SCK Serijadi Sdn Bhd v Artison Interior Pte Ltd

• Jurisdiction: Singapore
• Judge: Tan Siong Thye J
• Judgment Date: 09 January 2018
• Neutral Citation: [2018] SGHC 8
• Court: High Court (Singapore)
• Hearing Date: 23 November 2017
• Docket Number: Originating Summons No 1159 of 2017
• Plaintiff Counsel: Chia Swee Chye Kelvin (Lumen Law Corporation)
• Defendant Counsel: Tan Cheng Kiong (CK Tan & Co)
• Subject Matter: Civil procedure,Stay of proceedings,Effect of service of garnishee order nisi
• Published date: 19 January 2019

Tan Siong Thye J: Introduction

In this Originating Summons No 1159 of 2017 (“OS 1159”), the plaintiff, SCK Serijadi Sdn Bhd, applied to the court under s 299(2) of the Companies Act (Cap 50, 2006 Rev Ed) to lift the stay of proceedings that had been imposed on the garnishee order nisi by the commencement of the winding-up of the defendant, Artison Interior Pte Ltd. After hearing the parties’ submissions, I dismissed the plaintiff’s application in part. The plaintiff has filed an appeal against my decision. I now give my reasons.

Background facts

The plaintiff had obtained judgment against the defendant in DC Suit No 286 of 2015 (“DC Suit 286”) on 27 June 2017. As judgment creditor, the plaintiff filed its bill of costs for DC Suit 286 on 28 August 2017 and commenced two garnishee proceedings on 12 and 27 September 2017 respectively and obtained garnishee orders nisi. The garnishee orders were served on the garnishee on 15 September and 2 October 2017 respectively. Before the garnishee show cause proceedings could be heard, the defendant was placed under creditors’ voluntary winding-up on 5 October 2017. The garnishee show cause proceedings were adjourned on 10 October 2017.

On 11 October 2017, the plaintiff filed OS 1159 seeking to lift the stay of proceedings against the defendant (which operates automatically upon the commencement of the defendant’s winding-up) in relation to (a) the garnishee proceedings and (b) taxation of the plaintiff’s bill of costs in DC Suit 286.

Issues

At the hearing before me, the defendant informed the court that it was not objecting to the plaintiff’s bill of costs being taxed for the purposes of submitting the claim before the liquidator.¹ Hence, the sole issue before me was whether the stay of proceedings should be lifted under s 299 of the Companies Act to allow the garnishee proceedings to continue.

My decision The relevant provisions of the Companies Act

Section 299 of the Companies Act spells out the effect of a creditors’ voluntary winding-up:

Property and proceedings

299.—(1) Any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of a creditors’ voluntary winding up shall be void.

(2) After the commencement of the winding up no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.

Under s 299(2), the plaintiff’s garnishee proceedings cannot be “proceeded with” even though they have already been commenced before the winding-up action, unless the plaintiff obtains the court’s leave to do so.

Section 334 of the Companies Act further provides for the restrictions on a creditor’s right of execution or attachment in the case of a winding-up:

Restriction of rights of creditor as to execution or attachment

334.—(1) Where a creditor has issued execution against the goods or land of a company or has attached any debt due to the company and the company is subsequently wound up, he shall not be entitled to retain the benefit of the execution or attachment against the liquidator unless he has completed the execution or attachment before the date of the commencement of the winding up, but – … (c) the rights conferred by this subsection on the liquidator may be set aside by the Court in favour of the creditor to such extent and subject to such terms as the Court thinks fit.

When these two provisions are read together, they establish the default position that upon a company’s creditors’ voluntary winding-up, all proceedings against it – even those which have already been commenced – are stayed. Creditors cannot retain the benefit of any attachment of debt or execution against goods or land of the company that was commenced before the winding-up proceedings unless it was completed before that date. Any inchoate attachment or execution actions against the company are therefore void. The only exception is where relief is obtained from the court under ss 299(2) and 334(1)(c) of the Companies Act.

The plaintiff urged the court to grant the aforesaid relief as it had already served the garnishee orders nisi on the garnishee (and the defendant) prior to the commencement of the winding-up. Thus, the plaintiff argued that it was a secured creditor and was not subject to the insolvency regime. On the other hand, the defendant submitted that the plaintiff, even though it had served the garnishee orders nisi on the garnishee and defendant before the winding-up action, was nonetheless subject to the same regime as the other creditors. The defendant relied solely on the Court of Appeal’s decision in Transbilt Engineering Pte Ltd (in liquidation) v Finebuild Systems Pte Ltd [2005] 3 SLR(R) 550 (“Transbilt”)² and submitted that Transbilt applied as it was on all fours with the present case.³ In response, the plaintiff submitted that this court was not bound by Transbilt, as the inquiry under s 299 involves an exercise of the court’s discretion, and that in any case, the Court of Appeal in Transbilt did not consider the argument that the holder of the garnishee order nisi had become a secured creditor by virtue of having served the order on the garnishee.⁴

I disagreed with the plaintiff and dismissed its application. I shall explain my decision in two parts. First, I shall discuss Transbilt and its effect on this case. Second, I shall explain why I did not agree with the plaintiff’s contention that it had become a secured creditor that had escaped ss 299 and 334 by virtue of having served the garnishee orders nisi on the garnishee.

The Court of Appeal decision in Transbilt

Transbilt is not materially distinguishable from the present case. It is a decision of the Court of Appeal and on the principle of stare decisis this court is bound to follow it. In that case, the respondent obtained a garnishee order nisi against the appellant prior to the latter’s winding-up. Before the show cause hearing could take place, the appellant commenced a creditors’ voluntary winding-up. The respondent applied to the High Court for relief under s 334(1)(c) of the Companies Act, seeking to set aside the liquidator’s rights so that the attachment of the garnishee order could be completed.

The High Court granted the application and the appellant appealed. The Court of Appeal allowed the appeal and restored the stay. In doing so, the Court of Appeal held that s 334(1) was intended to provide a clear path for a liquidator to perform his tasks. In order to do so, the section expressly provides that any inchoate execution and attachment would be nullified such that the executing creditor would not be able to reap the benefit of the execution or attachment. This would prevent the provision from being “substantially weakened and itself nullified”. The provision was also necessary to prevent any disorganised or unfair rush by creditors to put assets of the company beyond the liquidator’s control (at [2]).

Because of these policy considerations, the Court of Appeal held that the judgment creditor would need to show inequitable behaviour on the part of the company in order to obtain relief from the court. However, it was not necessary for the judgment creditor to show fraud or trickery in order to obtain relief. One example that the Court of Appeal cited where inequity was present without fraud or trickery was the English case of Re Grosvenor Metal Co. Ltd [1949] 2 All ER 948, where the stay was lifted because the company had made certain representations to the judgment creditor to stall the execution against its assets.

The Court of Appeal found that such inequity was the “substantial ground” upon which the court would exercise its discretion. On the facts of Transbilt, the Court of Appeal found that there was no inequity (at [3]), and as such it reversed the High Court’s decision. The Court of Appeal further noted that the High Court had placed great emphasis on whether the stay was lifted would make very little difference to the financial positions of the other creditors, as the garnishee order was for a relatively small sum. The Court of Appeal disagreed that this should be the only factor underpinning the court’s discretion. Rather, such concerns should be regarded as “peripheral and additional considerations” which would only be considered after the more substantial ground of inequity has been established (at [3]).

Applying the approach of the Court of Appeal to the present case, I found that there was no inequitable behaviour on the part of the defendant and indeed the plaintiff did not suggest that there was any. The plaintiff’s only ground of contention was that it had become a secured creditor by reason of serving the garnishee order nisi, a point that I shall turn to subsequently. Prima facie, applying Transbilt, there was no reason for me to grant the plaintiff’s application.

Even the “peripheral and additional considerations” of the other creditors’ positions work against the plaintiff in this case, making it an even weaker case than Transbilt (where lifting the stay made little to no difference to the creditors’ financial positions). In this case, as the defendant’s counsel pointed...