankruptcy was satisfactory. Soh was granted an unconditional discharge by the AR on 15 February 2008.

8 On HLB's appeal to the Judge (in chambers), Soh filed a second affidavit dated 24 June 2008 (“Soh's second affidavit”). Furthermore, in order to ensure that the...