Kyen Resources Pte Ltd (in compulsory liquidation) and others v Feima International (Hongkong) Ltd (In Liquidation) and another matter

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 05 March 2024
• Neutral Citation: [2024] SGCA 7
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 4 of 2023 and Summons No 22 of 2023
• Hearing Date: 09 November 2023
• Citation: [2024] SGCA 7
• Year: 2024
• Plaintiff Counsel: Chan Ming Onn David, Fong Zhiwei Daryl, Lai Wei Kang Louis and Mo Fei (Shook Lin & Bok LLP)
• Defendant Counsel: Alexander Lawrence Yeo Han Tiong and Edwin Teong Ying Keat (Allen & Gledhill LLP)
• Subject Matter: Insolvency Law,Winding up,Proof of debt,Liquidators seeking to set-off crossclaims as a basis for rejecting proof of debt,Whether liquidators generally entitled to set-off all crossclaims in the proof of debt process,Res Judicata,Applicable principles,Creditor seeking a stay of the appeal in Singapore,Whether res judicata arose in the decision of a liquidator of a foreign company which was pending an appeal in another jurisdiction
• Published date: 05 March 2024

Kannan Ramesh JAD (delivering the grounds of decision of the court):

Can a crossclaim by a company in liquidation be accounted for in the adjudication of an unsecured creditor’s proof of debt in circumstances where a set-off is not available? Is the company in liquidation precluded from exercising a set-off if it concurrently pursues the crossclaim by lodging a proof of debt in the liquidation of the creditor in another jurisdiction? These questions arose in the present appeal and raised squarely the distinction between a set-off and a crossclaim by a company in liquidation. These questions also highlighted the difference between a company exercising a set-off against a creditor, and lodging a proof of debt in the creditor’s liquidation, each of which engage different considerations and serve distinct purposes.

Having considered the parties submissions, we answered these questions in the negative, and dismissed both the appeal and the respondent’s application to stay the appeal, with costs to the respondent. We set out our reasons below.

Background The parties

The first appellant, Kyen Resources Pte Ltd (“Kyen”), is a company incorporated in Singapore principally involved in the trading of commodities and foreign currency derivative instruments. It was wound up by the court on 5 August 2019 and Mr Chan Kheng Teck and Mr Goh Thien Phong, the second and third appellants (the “Kyen Liquidators”) respectively, were appointed joint and several liquidators. The appellants are collectively referred to hereinafter as the “Kyen Appellants”.

The respondent, Feima International (Hongkong) Ltd (“Feima”), is a company incorporated in the Hong Kong Special Administrative Region (“Hong Kong”) principally involved in the trading of coal and copper cathodes. Feima was wound up by the Hong Kong Court of First Instance on 31 July 2019. Ms Yu Tak Yee, Beryl and Mr Choi Tze Kit, Sammy were appointed joint and several liquidators (the “Feima Liquidators”).

Kyen and Feima were members of a group of companies. Feima owned 86% of the shares in Kyen and shared common directors with Kyen, namely Mr Chen Xi and Mr Huang Zhuangmian. Also, under a Management and Administrative Services Agreement, Feima agreed to provide Kyen certain management and administrative support services. Such services included assisting Kyen to procure financing and to supervise the sale and purchase of its assets.

Feima’s proof of debt in Kyen’s liquidation

On 26 June 2020, the Feima Liquidators notified the Kyen Liquidators that Feima intended to lodge a proof of debt for about HK$385m in Kyen’s liquidation. To facilitate this, the Feima Liquidators requested a copy of Kyen’s statement of affairs. This, along with a proof of debt form, was provided to the Feima Liquidators on 21 July 2020.

On 2 September 2020, the Feima Liquidators lodged a proof of debt for US$49,355,996.30 which comprised various sums allegedly due from Kyen to Feima for goods sold and delivered by Feima to Kyen; and payments made by Feima on Kyen’s behalf. The proof of debt enclosed an extract of Feima’s audited financial statements as at 31 December 2018, which reflected these transactions as debts owed by Kyen to Feima, and a copy of the winding up order made by the Hong Kong Court of First Instance.

Between September 2020 and June 2021, solicitors for the Kyen Liquidators and the Feima Liquidators exchanged correspondence. A key issue in the correspondence related to requests for evidence and information by the Kyen Liquidators on two matters. First, the sum claimed in Feima’s proof of debt. Second, a series of significant transactions between Kyen and various companies which were not members of the group (the “Third-Party Transactions”). On 18 March 2021, a list of questions was sent by the Kyen Liquidators to the Feima Liquidators concerning the Third-Party Transactions. The Feima Liquidators declined to answer those questions.

On 23 July 2021, the Kyen Liquidators rejected Feima’s proof of debt on alternative grounds. First, that Kyen’s alleged crossclaims (the “Crossclaims”) against Feima on the basis of the Third-Party Transactions exceeded the claim in Feima’s proof of debt. The Kyen Liquidators alleged that the Crossclaims were for “losses suffered by [Kyen] in [sic] certain transactions … between [Kyen], on the one hand, and [third-party companies], on the other, which ha[d] been caused and/or occasioned by [Feima]”. This was the primary ground. Second, that there was insufficient evidence to support the claim in Feima’s proof of debt to the extent of US$44,900,112.83. This was the secondary ground.

On 13 August 2021, Feima appealed the rejection of its proof of debt by Kyen to the General Division of the High Court in HC/OS 828/2021 (“OS 828”).

The decision below

OS 828 was heard by the Judge below (the “Judge”) on 6 October 2022 and judgment was delivered on 6 December 2022. The judgment (the “Judgment”) is reported at Feima International (Hongkong) Ltd (in liquidation) v Kyen Resources Pte Ltd (in liquidation) and others [2022] SGHC 304.

Before the Judge, as regards the Kyen Liquidators’ argument on primary ground that the Crossclaims exceeded the claim in its proof of debt (see [9] above), Feima argued that the Crossclaims did not provide Kyen with a legal basis to reject its proof of debt. Three arguments were advanced, that: (a) the proof of debt process only applied to resolve claims against a company in liquidation, and not crossclaims by the company (see the Judgment at [37]); (b) the Crossclaims did not satisfy the requirements for an insolvency set-off (see the Judgment at [39]–[40]); and (c) it was incumbent upon the Kyen Liquidators to show that they had attempted to pursue the Crossclaims in separate proceedings (see the Judgment at [41]). As regards the Kyen Liquidators’ argument on secondary ground that there was insufficient evidence to support Feima’s proof of debt (see [9] above), Feima conceded that of the US$49,355,996.30 claimed in Feima’s proof of debt, only the sum of US$32,079,540.97 was being pursued (see the Judgment at [2]).

Before the Judge, the Kyen Appellants expanded on the two grounds for rejecting Feima’s proof of debt. On the primary ground, the Kyen Appellants contended that a liquidator was entitled to “account for” all crossclaims against a creditor when adjudicating the creditor’s proof of debt in order to determine the company’s “true liabilities” (see the Judgment at [30]). They clarified that the Crossclaims were for US$159m and comprised: (a) a claim for dishonest assistance arising from the Third-Party Transactions; and (b) a claim for knowing receipt based on monies received by Feima from a third-party company which the Kyen Appellants believed were traceable to certain contracts (see the Judgment at [16(a)]–[16(b)]). On the secondary ground, the Kyen Appellants’ broad contention was that there was insufficient evidence to support the debt claimed in Feima’s proof of debt (see the Judgment at [16(c)]). They also argued that a heightened level of scrutiny of Feima’s proof of debt was warranted because Feima was the parent company of Kyen (see the Judgment at [76]).

The Judge rejected the Kyen Appellants’ arguments. He allowed OS 828 in part and admitted Feima’s proof of debt to the extent of US$32,079,540.97, being the sum pursued by Feima before the Judge. On the primary ground, the Judge held that the Kyen Liquidators were not justified in rejecting Feima’s proof of debt as the Crossclaims involved complex disputes of fact (see the Judgment at [62]). The Judge was of the view that (see the Judgment at [56]):

…

(a) First, while a liquidator is entitled to account from the proof of debt any counterclaim/cross-claim, this can only be allowed where the factual matrix is not complex such that it remains a matter of simple arithmetic, ie, it is a straightforward matter of identifying the net balance of claims. (b) However, if there are substantial disputes as to the existence and amounts of the counterclaim/cross-claim which do require a complex web of facts and issues to be untangled, then these must usually be resolved by way of a full trial (or other mode of trial necessary for fairly disposing of the issues) before the arithmetic can resume.

[emphasis in original omitted]

The Judge further held that the Crossclaims did not satisfy the requirements for an insolvency set-off (see the Judgment at [65]). Finally, the Judge was of the view that it was inappropriate to determine whether the Crossclaims were made out as there was no basis in the first place for a set-off (see the Judgment at [74]).

On the secondary ground, the Judge held that there was no need for “heightened scrutiny” of Feima’s proof of debt as there was nothing to trigger suspicion: the evidence presented by Feima supported the claim in its proof of debt to the extent of US$32,079,540.97 (see the Judgment at [102]–[103] and [133]). In addition, the Judge rejected the Kyen Appellants’ attempt to cast doubt on the financial statements of Feima and Kyen, and the statement of affairs provided by Kyen’s directors.

Dissatisfied, the Kyen Appellants brought the appeal.

The HK Proceedings and SUM 22

The appeal was initially scheduled to be heard in August 2023. On 13 July 2023, Feima notified the court that it intended to file an application to stay the appeal because of certain developments that had taken place after the Judge’s decision. The next day, Feima filed CA/SUM 22/2023 (“SUM 22”) seeking the following orders: (a) a stay of the appeal in so far as it related to the Crossclaims; (b) that Kyen be restrained from commencing or pursuing proceedings anywhere else in the world in relation to the Crossclaims except in the HK Proceedings (as defined below at [18]); and (c) further or alternatively, that Kyen be required to elect between pursuing the appeal and the HK Proceedings.

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