Lavrentiadis, Lavrentios v Dextra Partners Pte Ltd
| Jurisdiction | Singapore |
| Judge | Chua Lee Ming J |
| Judgment Date | 08 May 2023 |
| Docket Number | Companies Winding Up No 135 of 2021 (Summonses Nos 4319 of 2022 and 260 of 2023) and Bankruptcy No 767 of 2021 (Summons No 4296 of 2022) |
| Court | High Court (Singapore) |
[2023] SGHC 131
Chua Lee Ming J
Companies Winding Up No 135 of 2021 (Summonses Nos 4319 of 2022 and 260 of 2023) and Bankruptcy No 767 of 2021 (Summons No 4296 of 2022)
General Division of the High Court
Insolvency Law — Bankruptcy — Trustee in bankruptcy seeking court's authorisation to enter into funding agreement to assign fruits of recovery from claims by bankruptcy estate and/or trustee in bankruptcy — Whether s 377(1)(a) Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) permitted trustee in bankruptcy to sell fruits of pre-insolvency causes of action and fruits of statutory claims — Factors to be considered by court where court's authorisation was sought for sale under s 377(1)(a) Insolvency, Restructuring and Dissolution Act 2018 — Sections 377(1)(a) and 39(1) Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed)
Insolvency Law — Winding up — Liquidators seeking court's authorisation to enter into funding agreement to assign fruits of recovery from claims by company and/or liquidators — Funder being member of committee of inspection — Whether funder could purchase company's assets and derive profit pursuant to funding agreement — Regulations 37 and 39(1) Insolvency, Restructuring and Dissolution (Court-Ordered Winding Up) Regulations 2020
Insolvency Law — Winding up — Liquidators seeking court's authorisation to enter into funding agreement to assign fruits of recovery from claims by company and/or liquidators — Whether s 144(2)(b) Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) permitted liquidator to assign fruits of company's pre-insolvency causes of action — Whether s 144(1)(g) Insolvency, Restructuring and Dissolution Act 2018 permitted liquidator to assign proceeds of statutory claims — Factors to be considered by court where court's authorisation was sought for sale under ss 144(2)(b) and/or 144(1)(g) Insolvency, Restructuring and Dissolution Act 2018 — Sections 144(1)(g) and 144(2)(b) Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed)
Held, granting the applications:
(1) The Funding Agreement was an agreement to assign the fruits of recovery from claims by the Company and/or the Liquidators. These claims comprised: (a) pre-insolvency causes of action, which were vested in the Company; and (b) statutory claims, ie, causes of action that arose post-insolvency and were vested in the Liquidators: at [12].
(2) Section 144(2)(b) of the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (“IRDA”) permitted a liquidator to “sell the … movable property and things in action of the company”, which included the sale of the fruits of a cause of action. Therefore, s 144(2)(b) permitted the Liquidators to assign or agree to assign the fruits of the Company's pre-insolvency causes of action: at [13] and [14].
(3) Section 144(1)(g) of the IRDA expressly permitted a liquidator to assign the proceeds of statutory claims: at [15].
(4) Where authorisation by the court was sought for a sale under s 144(2)(b) and/or s 144(1)(g) of the IRDA, the factors to be considered by the court included: (a) whether the liquidator was acting in good faith (this was an overarching consideration); (b) whether the sale or assignment was in the interests of the company and its creditors; (c) whether the funding agreement conflicted with any public policy; and (d) whether the terms of the funding agreement conflicted with any written law, in particular the IRDA and the regulations made thereunder: at [19].
(5) In the present case, there was no reason to impugn the bona fides of the Liquidators: at [20].
(6) The Funding Agreement was clearly in the interests of the Company and its creditors: at [21].
(7) A funding agreement might not be in the interests of the company and its creditors if the decision whether to pursue, settle or discontinue claims was left solely to the funder. On the present facts, that was not the case: at [21].
(8) The mere fact that the Funder stood to make a profit was clearly no reason not to authorise the Funding Agreement; it was commercially unrealistic to expect litigation funders to take the risks of funding an insolvent company's litigation and not expect to be compensated for it: at [22].
(9) The question was whether the amount of compensation was objectionable. It might be objectionable if the compensation far exceeded market practice. In cases involving the funding of investigations and subsequent pursuit of potential causes of action, as opposed to cases involving the funding of the pursuit of specific claims, compensation would be at the higher end of the scale since the risk undertaken by the funder would be higher. In the present case, the Funder's potential profits under the Funding Agreement was reasonable: at [23] and [24].
(10) On the present facts, there was a possibility of cross-subsidisation as between the Company and the Bankruptcy Estate since recovery from all of the claims would be pooled and used to pay the costs and expenses incurred by the Company and the Bankruptcy Estate in connection with the joint investigations and claims, and the Funder. However, looked at holistically, the Funding Agreement was still in the interests of the Company and its creditors: at [25] and [26].
(11) The doctrine of maintenance and champerty had no application to the exercise of the statutory powers of sale of the causes of action or the fruits of such actions under the IRDA. Nevertheless, the public policy concerns underlying the doctrine of maintenance and champerty remained a relevant consideration when the court was asked to authorise a funding agreement: at [27].
(12) The relevant public policy considerations included whether the facts suggested that the funding agreement might tempt the funder for his personal gain to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice. Such public policy concerns about the administration of justice would be addressed where the control of the legal proceedings lay primarily with the liquidator. In the present case, the Funding Agreement provided that the Liquidators would have full control of the Company's claims: at [29] to [31].
(13) The Funder was a member of the COI. Accordingly, the Funder needed permission of the court under reg 37 of the Insolvency, Restructuring and Dissolution (Court-Ordered Winding Up) Regulations 2020 (“IRD (CWU) Regulations”) to purchase the Company's assets, and sanction of the court under reg 39(1) of the IRD (CWU) Regulations to derive a profit pursuant to the Funding Agreement: at [37].
(14) In the present case, the Funding Agreement engaged both regs 37 and 39(1) of the IRD (CWU) Regulations at once: at [43].
(15) The reason for requiring the court's permission or sanction under regs 37 and 39(1) respectively was clear. Members of the COI occupied a fiduciary position in relation to the creditors and contributories, which prevented them from deriving a profit from their office or from allowing their private interest to conflict with their duty as committee members: at [39].
(16) Permission might be given under reg 37 if the terms of the transaction, including the amount of the purchase price, were fair to the general body of creditors so as not to cause detriment to the position of creditors. The no-conflict rule sought to prevent the fiduciary from being swayed by considerations of personal interest. The fact that the terms of the transaction were fair addressed the concern over the conflict of interest. In the present case, permission was granted because the Funding Agreement was fair for the same reasons that it was in the interests of the Company and its creditors: at [40] and [41].
(17) The no-profit rule under reg 39(1) of the IRD (CWU) Regulations aimed to preclude the fiduciary from misusing his position for his personal advantage. The test was similar to that applicable to reg 37, ie, whether the terms of the transaction were fair to the company and its creditors. Where this was so, the member of the COI would not be misusing his position for his personal advantage. In the present case, sanction was granted because the terms of the Funding Agreement were fair and not detrimental to the Company or its creditors: at [42] and [44].
(18) Section 144(1)(c) of the IRDA was not applicable to the present case as it applied to a compromise or arrangement relating to creditors' claims against the company: at [47].
(19) A trustee in bankruptcy had the power to sell a bankrupt's property: s 377(1)(a) read with s 39(1) of the IRDA. This power included the power to sell the fruits of pre-insolvency causes of action and the power to sell or assign the fruits of statutory claims: at [49].
(20) The considerations in deciding whether to approve the sale or assignment included: (a) whether the trustee in bankruptcy was acting in good faith (this was an overarching consideration); (b) whether the sale or assignment was in the interests of the bankruptcy estate and its creditors; (c) whether the funding agreement conflicted with any public policy; and (d) whether the terms of the funding agreement conflicted with any written law, in particular the IRDA and the regulations made thereunder. For reasons similar to those discussed in relation to the application by the Liquidators, the Trustee was authorised to enter into the Funding Agreement: at [19], [51] and [52].
(21) Sections 378(g) and 378(h) of the IRDA were not applicable to the present case as those provisions dealt with compromises or arrangements relating to claims against the bankruptcy estate, and claims against or by the Official Assignee: at [54].
DH International Pty Ltd (No 2), Re [2017] NSWSC 871 (folld)
Fan Kow Hin, Re [2019] 3 SLR 861 (folld)
Giles v Thompson [1994] 1 AC 142 (refd)
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