Neo Corp Pte Ltd (in liquidation) v Neocorp Innovations Pte Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 07 April 2006
• Neutral Citation: [2006] SGCA 15
• Docket Number: Civil Appeal No 68 of 2005
• Date: 07 April 2006
• Published date: 10 April 2006
• Year: 2006
• Plaintiff Counsel: Edmund Kronenburg and Leong Kit Wan (Tan Peng Chin LLC)
• Citation: [2006] SGCA 15
• Defendant Counsel: Chan Kia Pheng and Shaun Koh Kang Ming (KhattarWong)
• Court: Court of Appeal (Singapore)
• Subject Matter: Courts and Jurisdiction,Power,Company under judicial management subsequently wound up,Whether judge hearing summons in chambers proceedings in High Court having power to set aside order of judge hearing winding-up proceedings also in High Court,Whether proceedings commenced by judicial manager challenging company transaction on ground of unfair preference or undervalue under s 227T Companies Act may be continued by liquidator,Section 227T Companies Act (Cap 50, 1994 Rev Ed),Judges,Winding up,Companies

7 April 2006 Judgment reserved.

Chao Hick Tin JA (delivering the judgment of the court):

1 This appeal raises a point on insolvency law which is of considerable importance to the general creditors of an insolvent company. The specific question that arose for consideration is whether an action instituted by the judicial managers of a company to challenge a transaction entered into by the company with a third party on the ground of unfair preference, or being at an undervalue, may be continued by the liquidators when judicial management of the company is followed by a winding up order before the action is adjudicated upon.

The facts

2 On 5 May 2004, Neo Corp Pte Ltd (“NCP”) was placed under judicial management. On 26 November 2004, pursuant to s 227T of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”), the judicial managers applied by way of Originating Summons No 1535 of 2004 (“OS 1535”) to have a floating charge created by NCP in favour of Neocorp Innovations Pte Ltd (“NIP”) set aside on the ground that the transaction was an unfair preference or was at an undervalue.

3 Pursuant to a petition filed in Companies Winding Up No 2 of 2005 (“CWU 2/05”) by the judicial managers, on 18 February 2005, Tay Yong Kwang J (“Tay J”) made an order winding up NCP. In para 8 of the same order (“order 8”) Tay J also authorised the liquidators “to continue with any legal action commenced by the judicial managers”. Subsequently, NIP applied, by way of Summons in Chambers No 1741of 2005 (“SIC 1741”), to have order 8 set aside on the ground that the liquidators could not be authorised to continue with OS 1535 as NCP was no longer under judicial management and, consequently, also asked that OS 1535 be struck out.

4 Thus, the issue raised in SIC 1741 concerned the interpretation of s 227T of the Act. Andrew Phang Boon Leong JC (as he then was) (“the Judge”), having carefully analysed the provision as well as comparing it with the equivalent statutory provisions in other jurisdictions, and having regard to the fact that the regime of judicial management is distinct from that of liquidation, came to the conclusion that s 227T did not allow anyone else other than the judicial managers to invoke the powers under that provision. As the judicial managers did not bring OS 1535 to fruition, the liquidators of NCP were not entitled to continue with it. He ordered order 8 be set aside in so far as it authorised the liquidators to continue with OS 1535.

The appeal

5 This is the appeal of the liquidators of NCP against the decision of the Judge. They have argued that the Judge was wrong to rule that they could not continue OS 1535 which was initiated by the judicial managers. They submitted that the construction given by the Judge to s 227T would greatly disadvantage the general creditors of NCP and, in turn, unjustifiably benefit NIP. The section does not say that the action must be brought to fruition.

6 The liquidators also raised a procedural point. This is that as Tay J had in the CWU 2/05 ordered that the liquidators be allowed to continue with OS 1535, the Judge, sitting in a court of equal jurisdiction, had no power to set aside or override the order of Tay J.

Procedural point

7 We will first deal with the procedural objection. The point made by NCP is that the decision of the Judge amounted to setting aside the order of Tay J, which the Judge did not have the jurisdiction or power to do, relying in this regard on In re Barrell Enterprises [1973] 1 WLR 19 (“Barrell Enterprises”). NCP, moreover, pointed out that as early as 26 November 2004, the judicial managers had in a letter of that date informed all creditors, including NIP, of the intended winding up proceedings against NCP. The relevant portions of the letter read:

[M]ost of the plant and equipment of the Company comprise a formwork system and scaffolding material with a nett book value of S$1,751,456.75. Based on the records of the Company, the formwork system and scaffolding material were subject to a floating charge given on 24 November 2003 to secure the amount of S$1,291,780.61 owing to [NIP].

Based on legal advice obtained, the Judicial Managers have commenced legal action to set aside the aforesaid floating charge on the grounds of preference, given that the Company was insolvent when the charge was created.

…

[T]he Judicial Managers take the view that it is just and equitable for the Company to be wound up. In this regard, and having obtained the approval of the [Informal Creditors’ Committee], the Judicial Managers will be filing a winding up petition to the Court shortly, to place the Company under liquidation.

8 The Judge was conscious that, in dealing with SIC 1741, he was being asked to review the decision of Tay J. The Judge noted that Tay J’s attention was not drawn to OS 1535 and the issues concerning the interpretation of s 227T when Tay J made order 8 authorising the liquidators to continue with any legal proceedings commenced by the judicial managers. He further noted that NIP was not a party to the winding up proceedings nor was NIP served with a copy of the court documents in those proceedings. The fact of the matter was that Tay J did not have the opportunity to consider the issues which the Judge was asked to determine in SIC 1741 as they were not raised before Tay J. In the premises, the Judge did not think that he was precluded from examining the issues raised in SIC 1741 and giving his decision thereon. He also did not think that in the circumstances here, the doctrine of res judicata could arise. On this, we agree.

9 Another argument raised by NCP is that as the winding-up order was served on NIP on 15 March 2005, and if NIP was not happy with it, it still had time to lodge a notice of appeal to the Court of Appeal. NIP did not do that. Thus NIP should not be permitted to question order 8 by way of SIC 1741.

10 It seems to us that as NIP was not a party to CWU 2/05, it would be out of the question for NIP to file any appeal against the decision of Tay J. The next question is whether, in view of the fact that NIP was allegedly notified by the letter of 26 November 2004 of the proposal to authorise the liquidators to continue with the action commenced by the judicial managers to challenge the validity of the floating charge, NIP should have intervened in CWU 2/05, and not having done so, it is precluded from raising the issue now. First, we would observe that the letter of 26 November 2004 was not tendered in evidence in relation to the present proceedings and thus did not form a part of the record of appeal. It should not be taken into account. Second, no papers relating to CWU 2/05 were in fact served on NIP. Third, the papers relating to OS 1535 were not served on NIP until 15 March 2005, almost one month after NCP was wound up on 18 February 2005.

11 In our opinion, it is clear that order 8 is a general order, with no specific reference to OS 1535 or any other proceedings which the liquidators were to continue. While NIP could be deemed to have constructive notice of the winding up proceedings by virtue of the advertisements in the media, there was nothing in the advertisement which indicated that, other than the usual orders, something like order 8 was being prayed for. As NIP was never served with the papers in CWU 2/05, there would have been no reason for NIP to intervene in the winding-up proceedings as such.

12 As the issue raised in SIC 1741 was never brought before Tay J for consideration, we do not think, in the circumstances here, NIP should be precluded from filing SIC 1741 to have the issue determined. Justice would favour giving NIP the opportunity to canvass the issue: Brisbane City Council v Attorney-General for Queensland [1979] AC 411 at 425. However, as the judge hearing SIC 1741 is of equal standing as Tay J who heard the winding-up proceedings, it is our opinion that the Judge was not empowered to set aside the order of another High Court judge. In this regard, NIP relies upon O 13 r 8 of the Rules of Court (Cap 322, R 5, 2004 Rev Ed) (“ROC”) as an analogy to argue that the Judge was permitted to set aside order 8 as NIP was not a party to CWU 2/05. Quite apart from the fact that the ROC do not apply to proceedings relating to the winding up of companies (see O 1 r 2(4) and Tohru Motobayashi v OR [2000] 4 SLR 529), O 13 r 8 relates to the setting aside of a default judgment in default of appearance. Such a judgment could be set aside on the application of the defaulting party. However, there can only be a judgment in default of appearance in the case of a writ which is endorsed with a claim against a defendant and that defendant, after being served, fails to enter appearance. Of course, setting aside an order is possible in other circumstances, eg, in the case of an ex parte injunction. It does not seem to us that setting aside the order is the proper procedure here. The proper approach would have been for the Judge, having considered and commented on order 8, to simply rule on the application before him without purporting to set aside order 8. There will thus be two conflicting decisions of equal standing, and it is open to either party to take it up on appeal. It seems to us that what the Judge intended to do was really to declare that his ruling was different from order 8 of Tay J.

13 While the facts in Barrell Enterprises ([7] supra) were different, the case is of relevance. There, the appellant was committed to prison for contempt for failing to comply with an order of court. Her appeal to the Court of Appeal was dismissed. Thereafter, she commenced serving her prison term. A few months later the appellant applied to another judge to set aside the committal order on the ground of fresh evidence, which application was refused. The appellant appealed. We should add that by this time the first order of the Court of Appeal had still not been extracted. The Court of Appeal refused to reopen the first...