Re Libra Industries Pte Ltd (in compulsory liquidation)

• Judge: Kan Ting Chiu J
• Judgment Date: 31 August 1999
• Neutral Citation: [1999] SGHC 226
• Citation: [1999] SGHC 226
• Defendant Counsel: Molly Lim SC (Wong Tan & Molly Lim)
• Published date: 19 September 2003
• Plaintiff Counsel: Koh Kok Wah and Felicia Chua (Wong & Leow)
• Date: 31 August 1999
• Docket Number: Companies Winding Up No 25 of 1997
• Court: High Court (Singapore)
• Subject Matter: s 329 Companies Act (Cap 50, 1994 Ed),Whether lease agreements between company in liquidation and respondents constitutes transaction at undervalue,Unfair preference,Raising of rebuttable presumption,Whether payments on account of lease agreements constitutes transaction at undervalue and unfair preference,s 99(5) Bankruptcy Act (Cap 20, 1996 Ed),Insolvency Law,Winding up,Transaction at undervalue,Whether rent payments by company in liquidation to respondents voidable,s 98 Bankruptcy Act (Cap 20, 1996 Ed),Burden of rebutting presumption

The application

The applicants are the liquidators of Libra Industries Pte Ltd (Libra Industries). The respondents are Libra Equipment Holdings Pte Ltd (Libra Holdings). The application is for

1 A declaration that the `sale` of fixed assets by the applicants to the respondents in or about July 1996 to October 1996 constitutes a transaction at an undervalue within the meaning of s 329 of the Companies Act (read with s 98 of the Bankruptcy Act);

2(a) A declaration that the purported lease agreements dated 1 August 1995 and 1 January 1996 in respect of the premises at 35 and 37 Gul Drive respectively entered into between the respondents and the applicants constitutes a transaction at an undervalue within the meaning of s 329 of the Companies Act (read with s 98 of the Bankruptcy Act); or alternatively, a declaration that the payments made by the applicants to the respondents on account of said lease agreements constitute an unfair preference to the respondents and are voidable accordingly;

2(b) An order that the respondents do pay to the applicants the sum of S$1,038,443.17 or such other amounts received by the respondents from the applicants in respect of the lease agreements;

3(a) A declaration that the sums amounting to S$940,923.62 paid by the applicants to the respondents in the period between March 1995 and September 1996 constitute an unfair preference to the respondents and are voidable accordingly;

3(b) An order that the respondents do pay to the applicants the said sum of S$940,923.62 or such sum as may be determined by the court to have been paid by the applicants in preference of the respondents; ...

Background

Libra Industries was incorporated on 23 June 1982. Its shareholders were Peter Chue Kok Khiong (Peter Chue) who held 675,000 shares and Libra Holdings which held 1,575,000 shares. Peter Chue was a director of Libra Industries and Libra Holdings.

The company encountered financial difficulties which led to its eventual liquidation. It had an accumulated loss of $1,061,410 as at 31 December 1994. It incurred a loss of $510,562 in 1995 and the accumulated losses went up to $1,571,972 by the end of the year. It was insolvent in 1995 and 1996.

The company proposed an instalment payment scheme to twenty of its largest creditors. The effort failed, and notices of demands and writs of summons were served on the company in mid June 1996. Subsequently the company proposed a scheme of arrangement on 27 December 1996 but that was also rejected in January 1997.

A winding-up petition was filed on 23 January 1997 and the company was wound up on 28 February 1997.

The applicable provisions of the Companies Act and Bankruptcy Act

The applications were founded on the provisions of the Companies Act (Cap 50, 1994 Ed) and the Bankruptcy Act (Cap 20, 1996 Ed).

Section 329(1) of the Companies Act provides that -

Subject to this Act and such modifications as may be prescribed, any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company which, had it been made or done by or against an individual, would in his bankruptcy be void or voidable under sections 98, 99 or 103 of the Bankruptcy Act 1995 (read with sections 100, 101 and 102 thereof) shall in the event of the company being wound up be void or voidable in like manner.

The provisions of the Bankruptcy Act that apply to the applications are -

98(1) Subject to this section and sections 100 and 102, where an individual is adjudged bankrupt and he has at the relevant time (as defined in section 100) entered into a transaction with any person at an undervalue, the Official Assignee may apply to the court for an order under this section.

98(3)(c) For the purposes of this section and sections 100 and 102, an individual enters into a transaction with a person at an undervalue if -

(c) (he enters into a transaction with that person for a consideration the value of which, in money or money`s worth, is significantly less than the value, in money or money`s worth, of the consideration provided by the individual.

99(3) For the purposes of this section and sections 100 and 102, an individual gives an unfair preference to a person if -

(a) that person is one of the individual`s creditors or a surety or guarantor for any of his debts or other liabilities; and

(b) the individual does anything or suffers anything to be done which (in either case) has the effect of putting that person into a position which, in the event of the individual`s bankruptcy, will be better than the position he would have been in if that thing had not been done.

99(4) The court shall not make an order under this section in respect of an unfair preference given to any person unless the individual who gave the preference was influenced in deciding to give it by a desire to produce in relation to that person the effect mentioned in subsection (3)(b).

99(5) An individual who has given an unfair preference to a person who, at the time the unfair preference was given, was an associate of his (otherwise than by reason only of being his employee) shall be presumed, unless the contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in subsection (4), ...

and

100(1) Subject to this section, the time at which an individual enters into a transaction at an undervalue or gives an unfair preference shall be a relevant time if the transaction is entered into or the preference given -

(a) in the case of a transaction at an undervalue, within the period of 5 years ending with the day of the presentation of the bankruptcy petition on which the individual is adjudged bankrupt;

(b) (in the case of an unfair preference which is not a transaction at an undervalue and is given to a person who is an associate of the individual (otherwise than by reason only of being his employee), within the period of 2 years ending with that day; and

(b) in any other case of an unfair preference which is not a transaction at an undervalue, within the period of 6 months ending with that day.

The sale of the assets

Between July and October 1996 the company sold its fixed assets with a net book value of $772,132 to Libra Holdings for $748,732 and another company, Libra Heat Transfer Industries Pte Ltd, for $57,371. Those assets were valued by professional valuers at $531,576.90. The total sale proceeds were received between August and November 1996. However $490,810 of the proceeds from Libra Holdings were repaid to Libra Holdings as rent as soon as they were received.

Counsel for the applicants confirmed that the complaint was not that the sale price was too low, but the repayment of a large portion of the sale proceeds to Libra Holdings.

Counsel submitted that

The net result of the series of payments and repayments is that the company received only S$80,067.56 for the sale of the fixed assets to the respondent. The amounts that were paid by the respondent but were repaid by the company to the respondent purportedly for payment of rent should be disregarded as the lease agreements were contrived to justify the return of the payment.

In the premises, it is submitted that the sale of the fixed assets by the company to the respondent was a transaction at an undervalue within the meaning of s 329 of the Companies Act read with s 98 of the Bankruptcy Act.

Taking the complaint in this context, it is clear that the issue must be dealt with together with the complaint over the leases.

The leases

The salient features of the two leases and premises are:

No 37 Gul Drive
Lease period	:	1/1/1996-31/12/1996
Lease executed on	:	1 August 1996
Contracted to be sold on	:	8 September 1995
Sale completed on	:	20 September 1996
Rent paid up to	:	September 1996

No 35 Gul Drive
Lease period	:	1/8/1995-31/7/1997
Lease executed on	:	1 August 1996
Contracted to be bought on	:	31 March 1995
Purchase completed on	:	23 June 1995
Rent paid up to	:	October 1996

There were interesting similarities in the leases. The monthly rent for each is $33,000 or $33,990 with GST. Both leases were executed long after the terms commenced - eight months in respect of No 37 and one year in respect of No 35.

Peter Chue gave some background information to these transactions. Libra Holdings had sub-let a part of its premises at No 37 to Libra Industries since January 1994. By the end of 1994, Libra Industries needed more space and rented a portion of the adjoining premises at No 35 from its then owners. Subsequently the owners sold the premises to Libra Holdings. The contract was signed in March 1995 and the sale was completed in June 1995.

After buying No 35, Libra Holdings decided to sell No 37 and entered into a contract of sale in September 1995. However the completion of the sale of No 37 was delayed and did not take place till October 1996.

Libra Holdings carried out extensive renovations to No 35 to suit Libra Industries` requirements after it purchased the property. Peter Chue deposed that -

Whilst waiting for the renovation works at 35 Gul Drive to be completed and in view of the pending sale of 37 Gul Drive, Libra Holdings was caught in a bind as to whether to renew the tenancy for 37 Gul Drive which expired on 31 December 1995 or commence the tenancy at 35 Gul Drive for which approval was given.

Libra Holdings and Libra Industries then decided, in view of the cumbersome process and the time lag necessary to get JTC`s approval, to go ahead with the tenancy at No 35 Gul Drive commencing 1 August 1995 and to continue the Tenancy at 37 Gul Drive for another year which expired in December 1996.

The Tenancy Agreements for both 37 and 35 Gul Drive were prepared and signed in August 1996, and were dated thus and

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