QCD (M) Sdn Bhd v Wah Nam Plastic Industry Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 21 November 1998
• Date: 21 November 1998
• Docket Number: Suit No 104 of 1996,Suit No 104 of 1996
• Court: High Court (Singapore)

QCD (M) Sdn Bhd

Plaintiff

and

Wah Nam Plastic Industry Pte Ltd

Defendant

[1997] SGHC 30

Choo Han Teck JC

Suit No 104 of 1996

High Court

Insolvency Law–Avoidance of transactions–Dispositions of property after commencement of insolvency proceedings–Whether disposition of property held by debenture holder avoided–Insolvency Law–Winding Up–Provisional liquidator–Whether receiver and manager requires consent of liquidator or court to commence action in company's name

The plaintiff, QCD, was a Malaysian company. In 1992, creditors appointed receivers and managers (“the Receivers”) over the assets of QCD. In 1995, QCD was wound up and a provisional liquidator was appointed. In 1996, QCD filed a writ against Wah Nam for the balance of the purchase price of goods sold to Wah Nam by the Receivers. QCD applied for summary judgment. Wah Nam disputed the claim and applied to strike out QCD's action on the ground that it was scandalous, frivolous, or vexatious and an abuse of the process of court. The assistant registrar dismissed Wah Nam's application and QCD was granted summary judgment. Wah Nam appealed, arguing that the consent of the liquidator had not been obtained to institute the action under s 226 of the Malaysian Companies Act 1965, and that s 223 of the Malaysian Companies Act 1965 rendered the Receiver's sale void as an improper disposition of company property.

Held, dismissing the striking out application, but allowing the appeal against summary judgment:

(1) Section 226 (3) of the Malaysian Companies Act 1965 (in pari materia with s 262 (3) of Singapore's Companies Act (Cap 50, 1994 Rev Ed)) was intended to protect QCD and its creditors. As such, actions already commenced could not be continued, and no fresh actions could be commenced against QCD, without leave of court. It did not require that any action by the liquidator or receiver be first sanctioned by the court: at [8].

(2) From the point of view of contract law, a debenture was given to creditors in order that they might have a security. To deprive debenture holders of a right to realise a valuable right of QCD because QCD had gone into liquidation was to nullify one of the valuable rights given to the receiver by the debenture: at [10] and [12].

(3)“Disposition of the property of the company” in s 223 of the Malaysian Companies Act 1965 (s 259 of Singapore's Companies Act) did not include the process by which a person with a beneficial interest in the property obtained that property, or the proceeds of its realisation, from QCD at a time when he was entitled to have it. The word “disposition”, when used with reference to property, normally had the meaning of connoting a change in beneficial ownership of an asset by transfer or other type of dealing. Since a chargee had a beneficial interest in the property subject to the charge, reference to a disposition of property envisaged by s 223 did not include property the beneficial interest of which rested in a mortgagee or debenture holder: at [17].

(4) The documentary evidence appeared to support the defence on a prima facie level, and a triable issue had been raised. The matter should therefore proceed to trial: at [21].

Driver v Broad [1893] 1 QB 744 (refd)

Gough's Garages Limited v Pugsley [1930] 1 KB 615 (folld)

Margart Pty Ltd (in liquidation), Re (1984) 2 ACLC 709 (folld)

Wallace v Evershed [1899] 1 Ch 891 (refd)

Companies Act (Cap 50, 1994 Rev Ed) ss 259, 262 (3)

Companies Act 1965 (Act 125 of 1965) (M'sia) ss 223, 226 (3)

Companies Act 1961 (NSW) s 227

Companies (New South Wales) Code s 368

Chew Swee Leng (Cooma, Lau & Loh) for the plaintiff

Samuel Chacko (Manjit, Samuel & Partners) for the defendant.

Choo Han Teck JC

1 The plaintiffs are a Malaysian company and the defendants are a Singaporean company. The plaintiffs' claim is for the sum of US$77,316.17 being the balance of the price of blank video cassette tapes sold and delivered to the defendants. The plaintiffs applied for summary judgment. The defendants disputed the claim and took out an application to strike out the plaintiffs' action on the ground that it was scandalous, frivolous, or vexatious and an abuse of the process of the court.

2 The defendants' application was dismissed by the learned assistant registrar who also made an order for summary judgment. The defendants appealed against both orders which appeals came up before me.

3 Ishall deal with the appeal against the striking out application first. The salient facts were not disputed. The plaintiffs executed two deeds of debenture in 1988 and 1990 respectively in favour of ABN Amro Bank NV and United Malayan Banking Corporation Bhd.

4 On 28 October 1992 a winding-up petition was filed in the High Court of Malaya against the plaintiffs by a creditor. About two months later, in December 1992 the ABN Amro Bank and UMBC appointed receivers and managers over the assets of the plaintiffs.

5 From March 1993 to April 1994 the receivers and managers sold goods to the defendants. Some of these were the subject of the plaintiffs' claim. During this period the receivers and managers (who contested the petition for winding-up) requested and obtained two adjournments of six months each on the ground that they were trying to sell the company as a going concern and that that would be advantageous to the creditors. Their attempts to sell the company were unsuccessful and the Plaintiff company was ordered to be wound up on 25 July 1995. The Official Receiver of Malaysia was appointed the provisional liquidator. On 17 January 1996 the plaintiffs filed the writ in this suit against the defendants.

6 It was submitted on behalf of the defendants that the action was wrongly instituted because the consent of the liquidator was not obtained. Counsel for the defendants, Mr Chacko, argued that upon the appointment of the liquidator the receivers and managers became receivers simpliciter with no powers of management. They had no authority or standing to commence proceedings on their own

7 Mr Chew for the plaintiffs argued that there was no legal obligation to obtain the consent of the liquidator. He also submitted that it was not necessary for the receivers and managers to apply for leave of the court under s 226 (3) of the Malaysian Companies Act 1965 to commence the present action. That provision was relied upon by the defendants' counsel in the hearing before the learned assistant registrar. The defendants' reliance on s 226 (3), was in my judgment, a weak argument which probably caused the collapse of the defendants' application before the learned assistant registrar. Section 226 (3) of the Malaysian Companies Act is in pari materia with our s 262 (3) and it reads as follows:

When a winding up order has been made or a provisional liquidator has been appointed no action or proceeding shall be proceeded with or commenced against the company except –

1. (a) by leave of the court; and

2. (b) in accordance with such terms as the court imposes.

8 This provision is clearly intended for the protection of the company and the creditors of the company. It means that actions already commenced may not be continued without the leave of court, and similarly, no fresh actions may be commenced against the company without leave of court. It does not require that any action by the liquidator or receiver must first be sanctioned by the court. The question remains, however, whether the receivers and managers may bring an action without the consent of the liquidator.

9 Mr Chew referred to Gough's Garages Limited v Pugsley [1930] 1 KB 615. In that case, the plaintiff company was the lessee of premises under a lease expiring on 24 June 1930. The company had issued a debenture by which it charged all its undertaking and all its property, present and future in favour of the debenture holders. The debenture conferred a right upon the debenture holders to bring any action in the name of the company. On 22 April 1929 the company gave notice to the landlords under s 5 of the Landlord and Tenant Act 1927 requiring them to grant a new lease of the premises. In July 1929 the debenture holders appointed a receiver of the property and assets of the company. The landlords failed to grant a new lease and on 23 September 1929 the receiver commenced action in the name of the company. On 15 October 1929 a winding up order was made against the company and a liquidator was appointed. Allowing the landlord's objection the county court judge held that an order having been made to wind up the company the receiver could no longer continue the action.

10 The Court of Appeal allowed the company's appeal. Greer LJ said (at 621):

… A debenture is given to creditors in order that they may have a security. It is a floating security until there is some kind of default and a receiver is appointed, and the rights under the debenture are actually put in some way into execution by the appointment of a receiver. But the receiver under his debenture has certain powers. In this case, among other powers, he has the power 'to take possession of, collect and get in the property charged by this debenture and for that purpose to take any proceedings in the name of the company or otherwise as may seem expedient.' That right to take proceedings, was just as much a security for the debt as any other rights given by the debenture. I should not be disposed to put too narrow an interpretation on the word 'property.' After all, property in law consists of rights. The complete property in any chattel consists of the right to the possession and use of that chattel. But a right of any kind, such as a right to a chose in action, is property which may be pledged to debenture holders just as any other kind of property. It does not matter whether the property in question was in existence in the hands of the company granting the debenture at the...