Re City Securities Pte

• Jurisdiction: Singapore
• Judge: Chao Hick Tin J
• Judgment Date: 28 July 1995
• Neutral Citation: [1995] SGHC 181
• Docket Number: Companies Winding Up No 450 of 1986
• Date: 28 July 1995
• Published date: 19 September 2003
• Year: 1995
• Plaintiff Counsel: CR Rajah (Tan Rajah & Cheah)
• Citation: [1995] SGHC 181
• Defendant Counsel: Andre Maniam (Drew & Napier),Vinod Coomaraswamy (Shook Lin & Bok),Chandra (Haridass & Ho),Chan Hian Young (Allen & Gledhill),Sylvia Lim (Lim & Lim),Animah Gani
• Court: High Court (Singapore)
• Subject Matter: s 40(3) Bankruptcy Act (Cap20),Rate of interest payable,s 43(8) Bankruptcy Act (Cap20),Winding up,Capital sum owed to creditors,r 87 Companies (Winding Up) Rules,Whether and to what extent recalculation of interest necessary,Basis of calculation of interest due,s 327(2) Companies Act (Cap 50, 1994 Ed),Whether at contractual rate or restricted to the 4% pa provided for in s 43(8) Bankruptcy Act with excess deferred,Whether up to date of presentation of petition or date of winding-up order,Companies,Dividend payments owed to creditors

Cur Adv Vult

This is an application by the liquidators of City Securities Pte seeking directions from the court as to the proper basis to calculate interest due on capital sums owed to creditors of the company. The winding-up petition was filed on 3 July 1986 and the winding-up order made on 30 October 1986.

The liquidators have received proofs of debt from a total of 32 creditors, of which only two are not banks. Except for one claim which the liquidators have rejected entirely, they have accepted the other claims, subject to adjustments made on the interest element. The liquidators have adopted the following basis in calculating interest due to the creditors:

(i) Interest is calculated up to the date of presentation of the petition;

(ii) It is calculated on simple interest, even though the creditor`s overdraft facilities have expressly provided that interest is to be capitalized on a periodic basis;

(iii) It is limited to 4% pa and any claim for interest above 4% is admitted on a deferred basis, that is, the creditors are entitled to payment of the interest above 4% pa only after the unsecured debts proved in the winding-up have been paid in full;

(iv) Interest calculation to commence from the date three years immediately preceding the date of the presentation of the petition or the date when the account was last in credit whichever is later.

Some of the creditors do not agree with the proposed interest calculation of the liquidators. Thus, the present application. The following are the two main issues that arise for consideration:

(a) Should interest be calculated up to the date of presentation of petition or the date of the winding-up order or some other date?

(b) For the purposes of dividend payment, are creditors entitled to claim interest at the rate and in accordance with the terms of the contract or are they restricted to 4% pa, with the balance in excess thereof being deferred?

Depending on the answers to the second issue above, two other consequential issues arise: (c) if the answer to (b) above is that for the purpose of dividend the creditors are only entitled to claim interest at 4% with the excess being deferred, and recalculation has to be undertaken, how far back the recalculation should go; and (d) in recalculating, if the account was a running account on overdraft basis and repayments had been made, how should the repayments be appropriated - should they be appropriated to capital or interest or proportionally?

Date of presentation or order

The starting point for the consideration of the first question must necessarily be s 327(2) of the Companies Act (Cap 50, 1994 Ed) which provides:

(2) Subject to section 328, in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and debts provable and the valuation of annuities and future and contingent liabilities as are in force for the time being under the law relating to bankruptcy in relation to the estates of bankrupt persons, and all persons, who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up and make such claims against the company as they respectively are entitled to by virtue of this section.

This section applies bankruptcy law to company liquidation (where the company is insolvent) in three areas, that is, rights of secured and unsecured creditors, debts provable and valuation of annuities. Thus, it is necessary to look at that part of the law of bankruptcy relating to the estates of bankrupt persons. Section 40(3) of the Bankruptcy Act (Cap 20) provides:

Save as aforesaid all debts and liabilities present or future, certain or contingent, to which the debtor is subject at the date of the receiving order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the receiving order shall be deemed to be debts provable in bankruptcy.

The combined effect of the foregoing provisions seems to be that the cut-off date up to which proof of debt could be calculated would be the date of the order and not the date of presentation. Moreover, the authorities would appear to support this view. In Majlis Amanah Ra`ayat v Official Receiver, Malaysia , the liquidator rejected a proof of debt which was incurred after the presentation of the winding-up petition and the Malaysian Federal Court held that the effective date for the purposes of determining the debt or liability of an insolvent company in liquidation by order of court was the date of the order for winding-up.

Counsel for the liquidators relied upon a case to suggest that in so far as interest is concerned, the cut-off date for computing interest on debt should be the date of commencement of the petition: Re Amalgamated Investment & Property Co Ltd . In that case the proof of debt lodged contained a large sum in respect of capitalized interest. Vinelott J held that in the compulsory winding-up of a company, interest on a debt which carried interest ceased to run on the presentation of the winding-up petition and not at the date on which the winding-up order was made. In coming to his decision Vinelott J relied upon the decision of Maugham J in Re Agricultural Wholesale Society Ltd and also traced the development of the law in this area. While recognizing that the authorities were far from clear, he said it would be wrong for him not to follow a practice of over 50 years unless he was convinced that there were compelling reasons for not taking that course. The learned judge then answered counsel`s argument, that it was illogical that the liabilities of the company should be ascertained at the date of the winding-up order and that interest for which the company is contractually liable should cease to run at an earlier date, as follows:

I think the answer to this apparent anomaly must be that the affairs of the company are in effect put into suspense by the presentation of the petition. As Lord Westbury observed in Wallberg`s Case (1872) 17 SJ 69, the making of the winding-up order is proof that the company was insolvent at the time of the presentation of the petition and there is nothing unfair in stopping interest running at the time when the company is to be taken as in a state of insolvency notwithstanding that the ascertainment of its liabilities and the notional distribution of its assets takes place by reference to the later date when the insolvency is established.

I am not inclined to follow the decision in Re Amalgamated Investment as it seems to run counter to the provisions of s 327(2) of Companies Act and s 40(3) of the Bankruptcy Act (Cap 20). Nothing in those two provisions provides that contractual interest should be treated differently from principal debt. It is also inconsistent with r 87 of our Companies (Winding Up) Rules which reads:

On any debt or sum, payable at a certain time or otherwise, whereon interest is not reserved or agreed for, and which is overdue at the date of the winding up order or resolution, the creditor may prove for interest at a rate not exceeding 6% per annum to that date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument at a certain time, and if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest will be claimed from the date of the demand until the time

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