Re Kim San Engineers Pte Ltd

• Jurisdiction: Singapore
• Judge: Lim Teong Qwee JC
• Judgment Date: 22 April 1992
• Neutral Citation: [1992] SGHC 102
• Docket Number: Companies Winding Up No 571 of 1986
• Date: 22 April 1992
• Published date: 19 September 2003
• Year: 1992
• Plaintiff Counsel: Indranee Rajah (Drew & Napier)
• Citation: [1992] SGHC 102
• Defendant Counsel: Lawrence Wong (Tang & Tan)
• Court: High Court (Singapore)
• Subject Matter: Fraudulent preference,Whether creditor entitled to a statutory set-off,Payments made by a company to a creditor before petition presented,Companies,Whether payments by the company fraudulent and void,ss 41 & 53 Bankruptcy Act (Cap 20),ss 327 & 329 Companies Act (Cap 50, 1990 Ed),Winding up

Cur Adv Vult

The above-named Kim San Engineers Pte Ltd (`the company`) was incorporated on 17 July 1974. The objects of the company included the carrying on of the business of electrical engineers and contractors. The issued capital was $100,000 divided into 100,000 shares of $1 each, 90,000 of which were held by Mr Tan Kok Kay and Mr Tan Kok Kee. The two Tans were also directors of the company. On 22 August 1986 a petition was presented for the winding-up of the company, and on 9 January 1987 an order was pronounced on the petition for winding up the company. Mr Aw (`the liquidator`) was appointed one of the liquidators but since March 1989 he has been the sole liquidator.

The company had an account with the respondents, Tat Lee Bank Ltd (`the bank`). There is no evidence as to when the account was opened but it must have been prior to 23 August 1984 and there is no evidence of the dealings with the bank in relation to the account before May 1986. The company was granted overdraft and other banking facilities and the facilities were secured by a joint and several guarantee dated 23 August 1984 (`the guarantee`) given by three persons (`the guarantors`) including the two Tans. In May 1986 the account was overdrawn and by letter dated 9 May 1986, the bank`s solicitors demanded payment of $50,174.66 and $14,933.19 said to be owing on the account. The demand was in these terms:

Take notice that unless the aforesaid sums together with all accrued interest thereon are paid to our clients direct within twenty-one (21) days from the receipt of this letter, we have firm instructions to petition for you to be wound up by the court under the ground provided for in s 254(1)(e) read with s 254(2)(a) of the Companies Act (Cap 185) (1985 reprint) - namely that you are unable to pay your debts.

By letters also dated 9 May 1986, the bank`s solicitors demanded payment of the two sums from each of the three guarantors. The demand in each case was in these terms:

Take notice that we are instructed to and do hereby demand from you payment of the aforesaid sums together with interest thereon as guarantor, pursuant to a guarantee dated 23 August 1984, within seven (7) days from the date hereof, failing which, we have firm instructions to commence legal proceedings against you forthwith without further reference.

After 9 May 1986 the company`s account was credited with four sums of $30,000, $35,107.85, $779.47 and $10. The bank statements for May, July and August 1986 contained these entries:

Date Description Credit Balance

30 May Cheque 30,000.00 20,165.14 OD

01 July House cheque 35,107.85 779.47 OD

30 July Cheque 779.47 0.00

01 August Cheque 10.00 4.30

The letters `OD` against the balance indicate that it is an overdrawn balance. The overdrawn balance was reduced by each of the first two credits and extinguished by the third credit. The last credit placed the account in credit by $4.03.

This application by summons issued on 11 January 1992 is by the liquidator for a declaration that payments totalling $65,893.29 made by the company to the bank between May and August 1986 are deemed fraudulent and void by virtue of s 329 of the Companies Act (Cap 50, 1990 Ed) (`the Act`) and s 53 of the Bankruptcy Act. The summons gives these particulars of the payments:

Date Mode Amount

(1) 30 May 1986 Cheque $30,000.00

(2) 1 July 1986 Cheque $35,107.85

(3) 30 July 1986 Cheque $779.47

(4) 1 August 1986 Cheque $10.00

Less closing balance 4.03

$65,893.29

It will be observed at once that the payments correspond with the four credit entries in the bank statements. The liquidator also seeks an order for the $65,893.29 to be repaid by the bank to the company.

I desire to make certain observations on the procedure. This summons is issued in Companies Winding-Up No 571 of 1986 and is a proceeding relating to the winding-up of companies. For this reason, the Rules of the Supreme Court 1970 (`the RSC`) shall not have effect in relation to it: O 1 r 2(2) para 2. The Companies (Winding-Up) Rules 1969 which apply to it do not have the equivalent in the RSC of O 41 r 5 as to the contents of affidavits and O 38 r 2(2) as to cross-examination of a deponent. It would seem desirable that the Companies (Winding-Up) Rules 1969 be amended to apply the RSC in so far as they are not inconsistent.

There are two affidavits made by the liquidator and two by Mr Hong, a vice-president of the bank. I shall refer to them as the liquidator`s first and second affidavits and Mr Hong`s first and second affidavits in point of time of filing. I have also been referred to the proceedings in Suit No 3619 of 1986 in which the plaintiff is Harvey Hubbell SE Asia Pte Ltd (`Harvey Hubbell`), and Suit No 4051 of 1986 in which the plaintiff is Crabtree Electrical Industries Ltd (`Crabtree`). The company is the defendant in these two actions.

Section 329 of the Act provides:

(1) Any ... payment ... made ... by ... a company which, had it been made ... by ... an individual, would in his bankruptcy under the law of bankruptcy be void or voidable shall in the event of the company being wound up be void or voidable in like manner.

(2) For the purposes of this section, the date which corresponds with the date of presentation of the bankruptcy petition in the case of an individual shall be -

(a) in the case of a winding up by the Court -

(i) the date of the presentation of the petition; ....

Section 53 of the Bankruptcy Act provides:

(1) ... every payment made ... by any person unable to pay his debts as they become due from his own money in favour of any creditor ... with a view to giving the creditor or any surety or guarantor for the debt due to the creditor a preference over the other creditors, shall, if the person making ... the same is adjudged bankrupt on a bankruptcy petition presented within 3 months after the date of making ... the same, be deemed fraudulent and void as against the Official Assignee.

The winding-up petition was presented on 22 August 1986 and it is not in dispute that the three-month period commences on 23 May 1986.

`Payment made by a company`

Counsel for the liquidator and the bank both agree that for the purpose of s 329 of the Act, the four payments which correspond with the four credit entries in the bank statements for May, July and August 1986 are payments made by the company.

`Unable to pay his debts as they become due from his own money`

Ms Rajah of counsel for the liquidator referred to paras 7 and 8 of a copy of a letter dated 4 April 1987 exhibited to the liquidator`s first affidavit. These two paragraphs read:

7 However late in 1985, a few creditors obtain [sic] judgments against the company. One company, Messrs Legrand Electric had a writ of seizure and sale. They proceeded to auction off the company`s assets

(8) When all these judgment notices and writs appeared in the newspapers, there was a rush of creditors and bankers for their moneys. It was impossible to carry on and we had to stop operations in February 1986. We were then officially wound up in March 1987.

Mr Wong of counsel for the bank said the document should not be relied upon because of a number of inaccuracies. Legrand Electric`s action is Suit No 2252 of 1986 and must have been commenced in 1986. According to the copy of a notice exhibited to the liquidator`s first affidavit, substantial assets were seized under the writ of seizure and sale in April 1986 and this is inconsistent with the company having `to stop operations` in February 1986. The company was wound up by order made on 9 January 1987. In Mr Tan Kok Kay`s affidavit filed on 17 January 1991 (in another summons in this winding-up), at para 5, he says: `On the petition date the company was a going concern and had numerous employees ... .`, and at para 8 he says: `The company, being a going concern in active operation at the petition date ...`. The affidavit contradicts what is said in the unsworn statement.

Ms Rajah referred to the Harvey Hubbell, Crabtree and Legrand Electric proceedings. Harvey Hubbell commenced the action on 10 June 1986 and entered judgment in default of appearance on 23 June 1986 for some $80,000 and I was asked to see para 2 of the statement of claim which mentions a demand by letter dated 13 March 1986. Crabtree commenced the action on 8 July 1986 and entered judgment in default of appearance on 25 July 1986 for some $87,000. Legrand Electric had to proceed to execution by writ of seizure and sale and the sale was advertised for 25 April 1986. Finally, I was referred to the statement of affairs as at 9 January 1987 filed in this winding-up.

It is not sufficient for the purpose of s 53 of the Bankruptcy Act that the company should be unable to pay its debts as they become due from its own money, but such inability must be present at the time when the payment impugned is made (see the terms of the statutory provision and see also Re FP and CH Matthews Ltd (in liquidation) [1982] Ch 257 per Lawton LJ at p 264). I have considered the evidence both counsel have referred me to and I have also considered the whole of the evidence before me. Mr Wong invited me to act under s 116 of the Evidence Act (Cap 97, 1990 Ed) in para (g) of the illustrations to presume that evidence which could be produced to prove the company`s ability or inability to pay its debts at the relevant time but which has not been produced would be unfavourable to the liquidator. I decline to do so. According to the statement of affairs verified by Mr Tan Kok Kay and Mr Tan Kok Kee, as at 9 January 1987, the whole of the company`s assets consisted of debts due to it at book value of about $752,000 but estimated to realize about $362,000 and $122 cash at bank. Against that, the debts due to unsecured creditors amounted to more than $2.129m, including the judgment sums due to Harvey Hubbell and Crabtree and a debt due to Legrand Electric of some $52,000. The financial position could...