Re Boonann Construction Pte Ltd

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 06 July 2000
• Neutral Citation: [2000] SGHC 128
• Date: 06 July 2000
• Subject Matter: 'Sums secured by the security',Whether principles of liquidation applicable to judicial management,Receiver and manager,Redemption of mortgaged property,Companies,s 227H(5) Companies Act (Cap 50, 1994 Ed),Whether interest on amounts secured by mortgage ceasing to run on date of judicial management order -- Whether proof of debt crystallises company's liabilities vis-a-vis its creditors,Judicial management order,Words and Phrases
• Docket Number: Originating Petition No 17 of 1999 (Summons in Chambers No 601780 of 2000)
• Published date: 19 September 2003
• Defendant Counsel: Nazim Khan and Chng Bee Peng (Colin Ng & Partners)
• Court: High Court (Singapore)
• Plaintiff Counsel: Tan Tian Luh (Helen Yeo & Partners)

: The summons-in-chambers which I had to consider was initiated by Mr Chan Ket Teck and Mr Chew Kia Ngee in their capacity as the judicial managers of Boonann Construction Pte Ltd (`the company`).

The company is the owner of the property known as No 19 Kaki Bukit Industrial Terrace, Singapore (`the property`). In May 1996, the Bank of Singapore (`the bank`) offered the company credit facilities of up to $2.7m on the security of, inter alia, an `All Monies Open Mortgage` over the property. This mortgage was duly executed and served as security to the bank for all credit facilities which it from time to time extended to the company.

The company was put under judicial management on 25 June 1999. At that time, the total sum owing to the bank by the company, inclusive of interest, was $2,265,452.23.

On 11 April 2000, the judicial managers filed this application by which they asked the court for the following orders:

(1) a declaration that in respect of the intended redemption by the judicial managers of the property, the total sum owing to the bank by the company was $2,265,452.23 as at 25 June 1999 which included interest up to the date of judicial management order only;

(2) that the redemption should operate as a full discharge and extinction of all sums owing to the bank by the company under all credit facilities provided by the bank to the company.

At the hearing before me which took place on 26 April, the judicial managers asked for a further order which was that the court sanction their intended redemption of the property from the mortgage.

The crux of the application was the judicial managers` contention that interest on the amounts secured by the mortgage had ceased to run on the date that the company had been placed under judicial management. I was not able to accept this argument which ran counter to all established principles on the rights of a secured creditor. It was not supported by case authority or by statute.

Accordingly, although I made an order sanctioning the redemption of the mortgage by the judicial managers, I specifically authorised the payment to the bank of all sums due and payable under the mortgage, inclusive of interest, up to the date of payment. Further, I dismissed the judicial managers` prayer for a declaration and ordered the company to pay the legal costs of the bank in connection with the application which I fixed at $800. Also I fixed the judicial managers` costs of the application at $1,200 and provided that these should be paid out of the assets of the company. The judicial managers have appealed against all these orders except for the one relating to their own costs.

Judicial management regime

The judicial management regime was introduced into the law of Singapore via the enactment of the Companies (Amendment) Act 1987. As commentators have observed (see Company Law (2nd Ed) by Walter Woon and Judicial Management in Singapore by Choong and Rajah), the aim of the legislation was to introduce a breathing space for companies in financial difficulty. Under the pre-existing law, such companies could not prevent their creditors from appointing receivers or commencing winding-up proceedings. This meant that even companies which had substantial assets could be wound up because they were not liquid and could not pay their debts as they fell due. Under the new regime, once a judicial manager is appointed, there is a moratorium on enforcement action by creditors and this moratorium period is intended to be used to find a way to save the company without having to liquidate it. The judicial management situation is, however, not intended to be permanent. The initial order is made for a period of six months only and whilst this can be extended, the intention is that if the company cannot be saved within a reasonable time, the judicial management will end and creditors will be allowed to wind it up or take other action to enforce recovery of their debts.

The essential protection received by a company in judicial management is that civil proceedings may not be commenced against it, existing actions are stayed, execution processes may not be carried out and the company may not be wound up: see s 227D Companies Act (Cap 50, 1994 Ed) (`the Act`). Upon the judicial management order being made, the board of directors is deprived of its ability to run the company and its powers and functions are transferred to the judicial managers (s 227G). They are then entitled to do all such things as may be necessary for the management of the affairs, business and property of the company and to do all other such things as the court may by order sanction.

Among the powers granted to the judicial managers by the Act is the power to dispose of any property of the company which is subject to a security as if the property were not subject to the security. The relevant section is s 227H. In the case of property which is subject to a mortgage or a fixed charge (as is the case here), however, the judicial...