Re Lehman Brothers Finance Asia Pte Ltd (in creditors' voluntary liquidation)

• Judge: Quentin Loh J
• Judgment Date: 14 September 2012
• Neutral Citation: [2012] SGHC 190
• Citation: [2012] SGHC 190
• Docket Number: Originating Summons No 149 of 2012
• Published date: 03 October 2012
• Hearing Date: 08 March 2012
• Plaintiff Counsel: Patrick Ang Peng Koon and Chua Beng Chye (Rajah & Tann LLP)
• Defendant Counsel: Andrew Chan Chee Yin and Goh Zhuo Neng (Allen & Gledhill LLP)
• Subject Matter: Insolvency Law,Winding Up,Liquidator
• Court: High Court (Singapore)

Quentin Loh J:

This is an application by the Liquidators of Lehman Brothers Finance Asia Pte Ltd (“the Company”) pursuant to s 310(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“CA”) to determine the relevant date for the conversion of foreign currency debts to Singapore Dollars under Rule 181 of the Bankruptcy Rules (Cap 20, Rg 1, 2006 Rev Ed) (“Rule 181”) for a Creditor’s Voluntary Liquidation.

The question in the Originating Summons is framed thus: (1) Whether debts of the Company in a currency other than Singapore Dollars which are admitted in proof by the Liquidators, for the purposes of dividends in respect of such debts in the Creditors’ Voluntary Liquidation of the Company, are to be converted into Singapore Dollars at the exchange rate prevailing:- (a) on the date on which the Statutory Declaration was lodged with ACRA and the Official Receiver (i.e. 23 September 2008) being the date of commencement of the Creditors’ Voluntary Liquidation of the Company as provided for by section 291(6)(a) of the Companies Act; or (b) on the date of the resolutions of the Company and the creditors of the Company passed during the meetings of the Company and its creditors for the Creditors’ Voluntary Liquidation of the Company (i.e. 17 October 2008)?

There is no Singapore case which decides this issue. However I am told that confusion arises from the decision of the Court of Appeal of Sarawak, North Borneo and Brunei in Attorney General v Creditors of Tenganipah Estate [1956] SCR 90 (“Tenganipah”) which establishes a different date for conversion of foreign currency debts from the date for proof of debts in bankruptcy. If Tenganipah is binding, this would introduce an inconsistency between local and foreign creditors when calculating provable debts. This Application, inter alia, challenges the decision in Tenganipah as unsound in principle and inapplicable to the Singapore context in light of Rule 181.

Factual Background

The Company was an investment holding company wholly owned by Lehman Brothers Investments Pte Ltd (In Creditors’ Voluntary Liquidation) and incorporated in Singapore on 24 August 2007.

On 23 September 2008, the Board of Directors (“the Board”) of the Company decided to place the Company into Creditors’ Voluntary Liquidation and to appoint Messrs Peter Chay Fook Yuen, Bob Yap Cheng Ghee and Roger Tay Puay Cheng as provisional liquidators. The Board lodged a statutory declaration on the same day with the Accounting and Corporate Regulatory Authority of Singapore (“ACRA”) and the Official Receiver which stated, inter alia, that the Company could not continue its business due to its liabilities and that meetings of the Company and its creditors had been called.

The resolution placing the Company in Creditors’ Voluntary Liquidation was passed on 17 October 2008, appointing the three provisional liquidators stated in the Statutory Declaration as the Liquidators of the Company (“the Liquidators”). Notice of Appointment of the Liquidators was lodged with ACRA and the Official Receiver.

The Liquidators received claims from the unsecured creditors for the following sums in the respective foreign currencies: USD 164,177,290.40; JPY 455,941.00; AUD 1,948.65; and GBP 11.00.

The Liquidators were subsequently able to realise a substantial part of the Company’s assets, bringing the total cash or cash equivalent to approximately SGD 213,000,000. As a result, the Liquidators decided to declare an interim dividend in respect of unsecured debts owed by the Company, and gave notice to all known unsecured creditors of this intention on 22 August 2011. The Liquidators examined the proof of debts submitted by the unsecured creditors and informed them of the admission or rejection, in whole or in part, of the proofs on 19 September 2011.

The distribution of these interim dividends has been postponed beyond the prescribed limit of two months to permit determination of this question: whether the relevant date for the conversion of foreign currency debts to Singapore Dollars under Rule 181 should be 23 September 2008, the date of lodgement of the Statutory Declaration, or 17 October 2008, the date of the passing of the resolution for voluntary winding up (see [23] below).

My Decision Application of Bankruptcy Rules to Corporations

The rights of creditors and issues relating to debts provable in the liquidation of an insolvent company follow the same rules relating to the bankruptcy of individuals: s 327(2) CA. Section 327(2) CA imports the relevant provisions of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (“BA”) and the Bankruptcy Rules (Cap 20, Rg 1, 2006 Rev Ed) (“BR”) in the winding up of an insolvent company. The relevant rule for conversion of foreign currency debts is contained in Rule 181, which reads:

Debt in foreign currency 181.—(1) For the purpose of proving a debt incurred or payable in a currency other than Singapore dollars, the amount of the debt shall be converted into Singapore dollars at the rate prevailing on the date of the bankruptcy order as derived under paragraph (2) or (3).

...

As the term “date of the bankruptcy order” in Rule 181 is not apt in the case of a company, the question then arises: what is the “date of the bankruptcy order” in the context of insolvent companies? Under s 255 CA, the commencement date of the winding up is the date the application is filed or the date the resolution for voluntary winding up is passed:

Commencement of winding up 255.—(1) Where before the making of a winding up application a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and, unless the Court on proof of fraud or mistake thinks fit otherwise to direct, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken.

(2) In any other case the winding up shall be deemed to have commenced at the time of the making of the application for the winding up.

In a voluntary liquidation, the commencement date of the winding up is either the date the statutory declaration is lodged with the Registrar if a provisional liquidator has been appointed, or the date the resolution for voluntary winding up is passed. Section 291(6) CA provides:

Commencement of voluntary winding up (6) A voluntary winding up shall commence — (a) where a provisional liquidator has been appointed before the resolution for voluntary winding up was passed, at the time when the declaration referred to in subsection (1) was lodged with the Registrar; and (b) in any other case, at the time of the passing of the resolution for voluntary winding up.

The real issue therefore boils down to this: what is the relevant date when applying Rule 181 in a creditors’ voluntary liquidation where provisional liquidators have been appointed? The CA, BA and BR offer no express indication as to what the equivalent of “the date of the bankruptcy order” in a creditors’ voluntary liquidation is and there is no decided case on this issue.

Woo Bih Li J identified this problem in Panorama Development Pte Ltd v Fitzroy Investment Pte Ltd [2003] 1 SLR(R) 93 (“Panorama Development”) at [21]:

Also, in the context of companies, a determination may sometimes have to be made as to which date is the equivalent of the date of the bankruptcy order made under the applicable Bankruptcy Act (Cap 20, 1996 Rev Ed), i.e. the date of the filing of the winding up petition or the date of the winding up order.

However, since it was not necessary for him to decide the point on the facts of the case before him, he declined to do so.

The learned author in Walter Woon on Company Law (Sweet & Maxwell, 2009, Revised 3rd Ed), at [17.203] summarises this quandary as follows:

In the context of liquidation, the question is at what date is the conversion into Singapore dollars to be undertaken. In a world where foreign exchange rates roller-coaster up and down from day to day, the exact date of conversion can mean the loss (of gain) of substantial sums. Unfortunately, there is again a difference of opinion in other jurisdictions and no Singapore case to decide the point. In Attorney General v Creditors of Tenganipah Estate, Rogers and Lascalles JJ sitting in the Court of Appeal of Sarawak, North Borneo and Brunei held that foreign currency claims are to be valued at the exchange rate prevailing on the date that the winding up application was made. However, in Re Dynamics Corporation of Maerica, Oliver J held that the appropriate date of conversion is the date on which the winding up order is made. In the case of a voluntary winding up, such claims are valued as of the date of the resolution to wind up. There is some authority to the effect that a decision of the Court of Appeal of Sarawak, North Borneo and Brunei is binding in Singapore. If correct, this would oblige the High Court to follow the Tenganipah case and order conversion as of the date of the making of the winding up application. However, such a rule would mean that foreign currency debts are valued at a different date from local debts, an anomalous and inequitable position.

This suggestion that Tenganipah is binding on the High Court in Singapore emanates from the fact that it is a Court of Appeal decision from the Supreme Court of Sarawak, North Borneo and Brunei and thus constitutes a binding precedent (under the doctrine of stare decisis) pursuant to s 88(3) of the Malaysia Act 1963 (Act 26 of 1963) (Malaya) and s 13 of the Republic of Singapore Independence Act 1965 (1985 Rev Ed) as interpreted by the High Court decision of Mah Kah Yew v Public Prosecutor [1968–1970] SLR(R) 851 (“Mah Kah Yew”).

The court in Tenganipah was called upon to decide when to apply the rate of conversion from Japanese Yen into Sterling. The trial judge had applied the conversion rate on 31...