|(2016) 17 SAL Ann Rev 469
|01 December 2016
|01 December 2016
17.1 Much attention in 2016 centred around the cases on cross-border insolvency,1 as Singapore then stood at the cusp of adopting the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”) by way of the Companies (Amendment) Act 2017.2 It will be interesting to see how the common law interplays with the Model Law once the relevant amendments come into effect. Apart from cross-border insolvency, noteworthy cases in 2016 dealt with partial reversal of unfair preference transactions,3 statutory demands and statutory adjudication under the Building and Construction Industry Security of Payment Act,4 application for leave to continue legal proceedings against a company in liquidation,5 stay of winding-up orders,6 and discounting related creditors' votes in a scheme of arrangement.7
17.2 The High Court in 8 set aside a statutory demand founded upon a judgment entered in terms
17.3 This is the first time the Singapore High Court has had to grapple with the interplay between the “pay first, argue later” policy under the SOPA, which is aimed at facilitating cash flow in the construction industry and the well-established protection afforded to debtors when faced with a statutory demand as a prelude to bankruptcy. The applicant had argued that to allow statutory demands based on a judgment entered in terms of an adjudication determination made under the SOPA to be set aside merely upon the presentation of a cross-claim would frustrate the legislative intent for the SOPA regime. The learned judge disagreed.
17.4 In arriving at his decision, the learned judge held that an argument (however genuine and strong) that the adjudicated amounts are not as a matter of contractual right due and payable can never be a ground to set aside a statutory demand based on a judgment obtained on an adjudication determination. This is to respect the principle enshrined in s 21 of the SOPA that adjudication determinations, though provisional in nature, are binding on the parties in the adjudication until their differences are, ultimately and conclusively, resolved. To support his decision, the learned judge also relied on Australian and English cases on their respective statutory adjudication regimes.10
17.5 The learned judge, however, acknowledged that the vital policy objective of facilitating cash flow in the construction industry which underpins the SOPA is not intended to be absolute particularly in the context of insolvency processes, which are qualitatively different from other enforcement mechanisms. This is because bankruptcy proceedings are not intended as means for a single creditor to enforce his debt but are instead a method for the collective realisation of the assets of the debtor in order to maximise recovery for the general body of creditors.11
17.6 As such, the learned judge reasoned that if the Parliament had intended for the SOPA regime to take precedence over the usual bankruptcy and insolvency rules, then it would have said so explicitly.
17.7 Thus, while a successful claimant is entitled to seek leave to enforce the adjudication determination as a judgment, he must abide by the usual rules governing the insolvency process. This includes allowing a debtor to set aside a statutory demand where he has a cross-claim, the value of which exceeds the debt undergirding the statutory demand and which raises genuine triable issues.12
17.8 In 13 the applicant sought leave to proceed with a suit against a company in liquidation pursuant to s 299(2) of the Companies Act.14 The applicant had paid a sum into court pursuant to its application to set aside a SOPA adjudication, which the company in liquidation had obtained against it. In addition to the setting-aside application, the applicant also commenced a suit claiming damages against the company and filed a proof of debt in respect of effectively the same claims.,
17.9 Following the High Court decisions in 15 and ,16 the learned judge held that the purpose of s 299(2) of the Companies Act is to prevent the company from being further burdened by expenses incurred in defending unnecessary litigation and acts as a strong disincentive to creditors inclined to scramble to the judgment finishing line in the often mistaken belief that their priority will be enhanced. The policy, instead, is for all claims to be generally disposed of by the summary procedure of proving a debt in the winding-up rather than by dissipating the company's assets in a multiplicity of suits.
17.10 As such, the court may dispense with the procedure only where there is good reason to do so and the burden lies on the applicant to justify departure from the scheme. Some of the factors relevant to the court's exercise of discretion include:
(a) the timing of the application;
(b) the nature of the claim: whether the claimant is seeking to avail itself of a benefit not available under the winding-up regime or whether the claim, if successful, would negate the statutory pari passu scheme;
(c) whether the claim can be adequately or conveniently dealt with within the insolvency regime; and
(d) other factors such as the views of the majority creditors, the need for an independent inquiry and the choice of liquidator.
17.11 The learned judge accepted that it would be difficult for the applicant to recover the moneys it had paid into court if it were not allowed to proceed with the suit. The learned judge, however, considered the most important consideration here to be the fact that the company's resources were already threadbare and considerable costs would have to be incurred if the company were to defend the suit. The claim would in all likelihood exhaust the remaining funds of the company well before the action could be concluded. Further, the learned judge considered that the claimant had already filed a proof of debt, which would be dealt with in the ordinary course of the liquidation. As such, the detriment caused to the company's general body of creditors would far exceed any hardship to the applicant and accordingly, the learned judge declined to grant leave pursuant to s 299(2) of the Companies Act.
17.12 In 17 the High Court was faced with an application to restrain a winding-up application on the ground that the underlying debt was bona fide disputed. It was submitted that the claim to the underlying debt was subject to an arbitration agreement.,
17.13 While it is well-established that, ordinarily, the question as to whether there is a bona fide disputed debt depends on whether there are triable issues, the applicant, relying on the English decision in
17.14 The learned judge accepted the applicant's submission. In his view, the objective of a triable issue standard is to ensure that winding up is not staved off on flimsy or tenuous grounds. This objective is less pressing and dominant when one is confronted with an arbitration clause as the countervailing concern there is to hold parties to their agreement to arbitrate. The court should not step in to decide a matter which is for the arbitrators to decide.
17.15 Addressing the concern that the lowerstandard would stymie the winding-up regime, the learned judge held that if indications were that issues were not raised bona fide, that would be a reason to find that there was no dispute prima facie or that the court's powers should not be exercised in the applicant's favour. Second, nothing inequitable or unfair would result from the parties being made to go through arbitration before they invoked the winding-up process given the agreement the parties had reached for their disputes to be arbitrated.
17.16 Under s 279(1) of the Companies Act, the court may stay a winding-up order against a company on the application of the liquidator, or any of its creditors or contributories. Unlike the position in the UK19 and Australia,20 there is no legislative provision in Singapore which allows the court to modify or terminate a winding-up order which has not been appealed against. The High Court considered the application of s 279(1) in 21 A creditor obtained a winding-up order against Gilcom based on a default judgment. The plaintiff, the sole shareholder and director of Gilcom, applied to stay the winding-up order to allow it to set aside the default judgment. The court highlighted that an applicant under s 279(1) has to show that the state of affairs that requires the company to be wound up (typically, insolvency) no longer exists. Further, a stay will be refused if...
To continue readingRequest your trial