Insolvency Law
| Published date | 01 December 2018 |
| Author | Kelvin POON LLB (Hons) (National University of Singapore); Advocate and Solicitor (Singapore); Partner, Rajah & Tann Singapore LLP. SIM Kwan Kiat LLB (Hons) (National University of Singapore), LLM (NYU); Advocate and Solicitor (Singapore); Attorney and Counsellor-at-law (New York State); Partner, Rajah & Tann Singapore LLP. Wilson ZHU LLB (Hons) (National University of Singapore); Advocate and Solicitor (Singapore); Partner, Rajah & Tann Singapore LLP. |
| Date | 01 December 2018 |
| Publication year | 2018 |
| Citation | (2018) 19 SAL Ann Rev 533 |
17.1 2018 was a fruitful year as there were important decisions that gave useful guidance on insolvency law and, in particular, statutory provisions introduced by significant amendments to the Companies Act1 in 2017. These include Re IM Skaugen SE,2 which addressed, inter alia, the requirements for an application for an interim moratorium under s 211B of the Companies Act, and Re Zetta Jet Pte Ltd,3 the first reported decision on the recognition of foreign insolvency appointment holders pursuant to the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Cross-border Insolvency4 (“Model Law”) (Tenth Schedule to the Companies Act). The High Court also dealt with principles governing classification of creditors and release of third-party rights in schemes of arrangement,5 as well as questions on bondholder voting and third-party securities in judicial management.6
17.2 In VTB Bank (Public Joint Stock Co) v Anan Group (Singapore) Pte Ltd,7 the High Court was faced with an application to wind up a company on the ground that it was unable to pay its debts. The company opposed the application on the basis that the underlying debt was disputed and was governed by an arbitration agreement.
17.3 In determining whether the debt was disputed, the honourable judicial commissioner held that the company had to establish that there were triable issues in connection with the underlying debt. This is notwithstanding the fact that the underlying dispute was governed by an arbitration agreement. In arriving at this conclusion, the honourable judicial commissioner recognised that his decision would depart from the prima facie standard applied in the earlier High Court decision in BDG v BDH8 (“BDG”).
17.4 It appears from the judgment that the honourable judicial commissioner would have been amenable to applying the test adopted in BDG but for the fact that he considered himself bound by the Court of Appeal decision in Metalform Asia Pte Ltd v Holland Leedon Pte Ltd9 (“Metalform”). In Metalform, the debtor company sought an injunction to restrain the creditor from presenting a winding-up application on the basis that it had a cross-claim which was equal to or larger than the underlying debt. In that case, it was common ground that the cross-claim ought to be resolved by an arbitrator.
17.5 Thus, the honourable judicial commissioner concluded that Metalform stood for the proposition that:10
… even if there is a dispute between the parties which goes to the crux of the applicant-creditor's winding-up petition and such dispute is governed by an arbitration agreement, the standard of proof is that of triable issues.
17.6 He did not consider it to be of much significance that Metalform was a “cross-claim” case while the application in VTB Bank11 was a “disputed debt” case. In his judgment, there is no distinction between a
17.7 Likewise, the honourable judicial commissioner did not consider it to be material that Metalform12 involved an application by the debtor-company to pre-emptively restrain the creditor from commencing winding-up proceedings, while VTB Bank concerned a company resisting the winding-up application itself: following the Court of Appeal decision in Pacific Recreation Pte Ltd v S Y Technology Inc.13 On the facts, the honourable judicial commissioner found that no triable issues were raised in respect of the underlying debt and he accordingly ordered that the company be wound up.
17.8 The High Court's decision in VTB Bank is significant and merits closer analysis. While it appears to cut against the robust judicial policy of upholding arbitration agreements, it should be noted that the company did not apply to stay the winding-up proceedings pursuant to s 6 of the International Arbitration Act.14 Such an application could have been made on the basis that the winding-up proceedings amount concerned a matter which is the subject of the arbitration agreement (viz, whether the underlying debt was due). The outcome could well have been different had such an application been made.
17.9 Further, it is not clear that the honourable judicial commissioner is bound by Metalform. While both parties agreed that the dispute in relation to the cross-claim ought to be referred to arbitration, no submissions were made by parties as to the impact this had on the applicable standard for the grant of an injunction against the commencement of winding-up proceedings and no finding was made in this regard. As such, it is submitted that Metalform did not decide on the applicable standard of proof where the underlying debt was governed by an arbitration agreement; that question was not engaged at all.
17.10 In Prospaq Group Pte Ltd v Yong Xing Construction Pte Ltd,15 the High Court was confronted with the question as to whether an applicant could be substituted as the plaintiff in ongoing winding-up proceedings
17.11 The honourable judicial commissioner observed that r 33(1) of the Companies (Winding Up) Rules16 (“CWUR”) provides that only someone with the “right to make the winding-up application” could be substituted as a plaintiff. Nevertheless, he held that the applicant had standing under r 33(1) to be substituted as the plaintiff as the fact situation was congruous with the earlier High Court decision in Re People's Parkway Development Pte Ltd17 (“People's Parkway”).
17.12 In People's Parkway, L P Thean J (as he then was) held that although the applicant's statutory demand was issued after the date of commencement of the winding-up application, the applicant would have had a right to present a winding-up petition against the debtor company as the underlying debt was in existence even before that date even if the quantum thereof was disputed. Following the reasoning of Thean J, the honourable judicial commissioner held that the underlying debt was for unpaid invoices for supply of construction materials which pre-dated the commencement of the winding-up proceedings. As such, the honourable judicial commissioner held that the applicant had “a right to make the winding-up application” under r 33(1) of the CWUR and accordingly made an order substituting the applicant for the original plaintiff.
17.13 In Prospaq Group Pte Ltd v Yong Xing Construction Pte Ltd,18 the High Court declined to grant a further adjournment as it would not be in the interests of the general body of creditors to drag the matters indefinitely.
17.14 Relying on the Court of Appeal decision in BNP Paribas v Jurong Shipyard Pte Ltd19 (“Jurong Shipyard”), which held that while the general rule is that the creditor is prima facie entitled to a winding-up order where a company is unable or deemed to be unable to pay its debts, an adjournment may be justified in exceptional circumstances, such as where the defendant company is “temporarily insolvent” but commercially viable, such that it merited being allowed time to resolve issues at hand or seek alternative measures.
17.15 The honourable judicial commissioner was satisfied that, on the facts, the company was clearly not “temporarily insolvent”. Despite having been afforded a generous time frame of ten months' adjournment following three months of moratorium, it was unable to resolve its outstanding debts. Furthermore, the company's hope of a white knight investor also did not materialise. In the circumstances, the High Court declined to grant a further adjournment and instead ordered that the company be wound up.
17.16 2018 saw a trilogy of cases where the High Court was confronted with the argument that it should not find the debtor company insolvent even though it had failed to satisfy a statutory demand pursuant to s 254(2)(a) of the Companies Act. All of these cases appeared to proceed on the assumption that a debtor company is entitled to demonstrate that it is in fact solvent in such an event.
17.17 In Prospaq Group Pte Ltd v Yong Xing Construction Pte Ltd,20 the debtor company sought to stave off liquidation by arguing that the presumption of insolvency following a failure to meet a statutory demand was rebutted on the facts. On the facts, the honourable judicial commissioner was satisfied that the company was insolvent but accepted that the debtor company may rebut this presumption of insolvency.
17.18 In arriving at his conclusion, the honourable judicial commissioner had regard to s 254(2)(c) of the Companies Act which provides that a company shall be deemed unable to pay its debts if:
… it is proved to the satisfaction of the Court that the company is unable to pay its debts; and in determining whether a company is unable to pay its debts the Court shall take into account the contingent and prospective liabilities of the company.
17.19 The honourable judicial commissioner also recognised that a company is deemed insolvent if it is either balance sheet insolvent21 or it is unable to meet current demands upon it.22 On the facts, he found that the company was commercially insolvent, given that it was unable to pay off its substantial and long outstanding debts despite having been afforded more than a year since the commencement of the winding-up proceedings to do so.
17.20 A similar argument was attempted in Tarkus Interiors Pte Ltd v The Working Capitol (Robinson) Pte Ltd23 (“Tarkus”). In her judgment, the learned judge accepted that the company could rebut the...
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