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8 Corporate Recovery - Winding Up, Receivership and Judicial Management

8 Corporate Recovery - Winding Up, Receivership and Judicial Management



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Published by: api-3803117 on Oct 17, 2008
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Corporate Recovery (2)OVERVIEW
Insolvency & Public Trustee’s OfficeThere are 4 main divisions in the Insolvency & Public Trustee’s Office:-Corporate Insolvency Division-Individual Insolvency Division-Trust Division-Registry of Moneylenders & PawnbrokersCorporate Insolvency Law-Singapore’s corporate insolvency law is found mainly in the Companies Act.-The Bankruptcy Act is relevant for some areas. (ie: right to set-off; avoidance of vulnerable transactions).-As our Companies Act is modeled largely on UK and Australian companies legislation, case law from these jurisdiction have persuasive authority.The various processes in Singapore’s corporate insolvency regime are:
-governed by the Companies Act (Part X), and the Companies (Winding-Up) Rules
B)Judicial Management
-governed by the Companies Act (Part VIIIA, Sections 227A – 227X)-invariably leads to Winding Up
C)Schemes of Arrangement
-governed by the Companies Act (Section 210)
-governed primarily by Common Law, and the Companies Act (Part VIII, Sections 217 - 227)-debenture holder appoints receiver to recover assets
-(starting comp easy but process of winding up complex)
• “Liquidation” or “Winding Up” is the process by which a company is dissolved.
• In a liquidation, the company’s business is closed down, its assets are sold off, the creditors are paid,the balance of the assets are distributed to the members (shareholders/ contributories) and, at the end of thewhole process, the company ceases to exist upon dissolution
(Comp legal person)
1.What Is Winding-Up
Winding up is the process where all the company’s assets are realised.
Realisation proceeds are distributed among the company’s creditors
Any surplus proceeds are then distributed among the contributories of the company or otherwise as constitution directs-RARE; usu wound up when not enough money to pay all the creditors-Contributories rarely get anything bac
2.Purpose of winding p
-Ensure just distributn of assets-Terminate comp’s existence b eventual dissolution
3.Just distribution of assets
-Comp assets and affairs pass into hands of indep liquidator whose powers and duties are regulated by statute-Rights of unsecured creditors against assets frozen on commencemtn of winding up; further deterioriation of comp financial position and proliferation of liab; ord liab discharged on pari passu basis-Liquidator may recover some of adv received fr comp by creditor or another party at expense of othecreditors-Liquidator may investigate into comp affairs and conduct
4.Reasons for termination of comp
A)Comp ceasedB)Management deadlock C)Oppression – shr dispute s216D)Corporate or financial restructuring of grp to which comp belongsE)Minimise tax liab or maximize tax adv for grp to which comp belongsF)Breach of stt provns inckluding offences committedG)Comp acting outside scope of activities
2 Main types of Liquidation (
more specifically
3 types of liquidation)
• Compulsory or Court Liquidation – court appts liquidator, liq takes over 
(3) Compulsory/ Court ordered liquidation: 99.99% is where the coy is insolvent 
• Voluntary Liquidation – comp can vol palce itself in liq – by wy of meeting of members etc
(1) Member’s voluntary: where coy is still solvent (over-riding criteria)
VOLUNTARY: cos no one has to go to court, the directors can make a
declaration of solvency
+ state the coy is able to pay all its liabilities within 12 months, and call amembers’ and creditors’ meeting and then go into liquidation
(2) Creditor’s voluntary:
coy actually has to be insolvent when put into liquidation
Voluntary Winding-Up(2 types)Compulsory Winding-Up(winding-up by court)
(i) Members’ Voluntary WP: S.294 CA-Special resolution passed bycompany in general meeting.-The company must be solvent& a ‘declaration of solvency’ must have been made by the directors.Co must besolvent in a members’ WU-Only private liquidators areappointed.-Best used where comp able to pay debts within 12 mths after commencement of winding up-Winding up commences attime of passing of resoln(ii) Creditors’ Voluntary WP: S.296 CA-Special resolution passed bycompany in general meeting.-Company must holdcreditors’ meeting; company is insolvent.-Creditorschoice of privateliquidator will prevail.
 S.253 CA deals with application for compulsorywinding up:
-Under s253 comp itself, creditors, contrib,liquidator, judicial manager or minister may present application to HC for winding up of comp
Requires an order by the Court
Co is insolvent-S.254 CA lists the grounds when company can be wound up by Court:-
Most important ground: S.254(1)(e) CA – the company is unable to pay its debt.
The company is insolvent. TheOfficial Receiver or a private liquidator isappointed by the Court.-In past, receiver the liquidator in allcases, but now, where speicalised company wherelarge amt of specilaised business or unuscomplicated business, will advise creditors to aplyfor private liquidators-eg where official receiver does notact – there is dispute bet directors. OR normally xact where any sort of internal dispute.-Commences at date of presentationof applicationThe principle of 
pari passu
distribution applies in both Voluntary Winding-Up and Compulsory Winding-Up.-
NB : Same principles of asset realisation & dividend distribution
Members’ Voluntary Winding Up
The members of the company may pass a resolution that the company be wound up and also appoint a liquidator.This mode of winding up is best adopted where the company is able to pay its debts in fullwithin 12 months after the commencement of winding up.Winding up commences at the time of passing of the resolution. When it is proposed to wind up the companyvoluntarily, the directors of the company is required under Section 293 CA to make a statutorydeclaration that they have formed the opinion that the company will be able to pay its debts infull within 12 months after the commencement of winding up.
Creditors’ Voluntary Winding Up
-If the company is not able to meet its liabilities, the company can convene a meeting of its creditors toconsider its proposal for a voluntary winding up of the company. If a resolution is passed in favour of thewinding up, the company will appoint a liquidator, subject to any preference the creditors may have as tochoice of liquidators.
Compulsory Winding Up
-Under Section 253 CA, the company itself, creditors, contributories, liquidator, judicial manager, or theMinister may present a petition to the High Court for the winding up of the company. The grounds tosupport a petition for compulsory winding up are found in Section 254. Compulsory Winding Upcommences at the date of presentation of the petition S255.2Differences
• The difference between a voluntary liquidation and a compulsory liquidation lies in the manner inwhich the winding up is initiated.
• To initiate a voluntary liquidation, a resolution of the members must be passed.
On the other hand, a compulsory liquidation is initiated by a petition to the court by a partywith
locus standi
to do so.Who can apply for winding up:Section 253(1) CA: Provides for who may petition for winding up of a company:
s 253 - Eligibility to be an applicant
company; creditor; contributory
NOT officers of the company – ie director cannot wind up comp unless shr or creditor.- s 254 - Grounds for WU
most common – comp unable to pay debts:
Application for winding up.253.
—(1) A company, whether or not it is being wound up voluntarily, may be wound up under an order of theCourt on the application — (a) of the company;(b) of any creditor, including a contingent or prospective creditor, of the company;(c) of a contributory or any person who is the personal representative of a deceased contributory or the OfficialAssignee of the estate of a bankrupt contributory;(d) of the liquidator;(e) of the Minister pursuant to section 241 or on the ground specified in section 254 (1) (
) or (
);(f) of the judicial manager appointed pursuant to Part VIIIA;(g) in the case of a company which is carrying on or has carried on banking business, of the Minister chargedwith the responsibility for finance; or (h) of the Minister on the ground specified in section 254 (1) (
),or of any two or more of those parties.(2) Notwithstanding anything in subsection (1) — (a) a person referred to in subsection (1) (
) may not make a winding up application on any of the groundsspecified in section 254 (1) (
), (
), (
), (
) or (
), unless — (i) the company has no member; or (ii) the shares in respect of which the contributory was a contributory or some of them were originally allotted tothe contributory, or have been held by him and registered in his name for at least 6 months during the 18 months

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