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What is a requirement for a liquidator regarding proofs of debt?
In an insolvency set-off, what condition must be met for it to be mandatory?
What is the starting point for taking an account in an insolvency set-off?
What constitutes a statutory demand under section 125(2)(a) of the IRDA?
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Which of the following is NOT a condition required for insolvency set-off?
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In the example given, what amount will the creditor file proof of debt for?
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In the context of statutory demands, what is the minimum debt amount required for it to be applicable?
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When a company has a bona fide cross-claim, what action may it take regarding winding up applications?
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What must a statutory demand include to avoid being challenged for irregularity?
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What aspect does the Court consider when exercising discretion not to wind up a company?
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In determining cash flow insolvency, which factor is considered?
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If a debt is undisputed, what usually happens to the company?
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Under what circumstance can a company prevent a winding up application if the debt is disputed?
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What is the primary goal of liquidation in a company?
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Which act includes provisions relevant to the winding up of a company?
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In a creditors' voluntary liquidation, who has the right to choose the liquidator?
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What is typically the most common ground for a company to be wound up?
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Which of the following is a step in the process of winding up a company?
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What kind of creditor can initiate the winding up of a company?
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What is required to notify the general public during the winding up procedure?
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Which part of the Insolvency, Restructuring and Dissolution Act relates to creditors' voluntary liquidation?
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Which document serves as the initial application for winding up a company?
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What does the term 'prospective or contingent creditor' refer to?
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What is required for a creditor to commence action against a company after a winding up order is made?
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Which of the following statements about the role of a liquidator is NOT true?
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In the context of the pari passu principle, which statement is accurate?
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What duty does the liquidator have regarding the company's assets?
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Which section of the IRDA allows a liquidator to apply for a person with knowledge of the company's affairs to be examined?
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Which concept ensures that creditors cannot create contracts that override the pari passu principle?
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What happens to the company's board of directors when a winding up order is made?
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Which of the following refers to a distribution method where creditors are treated according to their rank?
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What is a major consequence if there are insufficient assets to pay all creditors?
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Which of the following statements regarding preferential creditors is accurate?
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What is required for a claimant to benefit from the winding up process?
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In the context of a compulsory liquidation, when should the conversion date for foreign currency claims be established?
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What is the consequence if a liquidator breaches the estate costs rule?
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What action can a liquidator take regarding dissolution and release?
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What can the court do within two years after the date of dissolution?
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Which principle must a liquidator prioritize over other expenses and creditor claims?
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What must a liquidator ensure when commencing proceedings on behalf of the company?
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What must be the nature of ownership for debts to be considered in a winding-up case?
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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.