Lee Kiang Leng Stanley v Lee Han Chew (trading as Joe Li Electrical Supplies)

• Jurisdiction: Singapore
• Judge: Woo Bih Li J
• Judgment Date: 19 July 2004
• Neutral Citation: [2004] SGHC 151
• Date: 19 July 2004
• Subject Matter: Whether order made under correct provision of Bankruptcy Act,Stay of proceedings on condition of security for costs being furnished,Unfair preferences,Insolvency Law,Section 99 Bankruptcy Act (Cap 20, 2000 Rev Ed),Petition,Stay of proceedings on condition of security being furnished,Sections 64(1), 65(5) Bankruptcy Act (Cap 20, 2000 Rev Ed),Bankruptcy,The Schedule of the Bankruptcy (Costs) Rules (Cap 20, R 2, 2000 Rev Ed),Whether order for security constituted unfair preference,Avoidance of transactions,Whether order for security excessive,Stay of bankruptcy proceedings on condition of security being furnished
• Docket Number: Bankruptcy No 1155 of 2004 (Registrar's Appeal No 164 of 2004)
• Published date: 06 August 2004
• Defendant Counsel: Tan Bar Tien (B T Tan and Co)
• Court: High Court (Singapore)
• Plaintiff Counsel: Michael Por (Tan Lee and Partners)

19 July 2004

Woo Bih Li J:

Introduction

1 This was an appeal by a debtor against a decision of an assistant registrar ordering a stay of bankruptcy proceedings on the condition that the debtor provide security for the full amount of the debt and security for costs for proceedings he had commenced to seek a discharge from his guarantee of a debt. After hearing arguments, I varied the order below slightly. The main terms regarding provision of security were retained.

Background

2 The petitioner who had filed bankruptcy proceedings was one Lee Han Chew trading as Joe Li Electrical Supplies (“the Petitioner”). The debtor was Lee Kiang Leng Stanley (“the Debtor”).

3 The Petitioner had commenced proceedings against a company by the name of R & N Engineering Construction Pte Ltd (“the Company”) and against the Debtor as guarantor. The Petitioner then applied for summary judgment. On the eve of the hearing of the application for summary judgment, a settlement was reached with the Company and the Debtor. However, there was a default on the first payment under the settlement agreement and the default clause therein kicked in. Under the terms of the settlement agreement, both the Company and the Debtor were liable to the Petitioner, the Debtor being liable still as guarantor.

4 As a result of the default, the Petitioner commenced winding up proceedings against the Company and bankruptcy proceedings against the Debtor. The former was to be heard in the morning of 30 April 2004 and the latter in the afternoon of 30 April 2004. In anticipation of an order being made to wind up the Company, the Debtor filed an application and an affidavit on 29 April 2004 seeking a stay of the bankruptcy petition (“the Petition”).

5 On 30 April 2004, an order was made to wind up the Company. On the hearing of the Debtor’s application for a stay, an assistant registrar made the following orders on 3 June 2004:

(a) that the Petition be stayed pending the outcome of Originating Summons No 251 of 2004 (“the OS”) filed in the subordinate courts;

(b) that the Debtor furnish security in the amount of $171,797.36 and $15,000 in costs in cash or through a banker’s guarantee, on terms to be agreed upon;

(c) that the security be furnished by 17 June 2004, failing which the parties were to appear again before the assistant registrar.

6 The $171,797.36 was the debt claimed by the Petitioner and the $15,000 was the amount to be provided as security for the Petitioner’s costs in the OS. The OS had been filed by the Debtor to seek a declaration that the Debtor’s obligation as a guarantor had been discharged.

7 The Debtor appealed against that part of the order of 3 June 2004 which required him to furnish security. His appeal was heard together with a minor appeal by the Petitioner regarding a costs order made on another application. I do not need to say any more about the Petitioner’s appeal.

The Debtor’s arguments

8 The Debtor was represented by Mr Michael Por. The Debtor alleged that he would be relying on certain acts of the Petitioner which caused the Debtor to lose his right of recourse against the Company and thus prejudiced his position as guarantor. For this general proposition, Mr Por relied on Watts v Shuttleworth (1860) 5 H&N 234; 157 ER 1711.

9 As regards the facts, Mr Por relied on Bank of Montreal v Wilder [1987] 1 WWR 289, a decision of the Supreme Court of Canada, in which guarantors were released from their liability as a result of certain acts of the creditor. I will elaborate on this case later.

10 Mr Por also argued that requiring the Debtor to provide security for the full sum of the debt was unreasonable in view of the OS and the fact that the Petitioner had no judgment against the Debtor, although a statutory demand had been sent. He urged me to revise the amount of the security downwards to 10% of the debt but only if I was satisfied that such security would not constitute an unfair preference under s 99 of the Bankruptcy Act (Cap 20, 2000 Rev Ed) (“the Act”).

11 On the point about unfair preference, Mr Por argued that an order requiring security for the debt would result in an unfair preference. He relied on two cases: Commercial Banking Company of Sydney Limited v Colonial Financiers of Australia Pty Ltd [1972] VR 702 and Re Australian Co-Operative Development Society Limited [1977] Qd R 66 for this proposition. He further argued that even if a payment under the security were to be set aside eventually for unfair preference, and therefore would not prejudice other unsecured creditors, the court should not make an order knowing that it would result in an unfair preference.

12 As for the amount of $15,000 to be provided as security for the Petitioner’s costs in the OS, Mr Por argued that this amount was excessive as the Schedule to the Bankruptcy (Costs) Rules (Cap 20, R 2, 2002 Rev Ed) provides for costs of $700 plus disbursements when a bankruptcy order is made. He also submitted that it was wrong to order security of $15,000 as that would be an amount which the Debtor would not be able to provide. He relied on MV Yorke Motors v Edwards [1982] 1 All ER 1024 in which it was decided that it would be a wrongful exercise of discretion to order a defendant to pay a sum which he would never be able to pay as a condition of granting leave to defend in an application for summary judgment “because it would be tantamount to giving judgment for the plaintiff notwithstanding the court’s opinion that there was an issue or question in dispute which ought to be tried” (at 1027).

13 Mr Por also argued that it was incorrect that the order below was made pursuant to s 65(5) of the Act, as the order was made not at the hearing of the petition itself but at the hearing of the Debtor’s application. It should therefore have been made under s 64 of the Act.

Sections 64(1), 64(2), 65(5) and s 99 of the Act

14 Sections 64(1), 64(2) and 65(5) of the Act state:

64.¾(1) The court may at any time, for sufficient reason, make an order staying the proceedings on a bankruptcy petition, either altogether or for a limited time, on such terms and conditions as the court may think just.

(2) Without prejudice to subsection (1), where it appears to the court that the person presenting a bankruptcy petition has contravened any of the provisions of this Act or any rules in relation to proceedings on a bankruptcy petition, the court may, in its discretion, dismiss the petition in lieu of staying any proceedings thereon under that subsection.

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65(5) Where the debtor appears at the hearing of the petition and denies that he is —

(a) indebted to the petitioner; or

(b) indebted to such an amount as would justify the petitioner presenting a bankruptcy petition against him,

the court may, on condition that the debtor furnishes such security as the court may order for payment to the petitioner of —

(i) any debt which may be established against the debtor in due course of law; and

(ii) the costs of establishing the debt,

stay all proceedings on the petition for such time as may be required for trial of the question relating to the debt.

15 Section 99(1), (3), (4) and (6) states:

99.—(1) Subject to this section and sections 100 and 102, where an individual is adjudged bankrupt and he has, at the relevant time (as defined in section 100), given an unfair preference to any person, the Official Assignee may apply to the court for an order under this section.

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(3) For the purposes of this section...