1. Liquidation and Winding Up

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Questions and Answers

What is a requirement for a liquidator regarding proofs of debt?

The liquidator can accept all proofs of debt without verification.

The liquidator must assess each proof of debt and may request additional evidence if needed. (correct)

The liquidator cannot question debts that seem genuine.

The liquidator must rely solely on the audited accounts of the company.

In an insolvency set-off, what condition must be met for it to be mandatory?

There must have been mutual dealings between the creditor and the company. (correct)

A minimum debt of $100 must be established.

The creditor must be a secured creditor.

No mutual dealings are allowed.

What is the starting point for taking an account in an insolvency set-off?

The date when the debt was originally incurred.

The date the creditor filed their proof of debt.

The date of the commencement of the winding up order. (correct)

The date of the company's last audited financial statement.

What constitutes a statutory demand under section 125(2)(a) of the IRDA?

Failure to meet a statutory demand. Signup and view all the answers

Which of the following is NOT a condition required for insolvency set-off?

The debts must only be monetary. Signup and view all the answers

In the example given, what amount will the creditor file proof of debt for?

$30 Signup and view all the answers

In the context of statutory demands, what is the minimum debt amount required for it to be applicable?

S$15,000. Signup and view all the answers

When a company has a bona fide cross-claim, what action may it take regarding winding up applications?

Seek to stay or dismiss the winding up application. Signup and view all the answers

What must a statutory demand include to avoid being challenged for irregularity?

A statement that the company may secure or compound the debt. Signup and view all the answers

What aspect does the Court consider when exercising discretion not to wind up a company?

Public interest elements. Signup and view all the answers

In determining cash flow insolvency, which factor is considered?

If current assets exceed current liabilities. Signup and view all the answers

If a debt is undisputed, what usually happens to the company?

The Court typically directs that the company be wound up. Signup and view all the answers

Under what circumstance can a company prevent a winding up application if the debt is disputed?

By demonstrating a bona fide cross-claim of substance. Signup and view all the answers

What is the primary goal of liquidation in a company?

To collect and sell a company's assets for debt repayment Signup and view all the answers

Which act includes provisions relevant to the winding up of a company?

Insolvency, Restructuring and Dissolution Act Signup and view all the answers

In a creditors' voluntary liquidation, who has the right to choose the liquidator?

The creditors of the company Signup and view all the answers

What is typically the most common ground for a company to be wound up?

Inability to pay its debts Signup and view all the answers

Which of the following is a step in the process of winding up a company?

Filing an application supported by an affidavit Signup and view all the answers

What kind of creditor can initiate the winding up of a company?

Prospective or contingent creditors Signup and view all the answers

What is required to notify the general public during the winding up procedure?

A public advertisement must be made. Signup and view all the answers

Which part of the Insolvency, Restructuring and Dissolution Act relates to creditors' voluntary liquidation?

Division 3 Part 8 Signup and view all the answers

Which document serves as the initial application for winding up a company?

Originating Summons Signup and view all the answers

What does the term 'prospective or contingent creditor' refer to?

A creditor subject to potential future liability from the company Signup and view all the answers

What is required for a creditor to commence action against a company after a winding up order is made?

Leave of Court under imposed terms Signup and view all the answers

Which of the following statements about the role of a liquidator is NOT true?

A liquidator can act independently of Court supervision. Signup and view all the answers

In the context of the pari passu principle, which statement is accurate?

Creditors will receive distributions based on their rank. Signup and view all the answers

What duty does the liquidator have regarding the company's assets?

To liquidate assets and apply proceeds to discharge debts. Signup and view all the answers

Which section of the IRDA allows a liquidator to apply for a person with knowledge of the company's affairs to be examined?

Section 244 Signup and view all the answers

Which concept ensures that creditors cannot create contracts that override the pari passu principle?

Pari Passu Principle Signup and view all the answers

What happens to the company's board of directors when a winding up order is made?

They are functus officio. Signup and view all the answers

Which of the following refers to a distribution method where creditors are treated according to their rank?

Pari Passu Distribution Signup and view all the answers

What is a major consequence if there are insufficient assets to pay all creditors?

Distributions will be made based on the pari passu principle. Signup and view all the answers

Which of the following statements regarding preferential creditors is accurate?

Preferential creditors are always paid before unsecured creditors. Signup and view all the answers

What is required for a claimant to benefit from the winding up process?

The claimant must beneficially own a clear and ascertainable debt. Signup and view all the answers

In the context of a compulsory liquidation, when should the conversion date for foreign currency claims be established?

On the date of the winding-up order. Signup and view all the answers

What is the consequence if a liquidator breaches the estate costs rule?

The liquidator will be held personally liable for the payments. Signup and view all the answers

What action can a liquidator take regarding dissolution and release?

The liquidator may apply for dissolution and release. Signup and view all the answers

What can the court do within two years after the date of dissolution?

The court can declare the dissolution void. Signup and view all the answers

Which principle must a liquidator prioritize over other expenses and creditor claims?

Adverse costs orders against the company. Signup and view all the answers

What must a liquidator ensure when commencing proceedings on behalf of the company?

They must comply with the estate costs rule. Signup and view all the answers

What must be the nature of ownership for debts to be considered in a winding-up case?

Ownership must be clear and ascertainable. Signup and view all the answers

Study Notes

What is Liquidation?

A process involving the collection and sale of a company's assets to pay its debts.
Aims for a fair asset distribution among creditors and members, ending the company's existence.

Applicable Legislative Framework

Insolvency, Restructuring and Dissolution Act (IRDA)
Selected provisions of the Companies Act

Winding Up Types

Compulsory Winding Up by the Court
Voluntary liquidation:
- Members’ voluntary liquidation
- Creditors’ voluntary liquidation
Creditors’ Voluntary liquidation:
- The company willingly enters liquidation.
- Creditors can choose the liquidator.
- Governed by Division 3, Part 8 of the IRDA (or Division 3, Part X of the Companies Act).

Focus

Compulsory liquidation
Creditors' right to initiate liquidation
Winding up process
Challenges in liquidation administration

Court's Jurisdiction to Wind Up a Company

A company, even under voluntary liquidation, can be wound up by court order at a creditor's request.
This is outlined in section 124(1)(c) of the IRDA (or section 253(1)(b) of the Companies Act).

“Prospective or Contingent Creditor”

A creditor encompasses those with future liabilities to the company.
This involves potential obligations where the company owes money contingent on an event or a future date.
This concept is clarified in the case of Re People’s Parkway Development Pte Ltd.

Winding Up Procedure

An application is made via Originating Summons, supported by an Affidavit.
Public notification is required through advertisement.
A deposit is made with the Official Receiver.
Notice is given for parties intending to appear at the hearing.
Detailed procedures are found in the Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020.

Grounds for Winding Up a Company

Inability to pay debts is the most common ground for winding up.
This is outlined in Section 125(1)(e) of the IRDA (or Section 254(1)(e) of the Companies Act).

Establishing Inability to Pay Debts

Failure to meet a statutory demand: The company fails to pay a debt exceeding $15,000 within three weeks after service of the demand.
Unsatisfied execution process: A court order to recover a debt from the company remains unsatisfied.
Proof of inability: The court is convinced the company cannot pay its debts.
These provisions are found in Section 125(2) of the IRDA (or Section 254(2) of the Companies Act).

Statutory Demand

A statutory demand must exceed $15,000.
It's the most common winding up method.
After being served, the company has three weeks to pay the sum or arrange secure payment to the creditor's satisfaction.
The demand must clearly state the company's option to secure or compound the debt.

Disputing a Debt

If the debt is undisputed, winding up is typically granted.
This is demonstrated in the Court of Appeal case of Metalform Asia Private Limited v Holland Leedon Private Limited.
A disputed debt may be challenged based on substantive grounds or a bona fide cross-claim.
To prevent winding up, the company can seek a stay, dismissal of the application, or an injunction.

Disputing a Debt: Injunction or Stay

The test for cash flow insolvency involves assessing if the company can meet debts within 12 months.
The court evaluates if current assets exceed current liabilities.
This is illustrated in the Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd case.

Court's Discretion

Even if a company cannot pay debts, the court can choose not to wind it up based on public interest factors.
This was established in BNP Paribas v Jurong Shipyard Pte Ltd.

Effect of Winding Up Application

The company or any creditor or contributory can request a stay of proceedings.
This right is outlined in Section 129 of the IRDA (or Section 258 of the Companies Act).

Impact of Winding Up Order

Proceedings against the company are halted unless Court approval is obtained.
Creditors cannot benefit from incomplete executions.
These provisions are found in Section 133 of the IRDA (or Section 262(3) of the Companies Act), and, Section 206 of the IRDA (or Section 334 of the Companies Act).

Administration of the Winding Up

The company's board of directors loses its powers and responsibilities.
These are now assumed by the Official Receiver or a private liquidator.
The appointment of a liquidator is made by the court.

Duties and Responsibilities of the Liquidator/Official Receiver

The liquidator is:
- An Officer of the Court
- Owes fiduciary duties to the company and creditors
- Must be independent and act fairly
- Entitled to remuneration

Liquidator/Official Receiver Role

The liquidator manages the company's asset liquidation.
The proceeds are used to repay debts and liabilities.
The liquidator utilizes the "Statement of affairs" filed under Sections 141 of the IRDA and Section 270 of the Companies Act.
Assets are distributed based on the "Pari Passu" principle.

Statement of Affairs

This document outlines the company's assets, liabilities, and details about its operations.
The liquidator can request court authorization for the examination of individuals with knowledge of the company's affairs.
This is outlined in Sections 244 of the IRDA (or Section 285 of the Companies Act).

Pari Passu Principle of Distribution

Like creditors are treated alike, although not necessarily equally.
Creditors' claims are distributed proportionally based on their ranking.
The order of preference for creditors is detailed in Section 203 of the IRDA (or Section 328 of the Companies Act).

Limitations of Pari Passu

Parties are not allowed to bypass the Pari Passu principle through contracts.
Such agreements will be deemed invalid by courts, as illustrated in the Joo Yee Construction Pte Ltd case.
For instance, contracts directing debt payment to unsecured creditors conflict with the Pari Passu principle.

Proving Debts

"Proofs of Debt" are governed by Division 2, Part 9 of the IRDA.
"Provable Debts" are defined in Section 218 of the IRDA, previously under the Bankruptcy Act.
Preferential claims are outlined in Section 203 of the IRDA (or Section 328 of the Companies Act).

Handling Insufficient Assets

If assets are insufficient to cover all debts, distribution occurs in equal proportions.
Remaining funds are allocated to members based on the company's Memorandum and Articles of Association.
The liquidator meticulously scrutinizes each debt claim and may require further evidence.
Importantly, the liquidator is not bound by audited accounts or confirmation, but must justify any discrepancies.

Set-off

In a typical set-off, mutual debts are balanced, and the difference is paid.
Insolvency set-off is governed by Sections 218 and 219 of the IRDA.
The balance must be calculated from the date of the winding-up application.
Events post-application can be considered for valuation purposes.

Principles of Insolvency Set-off

Two conditions must be met for set-off to occur:
- Each claimant must be personally liable for the debts owed to the other.
- The claimant must hold each debt beneficially and without ambiguity.

Conversion Date for Foreign Currency Claims

The conversion date for foreign currency claims, as established in Re Lehman Brothers Finance Asia Private Limited, should be the winding-up order date, rather than the winding-up application date.

Estate Costs Rule

The liquidator can initiate legal proceedings on behalf of the company.
However, the "estate costs" rule dictates that adverse costs orders against the company take priority over general liquidation expenses.
Liquidators breaching this rule can face personal liability.

Dissolution and Release

The liquidator can apply for dissolution upon fulfilling liquidation duties.
The court retains the power to revoke dissolution within two years from the dissolution date.

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Description

This quiz delves into the process of liquidation, including its objectives and legislative framework, specifically the Insolvency, Restructuring and Dissolution Act (IRDA). It covers different types of liquidation, the role of creditors, and the court's jurisdiction in winding up a company. Test your understanding of the winding up process and the challenges involved.