Korea Asset Management Corp v Daewoo Singapore Pte Ltd (in liquidation)

CourtHigh Court (Singapore)
JudgeV K Rajah JC
Judgment Date16 February 2004
Neutral Citation[2004] SGHC 25
Citation[2004] SGHC 25
Defendant CounselSuresh Nair and Foo Hsiang Ming (Allen and Gledhill)
Plaintiff CounselAndre Yeap SC and Tan Teck Wang (Rajah and Tann)
Date16 February 2004
Docket NumberOriginating Summons No 1632 of 2003
Published date25 February 2004
Subject MatterWinding up,Liquidator,Principles to be considered by court when granting leave for compulsory winding up where company undergoing creditors' voluntary winding up.,Winding up order,Role and duties of liquidator,Insolvency Law

16 February 2004

V K Rajah JC:

1 This application raises an interesting insolvency issue on which there is no direct Singapore authority: In what circumstances will the court grant leave for the initiation of compulsory winding up proceedings when the company in question is already in the process of being voluntarily wound up? This is not an obscure point of law divorced from commercial reality. Often, for a variety of reasons, the directors and/or shareholders of a company seek to voluntarily wind up the company if they are of the view that the company cannot carry on as a going business. The reasons for this are usually wholly justified: one instance may be when creditors are reluctant to take any action; another when substantial costs and time can be saved by the voluntary route. There are, however, instances when those responsible for running a company may choose the voluntary liquidation route, in order to “hijack” the liquidation process for reasons that may be viewed as less than legitimate. The voluntary route is a particularly tempting option when related entities of the company or its shareholders are the majority or significant creditors of the company. Directors may also, in certain situations, be averse to having an independent third party mount an enquiry as to the circumstances that precipitated the insolvency of the company. If the directors and management have been involved in corporate shenanigans, it can be expected that they will strenuously take steps to keep out unwelcome prying eyes. In such cases, independent minority creditors may have a legitimate sense of grievance, if their interests are disregarded or if they genuinely fear that the liquidation process may not be fairly implemented. The independence of the liquidators in such situations is often in issue. In a leading English authority, Re Palmer Marine Surveys Ltd [1986] BCLC 106 at 111, Hoffmann J (as he then was) observed:

The public is frequently astonished by the ease with which unsuccessful businessmen appear to be able to transfer the assets, goodwill, premises and employees of an insolvent company to a pristine entity with which they continue trading as before, leaving the creditors unpaid. This may be the price which has to be paid for the entrepreneurial incentives of limited liability. But in cases in which it appears to have happened, thorough investigation is required. Disappointed creditors are bound to view with cynicism any investigation undertaken by a liquidator chosen by the very persons whose conduct is under suspicion.

2 The present application is unusual in the sense that the applicants, who want the company compulsorily wound up, are the undisputed majority creditor. It is not disputed that at least 70% of the admitted outstanding debt is due to them. Notwithstanding, the company has chosen to insist on proceeding with voluntary winding up. It has asserted rather implausibly, through its present solicitors, that it is concerned about the additional costs incurred through the possible appointment of new liquidators should compulsory winding up proceedings be initiated. Given the events that have transpired to date, including the startling losses incurred by the company, I was not impressed by this disingenuous contention and readily allowed the application. While there has been no appeal, certain interesting points have emerged in this application which ought to be examined and explicated. I also think it is important to signal to company management and liquidators alike that the court will vigilantly strive to ensure that fair play and commercial morality prevail in all insolvency matters that come to its attention.

3 The facts as set out by the applicants are not really in dispute, save for the issue of the liquidators’ independence and consequently their ability to effectively discharge their duties. The liquidators have in an affidavit taken issue with this. The company did not file an affidavit. I have largely adopted the facts stated in the applicants’ affidavits in mapping out the factual matrix. For convenience, in these grounds of decision “the company” means the respondent.

Factual matrix

4 The company had two main areas of business:

(a) The import and export of industrial, construction and consumer products, materials and machinery; and

(b) Acting as a commission agent for the purpose of securing trade and other financing through its bankers on behalf of customers and other parties interested in purchasing or leasing equipment.

5 The company is currently wholly owned by Daewoo International Corporation (“DI”). Prior to the restructuring of the Daewoo Group in 1999/2000, the company was wholly owned by the then main holding company of the Daewoo Group, Daewoo Corporation (“DWC”).

6 PriceWaterhouseCoopers (“PWC”), two of whose partners are currently the company’s liquidators, has an associated entity in the Republic of Korea, Samil Accounting Corporation (“Samil”), which has been involved in the restructuring of the Daewoo Group.

7 On 26 May 2003, the directors of the company filed a statutory declaration pursuant to s 291(1) of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”), stating that the company could not by reason of its liabilities continue its business; thereby initiating a creditors’ voluntary winding up. On the same day, without prior consultation with or notice to the creditors, its directors appointed three partners from PWC, jointly and severally, as its provisional liquidators (“the liquidators”).

8 By the statement of affairs filed by the company on 26 May 2003:

(a) The company has admitted that it is indebted to the applicants for the sum of at least $288,063,900.59. The applicants are the single largest creditor of the company by value and account for at least 71% of the total debts of the company. The applicants have a statutory role, under Korean law, to assist in the restructuring of Korean financial institutions and corporations. In accordance with this remit, the applicants had in 1999 bought up the debts of various Daewoo entities globally.

(b) The estimated unsecured liabilities of the company amount to $406,773,291.12, while the estimated realisable assets for the unsecured creditors amount to only $4,342,602.12.

9 On 26 May 2003, the company issued a notice of meeting to the shareholders and a notice of meeting to the creditors, setting in motion the steps necessary to convene the shareholders’ and creditors’ meetings on 23 June 2003.

10 Sections 296(7) and 296(8) of the Act require the creditors’ meeting to be held at a time and place convenient to the majority in value of the creditors. On 17 June 2003, the applicants requested that the liquidators postpone the creditors’ meeting on 23 June 2003 on the basis that they, the applicants, were still evaluating their options. They also reminded the liquidators that given their status as a Korean state entity, the decision-making process could take some time.

11 The liquidators responded on 19 June 2003, stating that they would not object to an adjournment of two weeks. On 20 June 2003, the applicants wrote again to the liquidators and inter alia queried the liquidators about certain perceived conflicts of interest.

12 On 23 June 2003, the shareholders’ meeting was held and the company’s sole shareholder, DI, resolved for the company to be wound up, nominating the liquidators for the position of liquidators.

13 The liquidators also proceeded to convene the creditors’ meeting on 23 June 2003, despite the applicants’ earlier objection that this was not convenient to them. At the meeting, the chairman of the meeting, a representative of the applicants, declared that this meeting would lapse as it was not convened at a time and place convenient to the majority in value of the creditors, as required by s 296(8) of the Act. No resolutions were voted on during this “lapsed meeting”. Significantly, during this meeting an important difference in views was aired in relation to voting rights and the voting mechanism at a creditors’ meeting. The applicants took the position that the appointment of the chairman of any such meeting would be determined by the majority in value of the creditors. The company expressed the view that the chairman should be appointed by a majority of creditors in value and number. The liquidators’ position appears to be identical to that of the company. The applicants became concerned. They viewed the position taken by the company, the liquidators and their advisors as an attempt to dilute and undermine their rights in a voluntary creditors’ liquidation.

14 In response to the earlier queries from the applicants dated 20 June 2003, the liquidators in a letter dated 3 July 2003 stated that PWC had in fact earlier undertaken work for the company. The letter furnished some additional facts on the PWC and Samil relationship. PWC operated independently of Samil and was a separate legal entity. Both PWC (the Singapore entity) and Samil were individual member firms of the worldwide PWC organisation. The liquidators also asserted:

(a) Samil, the PWC network firm in Korea, was currently the auditor of DI (the sole shareholder of the company).

(b) Samil had been appointed to act in various advisory capacities:

(i) to carry out a due diligence review and workout plan for DWC, Daewoo Telecom, Daewoo Car Sales, Daewoo Capital, Diners Club and more than 30 foreign subsidiaries;

(ii) to advise on the sale of Daewoo Motor to Ford Motors;

(iii) to act as a lead financial advisor for the sale of the Information and Communication Division of Daewoo Telecom, Automobile Parts Division and certain divisions of Daewoo Electronics;

(iv) to assist DWC with regard to its split into three companies, DI, Daewoo Engineering and Construction company Ltd and DWC (which occurred in 1999/2000);

(v) to review the business plan of Daewoo America Inc, which is the US subsidiary of DI; and

(vi) to act as sellside advisor for various...

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