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Questions and Answers
Which of the following elements is NOT required to establish unfair preference under the IRDA?
What must be proven to establish wrongful trading under s 239 IRDA?
Which of the following statements regarding void dispositions after commencement of bankruptcy is accurate?
Under the IRDA, which section specifically addresses fraudulent trading?
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Which category of avoidance provision would apply if a company gives assets away for much less than their market value?
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What is a characteristic of a transaction at undervalue according to the IRDA?
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What is the time frame for making a bankruptcy application for parties unrelated to the insolvent party?
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Which of the following statements about the relevant time period for transactions at undervalue is true?
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In the context of connected persons, what assumption is made regarding insolvency?
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Which of the following is considered an associate of a director in a company?
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Which of the following best describes what constitutes a 'transaction' under the law?
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How is the burden of presumption regarding payments made to connected parties within 2 years of liquidation handled?
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In determining the desire to prefer a creditor, which of the following factors is considered insufficient alone?
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What is required for a transaction to be deemed at undervalue if conducted with an unintended recipient?
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What must be considered when assessing the value provided by each party in a transaction?
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What is the key element in assessing whether a debtor's decision was influenced by a desire to prefer?
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Which situation would NOT support the classification of a payment as a voidable preference?
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According to case law, which situation would NOT classify as a transaction at undervalue?
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For which of the following relationships does the concept of 'associate' NOT apply according to the definitions provided?
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What happens if a party intentionally enters into a transaction at undervalue during insolvency?
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What must a debtor prove to satisfy the test regarding their desire to prefer a creditor?
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What is required for a party to be personally liable for a company's debts under wrongful trading?
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What constitutes 'wrongful trading' under the relevant legislation?
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Under what conditions can a defense of honesty be used in cases of wrongful trading?
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Which term is associated with actual dishonesty in the context of fraudulent company operations?
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Who has the authority to apply for a declaration of wrongful trading?
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Under what circumstances can the Court make an order regarding a transaction at an undervalue according to Section 224(4) IRDA?
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What is the legal status of any property disposition made after the commencement of winding up by the Court as stated in Section 130 IRDA?
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In the case of Cheo Sharon Andriesz v Official Assignee, what significant factor influenced the ruling related to the disposition of properties?
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How is the term 'disposition' legally interpreted based on the case of QCD Sdn Bhd v Wah Nam Plastic Industry Pte Ltd?
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Which of the following statements regarding floating charges is correct?
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What is the time limitation for connected persons regarding floating charges?
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What does Section 238 IRDA indicate about fraudulent trading?
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What is essential for parties to consider before commencing litigation as highlighted in the case of Cheo Sharon Andriesz?
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Study Notes
### Insolvency Law and Practice: Avoidance Provisions
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Relevant Legislation: Insolvency, Restructuring and Dissolution Act (IRDA)
- Sections 130, 229, 237, 238, 239
- Sections 224, 225, 226, 227
- Sections 361, 362, 363, 364
Categories of avoidance provisions
- Undue or unfair preference
- Transaction at an undervalue
- Void disposition of assets after commencement of bankruptcy or winding up proceedings
- Floating charges prior to winding up / Judicial Management (JM)
Personal liability of officers
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Fraudulent trading:
- Intent to defraud: Business carried out to defraud creditors or for a fraudulent purpose
- Applicable to both winding up and JM
- Liability: Individuals involved in the fraudulent trading can be held personally liable
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Wrongful trading:
- Section 239 IRDA: No requirement for criminal conviction
- "Wrongful": Company incurs debts without a reasonable prospect of meeting them in full, or such liabilities result in insolvency
- Liability: Individuals involved in the wrongful trading can be held personally liable for company debts
Unfair preference
- Sections 225 and 226 IRDA (winding up)
- Sections 362 and 363 IRDA (bankruptcy)
Elements of unfair preference
- Preferred party: Creditor, surety, or guarantor of the insolvent party's debt or liabilities
- Insolvency: Insolvent party was insolvent or became insolvent as a consequence of the transaction
- Improved position: The transaction put the preferred creditor in a better position than if it hadn't occurred, specifically in the event of bankruptcy or liquidation
- Influence: The insolvent party was influenced by a desire to prefer the creditor when deciding to enter into the transaction
Relevant time period for unfair preference
- Unrelated parties: 1 year from the commencement of winding up or JM / making the bankruptcy application
- Connected parties: 2 years from the commencement of winding up or JM / making the bankruptcy application
Meaning of "connected" and "associate"
- Section 217(2)(b), (3)-(15) & 364 IRDA
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Examples for companies:
- Director of a company and their associates
- An associate of the company
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Examples for individuals:
- Spouse
- Relatives (brother, sister, uncle, aunt, nephew, niece, etc.)
Presumption of "influenced by the desire to prefer"
- Sections 225(5) and 362(5) IRDA: A presumption arises when a preference is granted to a person connected to the company
- Progen Engineering 4 SLR 1089: Burden of proof is on the payee to rebut the presumption that the payment was not influenced by the company's desire to prefer
Desire to prefer
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DBS Bank v Tam Chee Chong and another (judicial managers of Jurong Hi-Tech Industries Pte Ltd (under judicial management) 4 SLR 948:
- The test is not whether there is a dominant intention to prefer, but whether the debtor's decision was influenced by a desire to prefer the creditor
- The court will look at the debtor's subjective state of mind to determine if it positively wished to improve the creditor's position in the event of liquidation
- It is sufficient if the desire to prefer was one of the factors that influenced the decision, even if it wasn't the sole or decisive factor
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Rabobank v Jurong Technologies Industrial Corp Ltd 4 SLR 977:
- A transaction actuated by proper commercial considerations will not constitute a voidable preference.
- A genuine belief in the existence of proper commercial consideration may be sufficient even if it might not be sustainable objectively.
Transaction at an undervalue (Sections 224 & 361 IRDA)
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Requirements:
- Gift or no consideration: The insolvent party makes a gift or enters into a transaction with no consideration
- Marriage consideration: The insolvent party enters into a transaction with consideration only for marriage
- Significantly less consideration: The insolvent party provides consideration that is significantly less valuable than the value received
- Insolvency: The individual was insolvent or became insolvent as a result of the transaction
Relevant time period for transactions at an undervalue
- Winding up: 3 years from the commencement of winding up or JM
- Bankruptcy: Within the 3-year period ending on the day of the bankruptcy application
Connected Persons and transaction at an undervalue
- Sections 226(3) IRDA and 363(3) IRDA: A presumption of insolvency exists if the transaction at an undervalue is with a connected person or associate.
Meaning of "Transaction"
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Mercator & Noordstar NV v Velstra Pte Ltd 4 SLR(R) 667:
- A "transaction" includes a unilateral act of payment and a gift
- No further requirement of mutuality
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Velstra Pte Ltd v Dexia Bank NV 1 SLR(R) 154:
- The insolvent party must have intended to "enter into a transaction" with the counterparty
- A mistaken payment to an unintended recipient would not be considered an undervalue transaction
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Buildspeed Construction Pte Ltd (in liq) v Theme Corp Pte Ltd 1 SLR(R) 287:
- The value provided by each party must be assessed based on the circumstances prevailing at the time of the transaction
Defence to transaction at an undervalue
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Section 224(4) IRDA:
- The company acted in good faith and for the purpose of its business
- There were reasonable grounds for believing that the transaction would benefit the company
Void disposition
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Section 130 IRDA (Section 259 Companies Act):
- Any disposition of property, transfer of shares, or alteration in membership status after the commencement of winding up is void unless the court orders otherwise
- Section 328 IRDA: Restriction on disposition by a bankrupt
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Cheo Sharon Andriesz v Official Assignee of the estate of Andriesz Paul Matthew 2 SLR 297:
- A disposition by a bankrupt to a former wife following a consent judgment in a divorce suit after the filing of a bankruptcy application is void under Section 77 of the Bankruptcy Act (Section 328 IRDA)
- Parties to litigation should conduct bankruptcy searches before commencing litigation
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QCD Sdn Bhd v Wah nam Plastic Industry Pte Ltd 1 SLR(R) 270:
- "Disposition" does not include the process through which a person acquires beneficial interest in property, or proceeds from the company when they are entitled to it.
Floating charges
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Section 229 IRDA (Section 330 Companies Act):
- A floating charge granted prior to winding up or JM may be invalid, except for fresh consideration and interest on such consideration.
Relevant time period for floating charges
- Connected persons: 2 years
- Unconnected persons: 1 year
- Insolvency: For unconnected persons, the company must have been insolvent or become insolvent as a result (Section 229(3) IRDA)
Fraudulent trading
- Section 238 IRDA: Business carried on with intent to defraud creditors
- Applies to both winding up and JM: Anyone involved in carrying on the business in this manner may be personally liable
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Tang Yoke Kheng (trading as Niklex Supply Co) v Lek Benedict and others:
- Business carried on with intent to defraud creditors or for a fraudulent purpose
- "Defraud" and "fraudulent purpose" connote "actual dishonesty involving, according to current notions of fair trading among commercial men, real moral blame”.
Wrongful trading (Section 239 IRDA)
- Who can apply: Section 239(5)
- Applies to both winding up and JM
- Liability: If it appears the company traded wrongfully, any person who was party to the company's trading in such manner can be held personally liable for the company's debts
Meaning of "wrongful trading"
- When an insolvent company incurs liabilities without a reasonable prospect of meeting them in full
Possible defence of honesty (Section 239(2) IRDA)
- A person may be able to avoid liability if they acted honestly and reasonably believed, having regard to the company's financial position, that there was a reasonable prospect of the company avoiding insolvency.
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Description
Test your knowledge on the Avoidance Provisions of the Insolvency, Restructuring and Dissolution Act (IRDA). This quiz covers essential sections and categories related to unfair preferences, transactions at undervalue, and personal liability of officers in insolvency cases. Dive into the complexities of fraudulent and wrongful trading as well.