Insolvency Law

Date01 December 2017
Published date01 December 2017
Introduction

17.1 Year 2017 was momentous for Singapore insolvency law. The extensive changes to the Singapore insolvency legislative framework came into effect on 23 May 2017 by way of the Companies (Amendment) Act 2017.1 As part of these changes, Singapore adopted the UNCITRAL Model Law on Cross-border Insolvency2 (“Model Law”). Notably, we saw the first Singapore High Court decision which interpreted the newly enacted legislation on super-priority financing – Re Attilan Group Ltd.3 Other significant decisions include SK Engineering & Construction Co Ltd v Conchubar Aromatics Ltd4 (“SK Engineering”), which revisited the treatment of related creditors' votes in a scheme of arrangement, Duncan, Cameron Lindsay v Diablo Fortune, Inc5 (“Diablo Fortune”) (on the registrability of contractual liens in the maritime context) and Re Croesus Retail Asset Management Pte Ltd6 (“Re Croesus”), the first reported decision on the restructuring of a business trust by a scheme of arrangement.

Winding up
Statutory demand – Disclosure of seized assets

17.2 In iTronic Holdings Pte Ltd v Tan Swee Leon,7 the High Court considered whether assets seized pursuant to a writ of seizure and sale (“WSS”) had to be disclosed in a statutory demand for a bankruptcy application. The plaintiff, having obtained judgment against the defendant, issued and served a WSS on the defendant. Pursuant to the WSS, the sheriff seized the defendant's shares in five private companies. The plaintiff then filed a bankruptcy application based on the statutory demand. The defendant argued that the plaintiff failed to disclose or account for the seized shares in the statutory demand, in breach of r 94(5) of the Bankruptcy Rules.8 The defendant also argued that the seized shares were not specified in the plaintiff's affidavit in support of the bankruptcy application as required under r 101(2) of the Bankruptcy Rules. As such, the statutory demand was defective and ought to be set aside, and the bankruptcy application should be dismissed.

17.3 The court rejected the defendant's arguments. In coming to its decision, the court considered that r 94(5) of the Bankruptcy Rules applies to property of the debtor that is held by the creditor issuing the statutory demand. Likewise, r 101(2) requires the creditor to account for property of the debtor held by the creditor in the affidavit in support of the bankruptcy application. However, the plaintiff did not “hold” the shares that had been seized under the WSS. This is because when a WSS is issued against specific property, the interest or property continues to reside in the judgment debtor pending sale. The execution of the WSS had not been completed and the seized shares were also not within the plaintiff's possession nor at its disposal. In any case, even upon the grant of the bankruptcy order, it was uncertain if the plaintiff would have an interest in the proceeds from the sale of the seized shares. For instance, it could be the case that debts held by other creditors of the defendant had to be satisfied in priority over the plaintiff's debt. Accordingly, the plaintiff had no certain interest over the seized shares nor their sale proceeds. The court further considered that “property of the debtor” in r 94(5) only refers to property of the debtor that the creditor is entitled to apply towards payment of the debt. If the creditor is not entitled to do so, there is no need to specify such property in the statutory demand. The same principle applies when it is uncertain whether a creditor may eventually be entitled to apply certain property or its proceeds towards payment of the debt.

17.4 In any case, a failure to disclose such property would be an irregularity or defect that can be remedied by the court under s 158(1) of the Bankruptcy Act.9 There was no significant difference whether the shares were specified in the statutory demand given that the value of the shares was unknown, and was estimated to only be a small percentage of the total debt owed. The defendant was also fully aware of the WSS and there was no risk of the defendant being misled as to the amount of debt owed. There was no risk of injustice to the defendant. The defendant's appeal against the bankruptcy order was therefore dismissed.

Statutory demand – Bona fide dispute

17.5 The court may stay or dismiss winding-up proceedings if there is a bona fide dispute over the debt claimed under the statutory demand. However, where the debt is a tax assessment, the debtor should utilise the statutory review process under the Income Tax Act10 (“ITA”). Without doing so, he should not challenge the assessment during the winding-up proceedings. This was the holding in Comptroller of Income Tax v BLO.11

17.6 The Comptroller of Income Tax had sent notices of additional assessment to the defendant. The defendant failed to make full payment of the outstanding tax and penalties, and the Comptroller subsequently issued a statutory demand.

17.7 The defendant failed to comply with the statutory demand, and the Comptroller filed an application to wind up the defendant. The defendant sought to stay the application, raising objections to the additional tax assessments, and indicating an intention to object or appeal under s 79(1)(a) of the ITA. The court dismissed the defendant's application, and granted the winding-up order.

17.8 After the service of a statutory demand, the debtor has three weeks under s 254(2)(a) of the Companies Act12 to pay the sum, or to secure or compound it. Otherwise, a presumption that the debtor is insolvent arises, and the creditor may apply to wind up the debtor company.13 Where there is a bona fide dispute over the debt claimed, the court should stay or dismiss the winding-up application.14 However, the

debtor cannot merely allege the existence of a bona fide debt, and must raise triable issues in order to obtain a stay or dismissal.15

17.9 On the facts, the court held that there was no substantial or bona fide dispute over the underlying debt. Under s 85(1) of the ITA, tax assessed is payable regardless of the existence of an objection or appeal. Further, the ITA provides for a statutory process to review tax assessments. The defendant had not availed itself of the statutory review process, and should not be allowed to bypass such process and challenge the additional assessments in the winding-up proceedings.

17.10 The court was guided by authorities where the court had granted summary judgment against defendant companies for income tax due,16 where it was held that income tax is payable regardless of objection or appeal, and that a taxpayer cannot bypass the statutory review process. Although these cases dealt with summary judgment applications, the court found that the principles were relevant to winding-up applications as well, as the applicable standard of proof in showing the existence of a substantial and bona fide dispute in winding-up proceedings is no more than that for resisting summary judgment.

Stay of winding-up application

17.11 In Strategic Construction Pte Ltd v JH Projects Pte Ltd17 (“Strategic Construction”), the High Court was asked to stay a winding-up application brought on the basis of an unsatisfied adjudication award. The company sought a stay on the basis that it had a genuine cross-claim against the applicant. The cross-claim had been advanced by the company in separate proceedings before the High Court against the applicant in relation to the same construction project which engendered the adjudication award which underpinned the winding-up application.

17.12 On the facts, the learned judge was satisfied that there was a genuine cross-claim and there was at least a triable issue as to whether the company's cross-claim exceeded the applicant's claim. Accordingly, the learned judge granted the company's application for a stay of the winding-up application. In arriving at this conclusion, the learned judge correctly applied the principles laid down in Metalform Asia Pte Ltd v Holland Leedon Pte Ltd18

and Denmark Skibstekniske Konsulenter A/S I Likvidation v Ultrapolis 3000 Investments Ltd.19

17.13 The learned judge also noted that even though the winding-up application had been brought on the basis of an unsatisfied adjudication award, the standard of proof to be met in an application to stay the winding-up application was no different. In arriving at this conclusion, the learned judge referred to the parliamentary debates and noted that Parliament had expressly intended that the insolvency regime would prevail in the event of a conflict with the statutory payments regime under the Building and Construction Industry Security of Payment Act20 (“SOPA”). Interestingly, the learned judge referred in the course of his judgment to the High Court decision in Lim Poh Yeoh v TS Ong Construction Pte Ltd,21 which did not concern a winding-up application, instead of an earlier decision involving the same parties in Lim Poh Yeoh v TS Ong Construction Pte Ltd.22 In that earlier case, the High Court considered the interplay between the SOPA and insolvency regimes (in the context of an application to set aside a statutory demand based on an unsatisfied adjudication award) and held, as the learned judge did in Strategic Construction, that the latter regime would prevail in the event of any conflict.

17.14 In the event, the learned judge ordered that the winding-up application be stayed on condition that the company pays into court the amount due under the adjudication award.

Security interests in commingled assets

17.15 Companies trading in commodities often have their assets in the form of stock-in-trade. A liquidator of such a company will then need to deal with issues of ownership and security interests in the often fungible or commingled assets, as was the case in Pars Ram Brothers (Pte) Ltd v Australian & New Zealand Banking Group Ltd23 (“Pars Ram Brothers”).

17.16 In Pars Ram Brothers, the...

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