Power Knight Pte Ltd v Natural Fuel Pte Ltd (in compulsory liquidation) and others

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 10 March 2010
• Neutral Citation: [2010] SGHC 75
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 111 of 2010
• Published date: 11 March 2010
• Year: 2010
• Hearing Date: 02 February 2010
• Plaintiff Counsel: Manoj Sandrasegara, Tan Mei Yen and Mohamed Nawaz Kamil (Drew & Napier LLC)
• Defendant Counsel: Lee Eng Beng SC, Low Poh Ling and Ang Siok Hoon (Rajah & Tann LLP)
• Subject Matter: Credit and Security,Insolvency Law,Land
• Citation: [2010] SGHC 75

Judith Prakash J: Introduction

This is an application by the plaintiff, Power Knight Pte Ltd (“Power Knight”), pursuant to s 127 of the Land Titles Act (Cap 157, 2004 Rev Ed) (“LTA”) seeking, inter alia, the removal of two caveats lodged by the defendants.

Background

The background to this application is not in dispute.

The first defendant, Natural Fuel Pte Ltd (“the Company”), is a private limited company whose principal business activities include the sale of solid, liquid and gaseous fuels, and the manufacture of petrochemical products.

On or around 15 April 2008, the Company entered into two Building Agreements with the Jurong Town Corporation (“JTC”) in respect of two plots of land on Jurong Island, namely Private Lots A2173900 and A2173901 (collectively, “the Property”). Pursuant to the Building Agreements, the Company would be granted 30 year leases over the Property by JTC once certain conditions were satisfied. In the interim, the Company was given a licence “as if a lease had actually been granted” to build and operate, inter alia, an integrated production facility (consisting of a biodiesel production plant and a glycerine production plant) on the Property. To date, JTC has not granted a formal lease over the Property to the Company.

By a convertible loan facility dated 24 April 2008, Power Knight granted a loan of US$20 million to Natural Fuel Limited, the Company’s Australian holding company, the proceeds of which were in turn advanced to the Company for the construction and maintenance of the production facility.

As security for the loan to Natural Fuel Limited, the Company executed a Debenture dated 13 May 2008 which granted Power Knight, inter alia, a fixed charge over all the Company’s interests in “any freehold or leasehold property or any other interest in real property including fixtures”.

On 9 June 2008, the Debenture was duly registered in accordance with s 131 of the Companies Act (Cap 50, 2006 Rev Ed) (“the CA”). However, for reasons best known to it, Power Knight did not contemporaneously lodge a caveat in respect of the Debenture at the Registry of Titles which it could have done pursuant to s 115 of the LTA to notify third parties of its interest in the Property.

In early 2009, Natural Fuel Ltd faced financial difficulties, and was placed under voluntary administration in Australia on 9 April 2009. On 11 September 2009, Power Knight appointed Messrs Chee Yoh Chuang and Lim Lee Meng as receivers and managers of the company, but discharged them on 30 September 2009, appointing Messrs Ewe Pang Kooi and Farooq Ahmad Mann in their stead.

Meanwhile, on 28 September 2009, Rotary Engineering Limited, an unsecured creditor of the Company, filed a winding up application (CWU 134/2009) against the Company. A winding up order was made by the High Court against the Company on 23 October 2009, and the second and third defendants, Messrs Tam Chee Chong and Lim Loo Khoon (“the Liquidators”), were appointed the joint and several liquidators of the Company.

On 5 November 2009, the Liquidators lodged Caveat No IB/592668D (“the Liquidators’ Caveat”) in respect of the Property, claiming:

… an interest in the land, for and on behalf of the unsecured creditors, of the Caveatee [the Company], who are collectively vested with all the beneficial interests in the land.

On 10 November 2009, the Liquidators, on behalf of the Company, lodged Caveat No IB/598527B (“the Company’s Caveat”), claiming an estate or interest in the Property as:

… trustee of the interests in the land for the benefit of the unsecured creditors of the company under a statutory trust arising as a result of the winding up application filed on 28 September 2009… and/or the winding up order dated 23 October 2009.

Power Knight lodged its own caveat (Caveat No IB/601038K) as holder of a fixed charge over the Property on 11 November 2009, and commenced this action to demand that the Liquidators and the Company show cause why their respective caveats should not be removed pursuant to s 127 of the LTA. It should be noted that it is accepted by Power Knight that because the Liquidators’ and Company’s Caveats were lodged before Power Knight’s caveat they would, if they protect valid interests in land, have priority to Power Knight’s caveat (see ss 48 and 49 of the LTA).

The Parties’ Submissions The Liquidators’ submissions

Counsel for the Liquidators relies primarily on the authority of Ng Wei Teck Michael and others v Oversea-Chinese Banking Corp Ltd [1998] 1 SLR(R) 778 (“Michael Ng”), a decision of the Court of Appeal, as establishing that, upon the winding up of a company, a statutory trust arises to preserve the assets of the company for pari passu distribution among the unsecured creditors, who are in the nature of a cestui que trust with beneficial interests extending to all of the company’s property. Consequently, the unsecured creditors of the Company had the necessary “interest in land” for the purpose of lodging a caveat under s 115 of the LTA in respect of the Property.

The Liquidators also contend that, on the authority of Michael Ng, the subject matter of the statutory trust includes a company’s encumbered assets, such as assets subject to a security interest which predates the winding up of the company, and therefore Power Knight’s fixed charge does not preclude the Liquidators’ and Company’s Caveats.

Power Knight’s submissions

Power Knight counters that the unsecured creditors of the Company have no caveatable interest, and that therefore the Liquidators’ and Company’s Caveats should be removed, on the basis that: the concept of the statutory trust has been criticised, particularly by the High Court of Australia; the statutory trust which arises upon the winding up of a company does not confer beneficial or proprietary interests of any kind on anyone; the statutory trust cannot encompass pre-existing encumbered assets, such as the Property, which do not form part of the pool of assets available for distribution among unsecured creditors; and Michael Ng was concerned with a different situation and therefore is distinguishable from the present case.

The Issues

The issues that therefore arise for my determination are: whether a statutory trust came into being upon the winding up of the Company; if so, what are the interests (if any) of the Company’s unsecured creditors under the statutory trust, and whether they qualify as an “interest in land” under s 115 of the LTA; whether the Property fell within the ambit of the statutory trust, which encompasses assets available for distribution to the Company’s unsecured creditors, notwithstanding the fixed charge granted to Power Knight.

I will, however, begin with issue (c), because if the Property does not fall within the Company’s general pool of assets, it will, on orthodox principles of insolvency law, not be available for distribution to the unsecured creditors by the Liquidators, and cannot therefore be included in the statutory trust.

There is one other matter which, though not addressed by either party, raises an issue of some importance, and that is whether either the Liquidators or the Company had locus standi to lodge the respective caveats for the benefit of the unsecured creditors. Section 115 of the LTA states that a caveat may be lodged, inter alia, by “[a]ny person claiming an interest in land”, and it is not apparent to me what interest is being claimed by the Liquidators or the Company if the beneficial interest in the Property resides with the unsecured creditors of the Company, as the Liquidators contend. Nonetheless, as I have not heard submissions on this point, I express no concluded view on the matter.

Whether the Property Was Available for Distribution to the Unsecured Creditors notwithstanding Power Knight’s Interest Power Knight’s interest

The nature of Power Knight’s interest in the Property must be determined from the Building Agreements and the Debenture. Although JTC never granted the Company a lease under the Building Agreements, an agreement for a lease creates an equitable lease: Golden Village Multiplex Pte Ltd v Marina Centre Holdings Pte Ltd [2002] 1 SLR(R) 169 (per LP Thean JA at [12] and [15]). Under the terms of the Debenture, the Company charged its equitable leasehold interest to Power Knight as security, and this security interest was perfected when Power Knight registered the Debenture under s 131 of the CA on 9 June 2008. The material portion of s 131 reads:

Registration of charges 131. – (1) Subject to this Division, where a charge to which this section applies is created by a company there shall be lodged with the Registrar for registration, within 30 days after the creation of the charge, a statement containing the prescribed particulars of the charge, and if this section is not complied with in relation to the charge the charge shall, so far as any security on the company’s property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company.

…

Under s 131(3)(e), a charge to which s 131(1) applies includes “a charge on land wherever situate or any interest therein”. As a result of registration, Power Knight obtained a security interest which would, ordinarily, be binding on the Company, the Liquidators, and any creditor of the Company.

There was some dispute as to the nature of Power Knight’s security interest, with counsel for the Liquidators characterising it as a fixed charge while counsel for Power Knight described it as more akin to an equitable mortgage.

This is a vexed issue, as the terms “charge” and “mortgage” have often been used interchangeably: see Goode on Legal Problems of Credit and Security (Louise Gullifer ed) (Sweet & Maxwell, 4th Ed, 2008) (“Goode”), paras 1-51 – 1-52. Whether the Debenture gave rise to a charge or mortgage depends on the intention of the parties as...