Re Seshadri Rajagopalan and another and another matter

• Jurisdiction: Singapore
• Judge: Chua Lee Ming J
• Judgment Date: 10 November 2020
• Neutral Citation: [2020] SGHC 245
• Docket Number: Originating Summons No 1416 of 2019 (Summons No 1841 of 2020) and Originating Summons No 434 of 2020
• Subject Matter: Insolvency Law,Powers,Court sanction,Discontinuance of action,Winding up,Liquidator
• Published date: 14 November 2020
• Defendant Counsel: Jasmine Yong (Tan Rajah & Cheah),Lin Chunlong and Dana Chang (WongPartnership LLP),Jaikanth Shankar, Tan Ruo Yu, Yee Guang Yi and Terence De Silva (Davinder Singh Chambers LLC)
• Court: High Court (Singapore)
• Hearing Date: 04 August 2020
• Plaintiff Counsel: Balakrishnan Ashok Kumar, Tay Kang-Rui Darius and Lim Yin Li (BlackOak LLC)

Chua Lee Ming J: Introduction

The Companies Act (Cap 50, 2006 Rev Ed”) (“CA”) grants liquidators a panoply of powers that enable them to carry out their tasks. Some of these powers may be exercised on the liquidator’s own volition; others require the Court’s approval. Under s 272(1)(d) of the CA, the liquidator’s power to compromise debts owing to the company in liquidation is subject to approval by the Court or the committee of inspection. The main issue in these proceedings concerned the approach that the Court should take in deciding whether to grant such approval.

The applicants in both applications, Mr Seshadri Rajagopalan and Mr Jotangia Paresh Tribhovan, are the joint and several liquidators (collectively, the “Liquidators”) of The Wellness Group Pte Ltd (“Wellness”), which was ordered to be wound up in Companies Winding Up No 62 of 2018 (“CWU 62/2018”).

The first application was Originating Summons No 434 of 2020 (“OS 434/2020”), in which the Liquidators sought the Court’s approval authorising them to compromise and discharge Wellness’ claims against (a) Sunbreeze Group Investments Ltd (“Sunbreeze”); and (b) Mr Manoj Mohan Murjani (“Manoj”) and Mrs Kanchan Manoj Murjani (“Kanchan”), on the terms of a draft Deed of Settlement (the “Settlement Deed”). Sunbreeze, which was wholly owned and controlled by Manoj and Kanchan, held 80.62% of the shareholding in Wellness. At the material times, Manoj and Kanchan were also directors of Wellness.

The second application was Summons No 1841 of 2020 (“SUM 1841/2020”), filed in Originating Summons No 1416 of 2019 (“OS 1416/2019”). In Originating Summons No 1416 of 2019 (“OS 1416/2019”), the Liquidators had applied for an order that they be at liberty to take all steps as they deem necessary to recover a sum of $8,866,057.70 from Sunbreeze. In SUM 1841/2020, the applicants sought the leave of Court to discontinue OS 1416/2019. It was common ground that SUM 1841/2020 was contingent on the Court’s approval in OS 434/2020. OS 1416/2019 would no longer be required if the approval sought in OS 434/2020 was granted.

After considering the parties’ written and oral submissions, I granted the Liquidators’ applications in both OS 434/2020 and SUM 1841/2020.

Factual background

In April 2018, two shareholders of Wellness, Vickers Private Equity Fund VII LP and Vickers Fund II LP (collectively, "the Vickers Funds”), filed CWU 62/2018, in which they applied for a winding up order against Wellness under s 254(1)(f) and s 254(1)(i) of the CA. Subsequently, the Vickers Funds withdrew their application and another shareholder, EQ Capital Investments Ltd (“EQ Capital”), was substituted as the plaintiff in place of the Vickers Funds.

On 2 May 2019, I ordered Wellness to be wound up (see EQ Capital Investments Ltd v The Wellness Group Pte Ltd [2019] SGHC 154). I was satisfied that EQ Capital had established sufficient grounds to justify the winding up of Wellness under both ss 251(1)(f) and 254(1)(i) of the CA.

On 17 May 2019, I approved the appointment of the Liquidators. No committee of inspection was established in Wellness’ liquidation.

Sunbreeze and Wellness appealed against my decision to wind up Wellness in Civil Appeal No 96 of 2019 and Civil Appeal No 114 of 2019 respectively. On 16 January 2020, the Court of Appeal dismissed both appeals, finding that the grounds for the winding up were satisfied and that the winding up order had been properly made in the circumstances of the case.

The Settlement Deed

In CWU 62/2018, I had made the following findings, among others: Manoj had caused Wellness to borrow $1.05m from Sunbreeze and this sum was used to pay the party-and party costs ordered against Wellness and Manoj in respect of an earlier action in High Court Suit No 187 of 2014 (“S 187/2014”). S 187/2014 was a claim by Wellness and Manoj for oppression; it was dismissed (see The Wellness Group Pte Ltd and another v OSIM International Ltd and others and another suit [2016] SGHC 64) and the appeal to the Court of Appeal in Civil Appeal No 64 of 2016 was also dismissed. Manoj had caused Wellness to distribute dividends to Wellness’ shareholders in excess of the company’s accumulated profit for the year ended 31 March 2011. The excess dividends amounted to $10,997,730.49.

The Liquidators demanded payment of the excess dividends from the shareholders of Wellness. The Vickers Funds and EQ Capital repaid their respective shares of the excess dividends to Wellness. Sunbreeze declined to repay its share, which amounted to $8,866,057.70. Instead, Sunbreeze demanded that the Liquidators call for an extraordinary general meeting (“EGM”) to authorise and direct the Liquidators to divide among the shareholders in specie assignments of each shareholder’s respective share of the excess dividends, subject to payment of the company’s liabilities. The EGM was held on 11 November 2019 and, given Sunbreeze’s 80.62% shareholding, the resolution was passed.

The Liquidators did not believe that the resolution was in the best interests of the company. They also believed that Sunbreeze had a conflict of interests in voting on the resolution. They therefore filed OS 1416/2019 (see [4] above).

After the appeals against my decision in CWU 62/2018 were dismissed, the Liquidators were approached to engage in without prejudice negotiations with Sunbreeze, Manoj and Kanchan on the global resolution of claims that Wellness may have against them and claims that each may have against Wellness. The negotiations resulted in the Settlement Deed that was the subject matter of OS 434/2020 (see [3] above).

The Settlement Deed settled Wellness’ claims against: Sunbreeze for $8,866,057.70, being Sunbreeze’s share of the excess dividends (the “Sunbreeze Excess Distribution”); and Manoj for $522,056.89, being Manoj’s purported share of the taxed costs and disbursements relating to S 187/2014 that had been paid by Wellness (the “Manoj Suit 187 Costs)".

In summary, the Settlement Deed provided as follows: Sunbreeze, Manoj and Kanchan agreed to be jointly and severally liable to pay the Settlement Sum, ie, the Sunbreeze Excess Distribution and the Manoj Suit 187 Costs less the Final Adjudicated Amount. The Final Adjudicated Amount was such amount that may be admitted by the Liquidators or the Court (in the event that Sunbreeze and/or Manoj appealed against the Liquidators’ decision) in respect of a sum of $4,595,000 claimed by Sunbreeze in its proof of debt. Payment of the Settlement Sum was to be made in instalments: The first instalment of $1m was to be paid within three business days from the date of the court’s approval of the Settlement Deed (the “Initial Payment Date”). A second instalment of $1m was to be paid within six months from the Initial Payment Date. The balance amount was to be paid by the later of five business days from the date the Final Adjudicated Amount was determined, or 12 months from the Initial Payment Date. Sunbreeze, Manoj and Kanchan were to deposit the first instalment with Rev Law LLC upon execution of the Settlement Deed, and to furnish a bankers’ guarantee for the second instalment by the Initial Payment Date. If Sunbreeze, Manoj and/or Kanchan defaulted in making any payment or breached any of the terms of the Settlement Deed, the entire Settlement Sum would become immediately due and payable, with interest at 5.33% per annum from the due date up to the date of actual payment. Kanchan, Manoj and Sunbreeze irrevocably agreed not to contest, and to consent to judgment in any legal proceedings that may be brought by Wellness and/or the Liquidators against Manoj and/or Sunbreeze in the first instance or against Kanchan in the second instance, to recover any sum due under the Settlement Deed.

The Liquidators then filed OS 434/2020 seeking the Court’s approval for them to compromise the claims against Sunbreeze and Manoj on the terms of the Settlement Deed.

OS 434/2020: Application to approve the Settlement Deed

The Liquidators’ application was made pursuant to s 272(1)(d) of the CA, which reads as follows:

Powers of liquidator

272.—(1) The liquidator may with the authority either of the Court or of the committee of inspection –-

…

(d) compromise any calls and liabilities to calls, debts and liabilities capable of resulting in debts and any claims present or future, certain or contingent, ascertained or sounding only in damages subsisting, or supposed to subsist, between the company and a contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or the winding up of the company, on such terms as are agreed, and take any security for the discharge of any such call, debt, liability or claim and give a complete discharge in respect thereof; and

…

(2) The liquidator may ––

…

(b) compromise any debt due to the company, other than calls and liabilities to calls and other than a debt where the amount claimed by the company to be due to it exceeds $1,500;

…

As there was no committee of inspection, the Liquidators sought the Court’s approval.

I was informed that the only reported decision in Singapore on s 272(1)(d) is the High Court decision in Re Barring Futures (Singapore) Pte Ltd (in compulsory liquidation) [2002] SGHC 15. In that case, the liquidators applied for the Court’s sanction of a scheme of arrangement. In the course of the proceedings, the liquidators also applied pursuant to s 272(1)(d) of the CA for sanction of seven netting off deeds on contribution liability and costs. The Court gave its approval but did not discuss s 272(1)(d) (at [16]).

The Liquidators then referred me to the position in England and Australia.

The position in England

Section 167(1)(a) of the UK Insolvency Act 1986 (c 45) (“UKIA”) provided that where a company is being...