Leun Wah Electric Co (Pte) Ltd (in liquidation) v Sigma Cable Co (Pte) Ltd

• Jurisdiction: Singapore
• Judge: Choo Han Teck J
• Judgment Date: 23 May 2006
• Neutral Citation: [2006] SGHC 86
• Docket Number: Originating Summons No 415 of 2005
• Date: 23 May 2006
• Year: 2006
• Published date: 24 May 2006
• Plaintiff Counsel: Conrad Campos (Robert Wang & Woo LLC)
• Citation: [2006] SGHC 86
• Defendant Counsel: Gan Kam Yuin and Mark Chee (Bih Li & Lee)
• Court: High Court (Singapore)
• Subject Matter: Insolvency Law,Avoidance of transactions,Whether assignment made as partial payment for existing debts,Whether liquidator discharging burden of proving undervalue,Assignment in lieu of direct cash payment,Section 98 Bankruptcy Act (Cap 20, 2000 Rev Ed),Transactions at an undervalue,Consideration,Past consideration,Contract,Whether assignment made with intent to prefer defendant over other creditors,Whether plaintiff's assignment of debt owed to third party to defendant while plaintiff insolvent amounting to unfair preference,Sections 99, 100(4) Bankruptcy Act (Cap 20, 2000 Rev Ed),Whether plaintiff's assignment of debt owed to third party to defendant constituting transaction at an undervalue,Unfair preferences,Whether plaintiff's assignment of debt owed to third party to defendant made without consideration or for past consideration

23 May 2006 Judgment reserved.

Choo Han Teck J:

1 The plaintiff, Leun Wah Electric Company Pte Ltd (in liquidation), was an electrical engineering company that was wound up by an order of court dated 20 August 2004. The effective date of the winding up was 2 October 2003 when a creditor called Cummins Power Generation (S) Pte Ltd filed the petition in Companies Winding Up No 244 of 2003. Mr Tam Chee Tong and Mr Wee Aik Guan of Deloitte & Touche were appointed the liquidators of the company. Prior to its liquidation the plaintiff was a nominated subcontractor of Kajima Overseas Asia Pte Ltd (“Kajima”) in the construction of a wafer fabrication facility at Pasir Ris known as the “UMCi Base Project”, which was a project of UMCi Pte Ltd. The defendant sold and supplied electrical cables to the plaintiff, some of which were for use in the UMCi project. Dr Foo Yung Kuan (“Dr Foo”) and his brother ,Foo Jong Kuan, were the directors of the plaintiff. The UMCi Base Project had been completed and the maintenance period had also expired. The retention sum of US$236,892.24 held by Kajima became due and payable to the plaintiff in the ordinary course of events of the construction contracts. There were no problems in that regard. The dispute before me in this action arose from the claim made by the defendant that it was entitled to the retention money because the plaintiff had assigned the money to it. The liquidators disputed this claim and sought an order declaring that the assignment was void.

2 The defendant’s case was as follows. It wrote to the plaintiff on 30 May 2003 demanding payment of money due on outstanding invoices amounting to $1,525,531.77. These were for the supply of electrical cables sold by the defendant to the plaintiff for various projects in which the plaintiff was engaged in, including the UMCi Base Project. The plaintiff claimed that the amount due under the UMCi Base Project was $953,814.51. The remaining $571,717.26 was due from other projects. The plaintiff claimed that after the assignment the defendant continued to supply electrical cables to the plaintiff, but they were not for the UMCi Base Project.

3 Ms Gan, counsel for the defendant, challenged the basis for this presumption. The only document I had been referred to (DCB 24) showed that this debt was in respect of “UMCi”, and since there were two UMCi projects (“Base” and “Hook-Up”) I am inclined to accept that the reference was to both. The general reference of UMCi to both projects meant that the plaintiff’s assertion, that after the assignment the defendant did not supply any more cables to the plaintiff, was untenable. That, in turn, raised important inferences of which I shall revert to shortly. By a letter dated 27 June 2003 which Dr Foo wrote on behalf of the plaintiff, the plaintiff gave notice of the assignment (of all the money due from Kajima to the plaintiff, estimated at the time to be US$340,000) (“the Notice”) to the defendant. The contract of assignment itself was concluded on 26 June 2003 as dated and signed by the defendant on the Notice itself.

4 The liquidators say that all the supplies made by the defendant to the plaintiff after the assignment were paid on a cash-on-delivery basis. Kajima paid a sum of US$47,997.97 to the defendant pursuant to the assignment on 28 November 2003. After the court order of 20 August 2004 putting the plaintiff in liquidation, the liquidators wrote to Kajima (on 2 September 2004) questioning the validity of the assignment. The defendant also wrote to Kajima demanding payment under the assignment. Kajima, not surprisingly, applied by way of an interpleader summons and, consequently, obtained an order on 4 May 2005 to have the dispute resolved between the plaintiff and the defendant directly. The plaintiff’s case rested on three grounds. First, the assignment was made without consideration, or was for past consideration, because it was made as a partial payment for existing debts. Second, the assignment was an unfair preference in favour of the defendant. Third, the assignment was a transaction at an undervalue.

5 On the consideration point, the liquidators pointed out that the plaintiff had proposed a scheme of arrangement with its creditors and sought their approval of the assignment, but the creditors rejected that proposal. Mr Conrad Campos, counsel for the liquidators, submitted that the documentary evidence showed that the plaintiff as well as the defendant had treated the UMCi Base Project debts as separate from debts due from other projects, and that the assignment covered only the UMCi Base Project. He further argued that there was no indication of the consideration coming in the form of a forbearance to sue. However, I do not think that this was a valid objection. The assignment was an assignment of a debt owed to a third party, Kajima. It was assigned in lieu of direct cash payment and that, in my view, was good consideration. It need not be adequate, so long as it was different. In any event, consideration moves from the promisee, which, in this case, was the plaintiff. It was not entitled to argue that its promise to pay by assignment of the money due to it from Kajima was not a good consideration to the defendant accepting that promise in discharge of part of the debt owed in respect of the UMCi Base Project.

6 The liquidators claimed that, in any event, the transaction was a transaction at an undervalue within the meaning of s 98 of the Bankruptcy Act (Cap 20, 2000 Rev Ed), and was therefore voidable on that account. Section 98 provides as follows:

(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) entered into a transaction with any person at an undervalue, the Official Assignee may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction.

(3) For the purposes of this section and sections 100 and 102, an individual enters into a transaction with a person at an undervalue if —

(a) he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration;

(b) he enters into a transaction with that person in consideration of marriage; or

(c) he enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the individual.

I had addressed s 98(3)(a) in the preceding paragraph, and s 98(3)(b) was clearly irrelevant. It remained only for me to consider if s 98(3)(c) applied. The essence of the plaintiff’s case on this point was that it believed that “given the financial difficulties of the plaintiff at the time, with liabilities exceeding assets, an equivalent antecedent debt would be worth far less than its face value in the plaintiff’s winding up”. There was no evidence that the assignment was given in discharge of a greater debt. It was given as part payment to keep the business between the plaintiff and defendant going. I am of the view that the chain of events and the documents bear this out. The plaintiff was short of funds at that time, but whether it was insolvent is a question I shall revert to shortly. It continued to require cables from the defendant who saw it to be in its interests to keep the plaintiff supplied so that the plaintiff could finish its projects. That was important because large amounts of money that would have been released to the plaintiff had been retained pending completion.

7 It is necessary to take reg 6 of the Companies (Application of Bankruptcy Act...