Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd (formerly known as Tong Teik Pte Ltd)

• Judge: Sundaresh Menon CJ
• Judgment Date: 10 June 2021
• Neutral Citation: [2021] SGCA 60
• Citation: [2021] SGCA 60
• Defendant Counsel: Lee Wei Han Shaun and Low Zhe Ning (Bird & Bird ATMD LLP)
• Hearing Date: 05 April 2021
• Plaintiff Counsel: Lim Chee San (TanLim Partnership)
• Docket Number: Civil Appeal No 150 of 2020
• Published date: 15 June 2021
• Court: Court of Appeal (Singapore)
• Subject Matter: Control of conduct of appeal,Insolvency Law,Appeal,Whether company actually insolvent,Winding up,Deemed insolvency,Test for actual insolvency,Neglect to pay statutory demand

Judith Prakash JCA (delivering the grounds of decision of the court): Introduction

On 7 September 2020, the High Court ordered that the appellant, Sun Electric Power Pte Ltd, be wound up, chiefly on the ground that it was insolvent. The appellant appealed against that decision. At the hearing of the appeal, the appellant was not able to convince us that the court below had erred in its finding of insolvency and the appeal was dismissed.

These grounds of decision explain the basis of the dismissal and also clarify three issues that arose in the course of the appeal: (a) who should control the conduct of an appeal against a winding up order and at whose cost; (b) which test applies for the purpose of determining insolvency under s 254(2)(c) of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”); and (c) whether a company may still be deemed to be unable to pay its debts under s 254(2)(a) of the Companies Act if it pays part of the statutory demand such that the remaining debt falls below the prescribed minimum quantum needed to serve the demand.

Material facts

The appellant was a company incorporated in Singapore that was in the business of transmitting, distributing and selling electricity. It was wholly owned by Sun Electric (Singapore) Pte Ltd (“SESPL”), which was 99.9% owned by Sun Electric Pte Ltd (“SEPL”). One Mr Matthew Peloso (“Mr Peloso”) who owned 95% of SEPL’s shares was the sole director of the appellant.

The respondent, RCMA Asia Pte Ltd, was another Singapore company which was in the business of trading in energy.

The appellant was a licensee and participant in a scheme, known as the “Forward Sales Contract Scheme” (“FSC Scheme”), introduced by the Energy Market Authority of Singapore (“EMAS”). Under this scheme, the appellant was required to carry out certain market-making obligations in the electricity futures market in respect of a volume of futures trade, in return for incentive payments by SP Services Ltd. Sometime in late 2015, the appellant and the respondent entered into an agreement for the respondent to assume the appellant’s market-making obligations in exchange for a 70% share of all incentive payments received by the appellant under the FSC Scheme (“the Agreement”). From December 2015 to January 2018, the appellant paid the respondent its 70% share of the incentive payments. Thereafter, the appellant stopped all payments to the respondent.

On 22 February 2018, the respondent filed HC/S 191/2018 (“Suit 191”) to claim from the appellant: (a) 70% of all incentive payments that the appellant may continue to receive under the FSC Scheme; and (b) repayment of an alleged loan that was granted to the appellant pursuant to the Agreement (alleged to be in the sum of $933,334.49). On the same day, the respondent applied for an interlocutory injunction against the appellant. After an ex parte hearing on 26 February 2018, Chua Lee Ming J granted an interim injunction in terms, restraining the appellant, its directors, officers, employees and/or agents from disposing of, dealing with or diminishing the value of the respondent’s 70% share of the incentive payments, including those to be received (“RCMA Injunction”). This interim injunction was extended after a contested hearing on 11 May 2018, on the condition that the respondent meet its market-making obligations under the Agreement. Meanwhile, the appellant entered its defence in Suit 191.

By July 2018, the respondent had completed its market-making obligations. By August 2018, the appellant had received all remaining incentive payments in its Oversea-Chinese Banking Corporation Limited (“OCBC”) account. The incentive payments (totalling $9,333,333.60) were deposited into the OCBC account by six instalment payments of $1,555,555.60 made from January to August 2018. Of this total sum, $6,533,333.52, being 70% of $9,333,333.60, was frozen on the terms of the RCMA Injunction. On the whole, the appellant had complied with the RCMA Injunction by routinely withdrawing only 30% of the incentive payments, leaving 70% in the account. However, the appellant had also made two exceptional withdrawals such that the amount remaining in the OCBC account as at November 2018 fell below the enjoined amount to around $6m.

Between late November and end December 2018, all remaining moneys in the OCBC account were transferred to the appellant’s DBS Bank Ltd (“DBS”) account, via three separate transactions (“DBS transfers”). In total, a sum of $6,091,555.39 was taken out of OCBC and placed in DBS.

In January 2019, a UAE-incorporated company, Kashish Worldwide FZE (“Kashish”), commenced a suit in the High Court against the appellant. It claimed $6,995,755.78 pursuant to contracts for differences allegedly executed between Kashish and the appellant. The appellant did not enter an appearance and Kashish obtained judgment in default of appearance against the appellant for the claimed sum, interest and costs.

In February 2019, Kashish applied to garnish the DBS account, and obtained a garnishee order for DBS to show cause. A copy of this court order was served on the appellant. In March 2019, the court granted Kashish’s garnishee application and ordered DBS to disburse the funds in the DBS account to Kashish in partial satisfaction of the judgment debt owed to it by the appellant. This was duly executed by DBS. As a result, the DBS account was emptied out.

In August 2019, citing financial woes, the appellant applied for judicial management (“JM”) and thereafter, in September 2019, it asked for an interim judicial management order (“IJM”). The respondent objected to both applications. The IJM application was dismissed in September 2019, with costs of $3,500 ordered to be paid by the appellant to the respondent. The JM application was similarly dismissed in October 2019 and the court ordered further costs of $8,000 to be paid by the appellant to the respondent. These costs amounted to $11,500 in total.

On 21 November 2019, the respondent’s solicitors sent a statutory demand to the appellant’s registered office, requiring the appellant to make payment of $11,568.88, being the amount of the costs awarded and accrued interest.

On 11 December 2019, the appellant’s solicitors responded to the statutory demand by letter, admitting that the appellant owed the respondent $11,500 and interest thereon accruing at the rate of 5.33% per annum. The appellant proposed to make payment in instalments: the first instalment of $3,000 on 13 December 2019; the second instalment of $3,000 on 27 December 2019; and the final instalment of $5,500, as well as all accrued interest, on 10 January 2020. However, the respondent rejected this proposal on the same day.

Nevertheless, the appellant paid $3,000 into the respondent’s solicitors’ client account on 13 December 2019. Thereafter, no further payments were made by the appellant and the balance of $8,568.88 remained due, together with additional interest which had been accruing from 21 November 2019 (collectively “Outstanding Costs”).

On 18 December 2019, the respondent filed HC/CWU 393/2019 (“CWU 393”) seeking an order that the appellant be wound up.

CWU 393

CWU 393 was filed before the winding up provisions in the Companies Act were effectively re-enacted in the Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018) (“IRDA”) on 30 July 2020. Section 526(1)(f) of the IRDA makes it clear that the relevant provisions of the Companies Act would continue to apply to any application for winding up filed prior to 30 July 2020. Thus, this appeal concerned the provisions of the Companies Act and not those of the IRDA.

The respondent submitted (and the appellant did not dispute) that the respondent had standing to file CWU 393 pursuant to s 253(1)(b) of the Companies Act as it was a creditor of the appellant (for the Outstanding Costs) and a contingent creditor for the sum of $7,466,668.01 (being the amount it had claimed in Suit 191) (see [6] above). The High Court judge below (“the Judge”) accepted this (see his judgment published as RCMA Asia Pte Ltd v Sun Electric Power Pte Ltd (Energy Market Authority of Singapore, non-party) [2020] SGHC 205 (“GD”) at [23] to [24]). The only disputed issues in CWU 393 were whether any of the grounds for winding up was met and, if so, whether the court should grant the winding up order.

Respondent’s submissions below

The respondent argued that the appellant should be wound up pursuant to s 254(1)(e) of the Companies Act as it was unable to pay its debts. This argument relied on two bases. The first was that the appellant should be deemed to be unable to pay its debts pursuant to s 254(2)(a) of the Companies Act as it had not paid the Outstanding Costs in full, despite having been served a statutory demand. Alternatively, the appellant should be deemed to be unable to pay its debts pursuant to s 254(2)(c) of the Companies Act as the appellant was cash flow insolvent and balance sheet insolvent.

The respondent argued, in the alternative, that it would be just and equitable to wind up the appellant pursuant to s 254(1)(i) of the Companies Act since the appellant had carried out its business in a fraudulent manner. The appellant had dissipated the enjoined funds in breach of the RCMA Injunction, by transferring all the funds in the OCBC account to the DBS account and allowing them to be garnished by Kashish in highly suspicious circumstances. It submitted that this should be thoroughly investigated by independent liquidators.

Appellant’s submissions below

The appellant adduced a balance sheet dated 30 June 2020 (“June 2020 Balance Sheet”) which it claimed was prepared by a qualified chartered accountant, one Mr Ho Yeow Yang Edmund (“Mr Ho”), and which the appellant claimed showed that it was solvent. It conceded that while it had not explained how its financial position had improved substantially since the JM application, it...