Re Soh Seow Poh, ex parte Hong Leong Bank Bhd

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 25 November 2008
• Neutral Citation: [2008] SGHC 219
• Docket Number: Bankruptcy No 602271 of 2001
• Date: 25 November 2008
• Year: 2008
• Published date: 02 December 2008
• Plaintiff Counsel: Chong Kuan Keong and Tan Joo Seng (Chong Chia & Lim LLC)
• Citation: [2008] SGHC 219
• Defendant Counsel: Eric Tin Keng Seng (Donaldson & Burkinshaw),Moey Weng Foo
• Court: High Court (Singapore)
• Subject Matter: Object and purpose of s 124(4)(c) Bankruptcy Act (Cap 20, 2000 Rev Ed),Insolvency Law,Bankruptcy,Application,Whether existence of special facts precluded unconditional discharge under s 124(4)(c) Bankruptcy Act (Cap 20, 2000 Rev Ed),Proper approach to application

25 November 2008 Judgment reserved

Judith Prakash J:

Introduction

1 These grounds are in respect of an appeal by Hong Leong Bank Berhad (“HLB”) against the decision of Assistant Registrar Jason Chan Tai-Hui (“the AR”) to grant Soh Seow Poh (“Soh”) an unconditional discharge from bankruptcy. Soh was the guarantor for loans given by HLB’s predecessor, Hong Leong Finance Berhad (“HLFB”), to four Malaysian companies of which Soh was a director and shareholder. These companies were badly affected by the Asian economic crisis and thus could not repay the loans. As guarantor, Soh was called to pay $26,353,903.26 to HLFB. Soh had also incurred other liabilities and was saddled with a total debt of $31,126,626.06. Unable to pay, he was made a bankrupt on 24 August 2001.

2 Six years later, the Official Assignee considered it suitable for Soh to be discharged from bankruptcy and filed Summons No. 600307/2007 on 21 September 2007 to apply to discharge him under s 124 of the Bankruptcy Act (Cap. 20, 2000 Ed) (“the Act”). This application was granted by the AR.

Arguments against a discharge from bankruptcy

3 Counsel for HLB made two main arguments against discharging Soh from bankruptcy:

(a) the inadequacy of the Official Assignee’s reports prevented the granting of a discharge; and

(b) the existence of special facts within s 124(5) of the Act militated against an unconditional discharge.

Alleged inadequacy of the Official Assignee’s reports

4 HLB argued that the Official Assignee’s reports were so inadequate that a discharge from bankruptcy should not be granted. For support, counsel referred to the Malaysian case of Re Kelvin Lee See Fooi; ex p BSN Commercial Bank Malaysia Bhd [2006] 3 MLJ 683 in which the High Court of Kuala Lumpur refused to grant an order of discharge because the Official Assignee’s report failed to disclose the actual financial situation of the bankrupt.

5 It is conceivable that in certain cases, the inadequacy of the Official Assignee’s report would prevent the court from granting a discharge. This would be so where the court has insufficient facts before it to make a just decision. Hence, the adequacy of the Official Assignee’s report is a factor for the court’s consideration when it exercises its discretion under s 124 of the Act.

6 In this instance, however, I considered that the three reports filed by the Official Assignee were adequate. It should be noted that when HLB raised the issue of adequacy the Official Assignee looked at the matter again. He then produced two further reports that dealt specifically with further investigations taken by the Official Assignee into the matters complained of by HLB. HLB’s allegation of inadequacy rested primarily on an assertion that the reports lacked detail. HLB suggested that the Official Assignee should have, amongst other things, elaborated on the nature of Soh’s income, his family expenditure and the reason why Soh was allowed to travel abroad. I did not agree with this. The reports could not include every nuance of each investigation into complaints made against the bankrupt. To hold the Official Assignee to such an exacting standard would hinder its function. The Official Assignee is a public official discharging a public duty. Unless there is good reason for not doing so, the assertions in its reports must be accepted at face value without requiring details of every single investigation that was made before the report was issued. In this case the first report was issued in September 2007 when the discharge application was made. The second and third reports were filed in response to further investigations undertaken after HLB had drawn attention to areas which were not covered by the first report. Together the reports were, in my judgment, adequate to furnish the court with sufficient information on which to make a decision.

Proof of special facts in s 124(5)

Bankruptcy brought on by recklessness or want of reasonable care and attention

7 HLB also alleged that Soh had brought on or contributed to his bankruptcy by recklessness or want of reasonable care and attention to his business and affairs within the meaning of s 124(5)(d) of the Act. In support, counsel relied primarily on the fact that Soh had agreed to guarantee the huge loans taken out by the companies in which he was involved.

8 I was not convinced that this proved that Soh was reckless or that he had failed to pay reasonable care and attention to his business. It is not uncommon for banks to obtain a guarantee from directors for their companies’ loans. This is to incentivise them to work hard to ensure the companies’ success. This must have been the case here. HLFB must have made a considered decision before agreeing to take Soh as a guarantor for the huge loans. Having carried out the requisite background checks, it must have been satisfied that there was a reasonable prospect of repayment from the business of the companies. Soh himself must have believed the same thing when he agreed to guarantee the loans.

9 The reason why the debts were not repaid was that Soh’s companies, like many others, were badly affected by the Asian economic crisis. This was genuine business failure. There was no evidence that could lead me to conclude that Soh had brought on his bankruptcy through recklessness or want of reasonable care and attention to his business.

Unfair preference given to Wei Sin Construction Pte Ltd

10 HLB also asserted that Soh had given unfair preference to Wei Sin Construction Pte Ltd (“WSCPL”) within the meaning of s 124(5)(l) of the Act. That section refers to the definition in s 99 and it is helpful to set this out in full:

99. —(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), given an unfair preference to any person, the Official Assignee may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that individual had not given that unfair preference.

(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.

(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).

(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).

(6) The fact that something has been done in pursuance of the order of a court does not, without more, prevent the doing or suffering of that thing from constituting the giving of an unfair preference.

11 This definition of unfair preference is two-fold: first, there has to have been a preference to a creditor, surety or guarantor which was influenced by a desire to put that party in a better position and which in fact did so. Second, such preference had to be made within the relevant time as defined in s 100. This definition was satisfied on the facts. Soh had paid out $157,391.81 to WSCPL, an unsecured creditor. In doing so, he put it in a better position than it would otherwise have been in. Under s 99(5), Soh therefore had to be presumed to have been influenced by a desire to put WSCPL in a better position because of his association with it as director and shareholder. Hence, the requirements of the first part of the definition had been met.

12 Soh’s payment to WSCPL was also made at the relevant time. Under s 100(1)(b) read with s 100(2), the relevant time includes the 2 years before the debtor was made bankrupt provided he was insolvent at the time. Soh made these payments in 2001, months before he was made bankrupt....