Insolvency Case Update: Applicability of Sections 285 and 310 of the Singapore Companies Act 2006 in the context of Voluntary Liquidation of a Company
Published October 14, 2020
The Singapore Court of Appeal (‘COA’) recently released its Grounds of Judgment dated 9.10.2020 in the case of Sinfeng Marine Services Pte Ltd v Taylor, Joshua James and another and other appeals [2020] SGCA 96. This judgment deals extensively on the ambit and applicability of Sections 285 and 310 of the Singapore Companies Act 2006 (“SCA 2006”), which are in pari materia with Sections 502 and 461 of the Malaysia Companies Act 2016 (“MCA 2016”) in the context of voluntary winding up of a company.
The COA was tasked to deal with the following questions of law, inter alia:-
(a) Whether an application under s.310(1)(b) of the SCA 2006 is required to extend the court’s power under s.285 of the SCA 2006 for a liquidator in a creditor’s winding up (“CVL liquidator”) to seek and compel production of documents and to examine persons for information on the affairs and dealings of a company;
(b) If the answer to question (a) is in the affirmative, whether an order granted under s.285 of the SCA 2006 without application for s.310(1)(b) of the SCA 2006 is want of statutory power;
(c) If the answer to question (b) is in the affirmative, whether the omission to make an application under s.310(1)(b) of the SCA 2006 can be remedied as a formal defect or irregularity;
(d) Whether an order for production of documents under s.285(3) of the SCA 2006 is conditional upon the court granting an examination order under s.285(2) of the SCA 2006; and
(e) Whether the court is empowered to award costs of complying with a production order made under s.285(3) of the SCA 2006.
In summation, the COA answered and held as follows:-
(a) In a voluntary winding up of company, a CVL liquidator cannot invoke s.285 of the SCA 2006 for an examination and/or production of document order without the requisite application under s.310(1)(b) of the SCA 2006 and the omission to make such application cannot be remedied as a formal defect or irregularity;
(b) Absent an application under s.310 of the SCA 2006 in a voluntary liquidation, the court has no statutory power to exercise the statutory powers that are automatically afforded in a compulsory liquidation, including its powers of examination under s.285 of the SCA 2006;
(c) The production of documents under s.285(3) of the SCA 2006 is not premised on the court’s grant of an oral examination pursuant to s.285(2) of the SCA 2006 and it is not necessary to combine an application for production of documents under s.285(3) of the SCA 2006 with an application for examination of a person under s.285(2); and
(d) The court, in considering whether to grant leave to a CVL Liquidator for the exercise of its powers of examination, may as a condition to the grant of such leave, impose compliance costs in favour of the examined party but this will depend on the overall circumstances of the case.
Salient FactsThere are in total three (3) appeals in this case whereby Joshua James Taylor and Yit Chee Wah are the Respondents for all the appeals while the Appellant in each appeal is as follows:-
Appeal No.188 – Sinfeng Marine Services Pte Ltd (“Sinfeng”)
Appeal No.419 – Cosco Petroleum Pte Ltd (“Cosco Petroleum”)
Appeal No.190 – Costank (S) Pte Ltd (“Costank”)
Collectively referred to as “the Appellants”Coastal Oil Singapore Pte Ltd (“Coastal Oil”), which was at all material times in the business of wholesale distribution of petroleum and petroleum products, was placed in a creditors’ voluntary winding up on 13 December 2018 pursuant to s.291(6) of the SCA 2006.
The relationships between Coastal Oil and each of the Appellants are as follows:-Relationship with Coastal Oil
1.Sin FengCoastal Oil’s main trading partners between year 2012 and 2018
2.Cosco PetroleumCoastal Oil’s main customers from late year 2015 to around April 2017
3.CostankCoastal Oill’s main suppliers from year 2012 to 2018
At all material times:-
(a) the directors of Coastal Oil were Mr Tan Sin Hwa (“Mr Tan”) and Mr Yeung Wing Sing (“Mr Yeung”), who each held 50% of the shares in Coastal Holdings Ltd, the parent company of Coastal Oil;
(b) Cosco and Sinfeng are both subsidiaries of Cosco Shipping International (Hong Kong) Co. Ltd (“Cosco Shipping”); and
(c) Mr Tan is a director and a 49% shareholder in Costank.
On 28.12.2018, Mr Andrew Grimmett and Mr Lim Loo Khoon (“Mr Lim”) were appointed as the joint and several liquidators of Coastal Oil.
During a creditors’ meeting on 28.12.2018, Mr Haridass Ajaib (“”Mr Haridass”), Coastal Oil’s legal advisor, notified the parties present that Mr Tan had admitted to him that sometime in early December 2018, he had prepared fraudulent documents “purportedly for trades carried out by Coastal Oil and these documents were used for bank financing” (“the Admission”).
On 8.1.2019, Mr Haridass informed Mr Lim that Mr Tan had “began entering into fraudulent transactions since 2013/2014” and that the fraudulent documents referred to were “contracts for the sale of oil cargoes” but no details of these transactions had been provided and Mr Tan has since remained uncontactable.
On 10.1.2019, the Respondents were appointed to take over as the joint and several liquidators of Coastal Oil and learnt of the circumstances mentioned above.
On 1.4.2019, Cosco Shipping issued a public announcement on the Hong Kong Stock Exchange that a number of commercial banks had claimed payment of assigned receivables due from Sinfeng to Coastal Oil and that Sinfeng’s management was of the initial view that the “documents in relation to almost all of the assigned receivables were not genuine”.
The Respondents then requested and Sinfeng provided, the full details of all the documents and transactions that had been identified as “not genuine”.
The Respondents also interviewed two of Coastal Oil’s main suppliers of bunker, Arkananta Yasa Pte Ltd (“Yasa”) and Mewah Logistics Pte Ltd (“Mewah”) to which the Respondents learnt that there were tripartite trading lopps involving entities such as Sinfeng/Cosco Petroleum, Costal Oil and Yasa and in other trade loops, entities such as Costank, Costal Oil and Mewah.
Following the interviews, in February 2019, the Respondents requested the Appellants’ records and documents in relation to its trading relationship, transactions and payment invoices with Coasta Oil for the period between 1.1.2016 and 31.12.2018 to which the Appellants refused on the ground that the documents sought were not necessary or reasonable.
The Respondents subsequently filed applications under s.285 of SCA 2006 for examination of persons and the production of a whole range of documents (“the Third Party Documents”).
The Respondents sought the Third Party Documents against Cosco Petroleum (for the priod 1.7.2012 to 13.12.2018), against Sinfeng (for the period 1.1.2012 to 2.4.2019) and Costank (for the period 1.7.2012 to 13.12.2018).High Court’s DecisionThe High Court allowed the Respondents’ applications and substantially ordered production of the Third Party Documents.
In summary, the High Court held as follows:-
(a) Third Party Documents were reasonably required as the Respondents were duty-bound to determine the events that led to Coastal Oil’s demise;
(b) The Respondents could not solely rely on the records kept by Coastal Oil to determine any discrepancies in the records kept by Coastal Oil; and
(c) The production by the Appellants would help in ascertaining any fraudulent transactions in light of Mr Tan’s Admission regarding the perpetrated fraud in Coastal Oil’s trading.
COA’s Decision
(i) Sections 285 and 310 of the SCA 2006
Before delving into the COA’s decision, it is apt to set out Sections 285 and 310 of the SCA 2006:-
Section 285Power to summon persons connected with company
285. (1) The Court may summon before it any officer of the company or person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or any other person whom the Court considers capable of giving information concerning the promotion, formation, trade dealings, affairs or property of the company.
(2) The Court may examine him on oath concerning the matters mentioned in subsection (1) either by word of mouth or on written interrogatories and may cause to be made a record of his answers, and any such record may be used in evidence in any legal proceedings against him.
(3) The Court may require him to produce any books and papers in his custody or power relating to the company, but where he claims any lien on books or papers the production shall be without prejudice to that lien, and the Court shall have jurisdiction to determine all questions relating to that lien.…
Section 310
Application to Court to have questions determined or powers exercised
310. (1) The liquidator or any contributory or creditor may apply to the Court –
(a) to determine any question arising in the winding up of a company; or
(b) to exercise all or any of the powers which the Court might exercise if the company were being wound up by the Court.
(2) The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just.
The COA accepted the Appellants’ argument that s.285 resides in the division governing compulsory winding up and the provision is available to court-appointed liquidators only and therefore, a CVL liquidator cannot invoke the court’s statutory powers of examination under s.285 without first making an application under s.310(1)(b).
In this regard, the COA explained that each of the respective modes of winding up reflects the policy distinction between voluntary and compulsory liquidations. Depending on the mode of winding up, the two provisions (ss.285 and 310 of SCA 2016) demonstrate the degree of control by the court in the conduct and supervision of the winding up.
In a compulsory winding up, the liquidator is appointed by the court and is an officer of the court whereby such winding up is conducted under the court’s direct supervision, while a liquidator in a non-compulsory winding up is appointed by the members or creditors of the company as the case may be, and is an agent of the company in a private arrangement, albeit only under the court’s general supervision and control.
The COA premises and formulates its’ view on ss.285 and 310 of the SCA 2006 by referring to the United Kingdom Companies Act 1948 (“UKCA 1948”) and the Australia Companies Act 1961 (“ACA 1961”). S.285 of the SCA 2006 is in pari materia with s.268 of the UKCA 1948 and s.249 of the ACA 1961 while s.310 of the SCA2006 is in pari materia with s.307 of UKCA 1948 and s.274 of ACA 1961.
After analyzing the relevant English and Australia cases under the UKCA 1948 and ACA 1961, the COA took the stance that the English and Australian frameworks under UKCA 1948 and ACA 1961 respectively are consonant with the insolvency regime in Singapore under the SCA 2006.
Crucially, the COA also rejected the Respondent’s alternative argument that s.305(1)(b) of the SCA 2006 permits a CVL liquidator to exercise any of the powers given to a court-appointed liquidator and such powers include the power to make a s.285 application on the ground that s.285 of the SCA 2006 is a power that is not conferred on court-appointed liquidators, but one that is conferred on the court to exercise in the course of the compulsory winding up of a company.
(ii) Whether omission to make s.310(1)(b) Application can be remedied as a formal defect or irregularity
The COA also rejected the Respondents’ argument that the omission to make s.310(1)(b) application is merely a formal defect or irregularity that can be cured pursuant to r.191(1) of the Singapore Companies (Winding Up) Rules 2006 [which is in pari materia with r.194(1) of the Malaysia Companies (Winding-Up) Rules 1972].
R.191(1) of the Singapore Companies (Winding Up) Rules 2006 states as follows:-
191. (1) No proceedings under the Act or these Rules shall be invalidated by any formal defect or by any irregularity, unless the Court is of opinion that substantial injustice has been caused by the defect or irregularity, and that the injustice cannot be remedied by any order of the Court.
The COA stated that s.310 is an important provision where a company is in voluntary liquidation and absent such an application, the court has no statutory power to exercise the statutory powers that are automatically afforded in a compulsory liquidation, including its powers of examination under s.285.
(iii) Miscellaneous Issues
The COA further held that an order for production of documents under s.285(3) of the SCA 2006 is not contingent on the grant of an order of examination under s.285(2) of the SCA2006. On top of that, it was held that based on a literal and purposive interpretation of s.285 of the SCA 2006, it is not necessary to combine an application for production of documents under s.285(3) with an application under s.285(2).
It is only after a person identified in s.285(1) has been summoned pursuant to s.285(1) that the court may either examine him on oath pursuant to s.285(2) or require him to produce documents pursuant to s.285(3), or both. The rationale for an order for discovery without examination is that liquidator is allowed to first consider whether his questions are adequately answered, before making a further application to court for an oral examination.
Apart from that, the COA also examined s.285(5) of the SCA 2006 reads as follows:-
If any person so summoned, after being tendered a reasonable sum for this expenses, refuses to come before the Court at the time appointed, not having a lawful excuse, made known to the Court at the time of its sitting and allowed by it, the Court may cause him to be apprehended and brought before the Court for examination.
The COA was of the view that the “expenses” refers to expenses in relation to appearance before the court (for example, transport expenses), and clearly do not relate to legal or other expenses incurred to comply with an order pursuant to s.285(2) or s.285(3).
While the COA seems to accept that if s.285 is invoked through s.310, then the court is empowered to make an order for costs of compliance in relation to the production of documents given the wording of s.310(2) which states that court can “accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just”, the COA held that it would depend on the overall circumstances of the case.
In any event, those who are claiming for costs of compliance bears the burden of proof to show that what has been incurred are demonstrably reasonable, necessary and proportionate.
Commentary
This decision may have a bearing on how the Malaysian Court interprets and applies Ss.461 and 502 of the MCA 2016 (the predecessors are ss.274 and 249 of the Malaysia Companies Act 1965) given that they are in pari materia with ss.310 and 285 of the SCA 2006.
As of today, there is yet to be any Malaysian case dealing with similar issues and circumstances as posed by the case herein and there is no certainty if the Malaysian Court will accept the same as the correct interpretation and application of ss.461 and 502 of the MCA 2016 in the context of a voluntary liquidation of a company.
In the Malaysia Court of Appeal case of Estate of Lim Tuan & Ors v Lim San Peen & Ors [2019] 2 MLJ 306, Hamid Sultan JCA accepted that even s.274 of the MCA 1965 falls under Part X of the Act related to winding up, it is covered under the caption of ‘voluntary winding up’. His Lordship also referred to s.518 of the Indian Companies Act 1956, which is a similar provision as s.274 of the MCA 1965, as well as learned authors of Guide to Company Law, A Ramaya (11th Ed) at p 1296, which states as follows:-
“The object of a voluntary winding-up is to leave the company, its contributories and creditors to settle their affairs, if possible, without coming to the Court either for a compulsory winding-up or a winding-up under supervision and the present section is intended to provide them with a means of access to the Court whenever any question arose which needed the assistance of the Court for its determination, without resorting to a compulsory winding-up or a supervision order which would only lead to increased expense.”
Based on the COA’s decision in the Estate of Lim Tuan (albeit not specifically on the issue arising from the Singapore case herein), it seems more likely than not that the Malaysia Court will accept the Singapore COA’s decision as discussed above as the correct way of interpretation and application of ss.502 and 461 of the MCA 2016.
Be that as it may, in order not to risk a s.502 application being struck out by the court in a case of a voluntary liquidation, it is better and safer for a liquidator/contributory/creditor, who wants to apply to court for examination of persons connected with company or production of documents pursuant to s.502 of the MCA, to first apply and resort to s.461(1)(b) of the MCA 2016.
Published by Chuar Kia Lin
Partner of Pierre Chuah & Associates
