Liquidation of Companies PDF
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2024
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Ms Raelene Pereira
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This document provides a summary of Singaporean insolvency law and practices, including liquidation procedures, the Insolvency, Restructuring, and Dissolution Act (IRDA), and the Companies Act. It covers topics such as statutory demands, proving debts, and principles governing insolvency set-offs. The document is intended for legal professionals or those interested in corporate insolvency proceedings.
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Corporate and Commercial Practice Insolvency Law and Practice Liquidation of Companies Ms Raelene Pereira Copyright © 2024, Singapore Institute of Legal Education 1 Introduction What is...
Corporate and Commercial Practice Insolvency Law and Practice Liquidation of Companies Ms Raelene Pereira Copyright © 2024, Singapore Institute of Legal Education 1 Introduction What is liquidation? process by which a company's assets are collected and sold in order to pay its debts seeks to ensure a fair distribution of the company's assets amongst its creditors and members, and terminates the company's existence when the winding up has been completed 2 Introduction What are the applicable legislative framework(s)? Insolvency, Restructuring and Dissolution Act (IRDA) Selected provisions of the Companies Act 3 Species of Winding Up Compulsory Winding Up by the Court Voluntary liquidation Members’ voluntary liquidation Creditors’ voluntary liquidation Species of Winding Up Creditors’ Voluntary liquidation The company places itself under liquidation Creditors would have the right to choose the liquidator Division 3 Part 8 of the IRDA (Division 3 Part X of the Companies Act) Focus Compulsory liquidation Creditor’s right to place company under liquidation Winding up process Issues arising in liquidation administration Court’s Jurisdiction to Wind Up Company A company, whether or not it is under voluntary liquidation, may be wound up under a court order on the application of a creditor See section 124(1)(c) of the IRDA (section 253(1)(b) of the Companies Act) “Prospective or contingent creditor” Creditor includes a prospective or contingent creditor A person towards whom, under an existing obligation, the company may or will become subject to a present liability to pay a sum of money on the happening of some future event or at some future date Re People’s Parkway Development Pte Ltd 2 SLR(R) 576 Procedure Application made by way Originating Summons supported by Affidavit Advertisement to notify general public Deposit with Official Receiver Notice of intention to appear and list of persons intending to appear at the hearing See Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020 for more details on the procedure for winding up applications Procedure Application made by way Originating Summons supported by Affidavit Advertisement to notify general public Deposit with Official Receiver Notice of intention to appear and list of persons intending to appear at the hearing See Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020 for more details on the procedure for winding up applications Grounds on which Company may be wound up Most common ground is the inability of the Company to pay its debts Section 125(1)(e) of the IRDA (section 254(1)(e) of the Companies Act) 3 ways to establish inability to pay debts 1. Failure to meet statutory demand – (s 125(2)(a) IRDA; s 254(2)(a) CA) 2. Execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part – (s 125(2)(b) IRDA; s 254(2)(b) CA); 3. Proved to the satisfaction of the Court that the Company is unable to pay its debts – (s 125(2)(c) IRDA; s 254(2)(c) CA) Statutory Demand Debt in excess of S$15,000 (previously $10,000 under the CA) Most common method Served on Company The company has for 3 weeks thereafter neglected to pay the sum or “to secure or compound for it to the reasonable satisfaction of the creditor”. Statutory Demand The company has for 3 weeks thereafter neglected to pay the sum or “to secure or compound for it to the reasonable satisfaction of the creditor”. Thus: SD must state that company has option to secure or compound the debt If not, the SD is at risk of being challenged on the basis of irregularity See the Court of Appeal case of BNP Paribas v Jurong Shipyard SGCA 11 Disputing a debt In cases where debt is undisputed, the Court would ordinarily direct that the company be wound up See for instance the Court of Appeal case of Metalform Asia Private Limited v Holland Leedon Private Limited SGCA 6 May be disputed on substantive grounds or challenged where company has a bona fide cross-claim of substance If so, Company may seek to stay or dismiss a winding up application or file an injunction to prevent the creditor from proceeding to file a winding up application Disputing a debt Injunction or stay? Test of cash flow insolvency Whether, looking at the company’s current assets exceed its current liabilities, such that it is able to meet all debts as and when they fall due within a 12-month timeframe Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd (formerly known as Tong Teik Pte Ltd) SGCA 60 Court’s Discretion The Court retains the discretion not to wind up the company even if it is unable to pay its debts. Public interest elements will be considered by the Court: BNP Paribas v Jurong Shipyard Pte Ltd 2 SLR(R) 949 at. Effect of Winding Up Application Company or any creditor or contributory may apply to stay further proceedings against the Company : Section 129 of the IRDA (Section 258 of the Companies Act) Effect of Winding Up Order No action or proceeding shall be proceeded with or commenced against the company except with the leave of Court and in accordance with such terms as the Court imposes: s 133 of the IRDA (s 262(3) of the Companies Act). Creditors cannot take the benefit of uncompleted execution: s 206 of the IRDA (s 334 of the Companies Act). Administration of the Winding Up Once a winding up order is made, the Company’s board of directors is functus officio The power and duty of running the company falls to the Official Receiver (with his consent) or private liquidator (where one is appointed). Liquidator / Official Receiver Is appointed by the Court Is an Officer of the Court Owes fiduciary duties to the company and its creditors Must be independent Must act fairly Is entitled to remuneration Liquidator / Official Receiver Is appointed by the Court Is an Officer of the Court Owes fiduciary duties to the company and its creditors Must be independent Must act fairly Is entitled to remuneration Liquidator / Official Receiver Duty to liquidate the company’s assets and apply the proceeds towards the discharge of the company’s debts and liabilities Liquidator will rely on statement of affairs filed under Section 141 of the IRDA and Section 270 of the Companies Act Method of Distribution: Pari Passu Statement of Affairs Statement of Affairs sets out assets and liabilities of the company and details of the company’s affairs Liquidator may apply to Court for a person who has knowledge of the company’s affairs to be examined – Section 244 of the IRDA; Section 285 of the Companies Act 25 Pari Passu Principle of Distribution It means treating like creditors alike Does not mean treating all creditors equally Therefore, creditors will be entitled to a pari passu distribution of the Company’s assets in accordance with their rank List of preferential creditors and order of priority are set out in Section 203 of the IRDA (Section 328 Companies Act) Pari Passu Principle of Distribution Parties are not permitted to “contract out” of the pari passu principle Such attempts will be struck down by the Court: Joo Yee Construction Pte Ltd (in liquidation) v Diethelm Industries Pte Ltd 1 SLR(R) 171 For example, contracts whereby company’s debtor is directed to pay company’s unsecured creditors in the event of liquidation – runs contrary to the pari passu principle Proving Debts Proofs of Debt: Division 2, Part 9 of the IRDA Provable Debts: See Section 218 of the IRDA (previously under the Bankruptcy Act) Preferential Claims: Section 203 of the IRDA (Section 328 of the Companies Act) Proving Debts Proofs of Debt: Division 2, Part 9 of the IRDA Provable Debts: See Section 218 of the IRDA (previously under the Bankruptcy Act) Preferential Claims: Section 203 of the IRDA (Section 328 of the Companies Act) Proving Debts What happens if there are insufficient assets to pay everyone? Distribution in equal proportions Residue is divisible among the members in accordance with the Memorandum and Articles of Association of the company Liquidator must assess each proof of debt and call for further evidence to support the claim, if necessary Liquidator is not bound by a company's audited accounts or its audit confirmations. However, a liquidator needs to show that there is some basis to query a debt that appears to be genuine on its face. See Fustar Chemicals Limited (Hong Kong) v Liquidator of Fustar Chemicals Private Limited SGCA 35 30 Set-off Illustration: To Creditor To Company Creditor owes Company $10 $10 Company owes Creditor $40 $40 Creditor files proof of debt for the difference (i.e., $30) What happens in a regular set-off? What happens in an insolvency set-off? Principles governing insolvency set-off a) Mandatory if there have been mutual dealings b) Account is taken from the date of the commencement of the winding up, i.e. the date of the winding up order c) In taking of an account, the court may have regard to events which occurred since the commencement of winding up for the purpose of valuation Section 219 read with 218 of the IRDA Principles governing insolvency set-off a) Mandatory if there have been mutual dealings b) Account is taken from the date of the commencement of the winding up, i.e. the date on which the winding up application was madeTwo conditions must be satisfied: 1. Each claimant must be personally liable c) In taking of an account, the court may have regard to for the debt owed to the other events which occurred since 2. Each the must claimant commencement beneficially own of the winding up for the purpose debtof valuation which is owed to him by the other and the ownership must be “clear and Section 219 read withascertainable” section 218 of the without IRDA inquiry. Principles governing insolvency set-off Conversion date for foreign currency claims See Re Lehman Brothers Finance Asia Private Limtied – the appropriate date in the context of a compulsory liquidation should be the date of the winding-up order, not the date of the winding-up application. Estate Costs Rule Liquidator may commence proceedings on behalf of the company Liquidator should, however, be aware of the “estate costs” rule which provides that adverse costs orders made against the company will rank in priority over the other general expenses of the liquidation and the claims of unsecured creditors as well Liquidator who makes payments in breach of this rule will be held personally liable – Ho Wing On Christopher v ECRC Land Private Limited Dissolution and Release Liquidator may apply for dissolution and release Court may declare dissolution void any time within 2 years after the date of dissolution End Notice Copyright © 2024, Singapore Institute of Legal Education. All rights reserved. The Course materials are developed by the Singapore Institute of Legal Education, based on the content, syllabus, and guidance provided by the Chief and Principal Examiners and their teams. No direct or indirect reproduction, publication, communication to the public, adaptation or any other use (that is prohibited and/or proscribed by copyright laws) of the Course materials in whole or in part in any form or medium is allowed without the written permission of the Singapore Institute of Legal Education. Part B Candidates should refer to the Code of Conduct for more information, particularly, the sections on conduct and behaviour, and the use of SILE resources.