SCK Serijadi Sdn Bhd v Artison Interior Pte Ltd

CourtCourt of Appeal (Singapore)
JudgeSteven Chong JA
Judgment Date15 January 2019
Neutral Citation[2019] SGCA 5
Citation[2019] SGCA 5
Published date19 January 2019
Plaintiff CounselChia Swee Chye Kelvin (Lumen Law Corporation)
Defendant CounselA Rajandran (A Rajandran)
Docket NumberCivil Appeal No 231 of 2017
Hearing Date13 November 2018
Date15 January 2019
Subject MatterInsolvency Law,Stay of Proceedings,Winding Up
Steven Chong JA (delivering the grounds of decision of the court): Introduction

This court in Transbilt Engineering Pte Ltd (in liquidation) v Finebuild Systems Pte Ltd [2005] 3 SLR(R) 550 (“Transbilt”) at [4]–[5] held that a judgment creditor who has obtained a garnishee order nisi is to be treated as an unsecured creditor and absent exceptional circumstances, is not entitled to proceed to have the garnishee order nisi made absolute after the commencement of winding up proceedings.

In this appeal, the appellant sought to distinguish the present case from Transbilt on the basis that in Transbilt, the garnishee order nisi obtained by the judgment creditor had not been served when the company went into liquidation. We found this factual distinction to be unmeritorious not least because it was manifest from the facts of Transbilt that the order nisi, though not mentioned explicitly, must have been served on the garnishee. The appellant relied on a number of authorities in which the courts have held that service of a garnishee order nisi creates an equitable charge in the sense that it binds the garnishee not to pay the debt over to the judgment debtor pending the garnishee show-cause hearing. On the strength of such an equitable charge, the appellant argued that it had a proprietary interest in the garnished debt and should, accordingly, be treated as a secured creditor for the purposes of obtaining leave under s 299(2) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). The appellant accepted that its sole purpose in seeking to continue the proceedings was to complete the attachment.

We recognised that the argument that service of the garnishee order nisi created an equitable charge in favour of the judgment creditor was not specifically raised in Transbilt. However, after considering the appellant’s submissions, we agreed with the Judge below that the appellant was not a secured creditor. We thus dismissed the appeal with brief oral grounds. We also found that since the attachment was not completed prior to the commencement of the winding up, and in the absence of exceptional circumstances, the appellant would not be entitled to retain the benefit of the attachment against the liquidator pursuant to s 334(1) of the Act.

While an established line of cases has held that the service of a garnishee order nisi upon a garnishee does create an “equitable charge”, we are of the view that the use of this term may give rise to misunderstanding as to its true nature and legal effect. We thus believe it would be beneficial for this court to trace the genesis of such an equitable charge and to provide our detailed grounds to explain why we have found that the service of the garnishee order nisi does not render the judgment creditor a “secured creditor” for the purposes of ss 299(2) and 334(1) of the Act.


The facts giving rise to the appeal may be stated briefly. The appellant engaged the respondent to undertake interior decoration works under two subcontracts. After making certain overpayments in excess of work done under one of these subcontracts, the appellant sued the respondent in the District Court for the return of these overpayments.1 On 27 June 2017, the appellant obtained judgment against the respondent for the sum of $250,000, plus interests and costs (“the District Court judgment”).2

In a bid to enforce the District Court judgment, the appellant filed a garnishee application against the garnishee, Shanghai Chong Kee Furniture & Construction Pte Ltd (“Shanghai Chong Kee”), on 12 September 2017 in respect of the sum of $155,000.3 It successfully obtained a garnishee order nisi which it then served on Shanghai Chong Kee on 15 September 2017. As the District Court judgment would not be fully satisfied from the attachment of the debt which formed the subject of this first garnishee application, the appellant filed a second garnishee application against Shanghai Chong Kee on 27 September 2017 in respect of a further sum of $57,500.4 The appellant was granted a second garnishee order nisi which it served on Shanghai Chong Kee on 2 October 2017.

By a letter dated 4 October 2017, the appellant’s solicitors informed the respondent’s solicitors that the show cause hearing for both the garnishee applications had been fixed on 10 October 2017.5 On 6 October 2017, however, the respondent’s solicitors informed the appellant that the respondent company had been placed under creditors’ voluntary winding up on 5 October 2017, pursuant to a directors’ resolution and the appointment of a liquidator on the same date. Under s 299(2) of the Act, a stay of proceedings took effect whereby no action or proceeding could be proceeded with except with leave of court. The operation of s 334(1) of the Act also meant that the appellant would not be entitled to retain the benefit of the attachment against the liquidator, unless the court ordered otherwise. The appellant thus filed an application to the High Court for leave to proceed with the garnishee proceedings and to be allowed to retain the benefit of the attachment as against the liquidator.

The decision below

The Judge dismissed the appellant’s application and declined to grant the appellant leave to continue with the garnishee proceedings. His grounds of decision are recorded at SCK Serijadi Sdn Bhd v Artison Interior Pte Ltd [2018] SGHC 08 (“the GD”). The Judge considered that he was bound by the decision of this court in Transbilt which, in his judgment, was materially indistinguishable from the present case (GD at [11]). In Transbilt, the respondent judgment creditor had similarly obtained a garnishee order nisi against the appellant, but was prevented from continuing with the garnishee proceedings after the appellant was placed under a winding up. This court held that s 334(1) of the Act was “intended to provide a clear path for a liquidator to perform his tasks” and was “necessary to prevent any disorganised or unfair rush by creditors to put assets of the company beyond the liquidator’s control” (GD at [12], citing Transbilt at [2]). In light of these policy considerations, a judgment creditor would not be granted leave under s 334(1)(c) to be allowed to retain the benefit of the attachment unless it was able to show some inequitable behaviour on the part of the judgment debtor, such as where the judgment debtor had made certain representations to the judgment creditor to stall the execution against its assets (GD at [13], citing Transbilt at [3]). Applying that approach, the Judge found that there was no inequitable behaviour on the part of the respondent, and thus, no reason to grant the appellant’s application (GD at [15]).

The Judge disagreed with the appellant’s argument that its situation was distinguishable from that in Transbilt because it had served the garnishee order nisi on the respondent and such service created an equitable charge in its favour, which rendered it a secured creditor. The Judge disagreed with the alleged factual distinction because it was clear that the decision in Transbilt expressly stated that the garnishee had “notified the [judgment creditor] that it was indebted to the [judgment debtor]”, and this suggested that the garnishee order nisi had likely also been served on the garnishee (GD at [21], citing Transbilt at [1]). Although the Judge accepted that service of the garnishee order nisi had created an equitable charge in favour of the appellant, he did not accept that this rendered the appellant a secured creditor (GD at [20]). In any event, the Judge noted that on the onset of liquidation, all creditors, both secured and unsecured, were placed on the same footing and were subject to the provisions of ss 299 and 334 of the Act (GD at [21] and [22]).

Legal framework and issues arising

We agreed with the Judge that the starting position is governed by ss 299(2) and 334(1) of the Act which apply to secured and unsecured creditors alike. Since winding up had commenced, the appellant could not proceed with the garnishing process except with leave of court; and since the attachment of the debt was incomplete at the time of the winding up, the default position was that the appellant could not retain the benefit of the attachment against the liquidator, unless the court were to set aside the liquidator’s rights in its discretion under s 334(1)(c).

We recognise, however, that while ss 299(2) and 334(1)(c) apply to all creditors alike, there is in some sense an “exception” carved out for secured creditors, which explains why the appellant had sought so vigorously to characterise itself as such. In general, the court will more readily grant leave to secured creditors to proceed with enforcing their security, notwithstanding the stay under s 299(2) of the Act, because their security is regarded as standing apart from the pool of assets available for pari passu distribution amongst unsecured creditors. Thus, in Korea Asset Management v Daewoo Singapore Pte Ltd (in liquidation) [2004] 1 SLR(R) 671 (“Korea Asset Management”) at [49], VK Rajah JC (as he then was) observed that leave to proceed would readily be given to an applicant who was “merely attempting to claim from the company, property which prima facie belongs to the applicant”, and this expressed the law’s recognition “that the rights of a secured creditor or in rem rights should not be fettered as a matter of course by the initiation of insolvency proceedings” (see also Power Knight Pte Ltd v Natural Fuel Pte Ltd (in compulsory liquidation) and others [2010] 3 SLR 82 (“Power Knight”) at [27]). It is not disputed that what is needed in this regard is not the mere initiation of the procedural steps which will lead to the creditor obtaining a security for his debt, but the actual creation of that security prior to the winding up (In re Aro Co Ltd [1979] 2 WLR 150 at 155).

The key issue for determination was thus whether the...

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