Professional Documents
Culture Documents
OVERVIEW
Insolvency & Public Trustee’s Office
There are 4 main divisions in the Insolvency & Public Trustee’s Office:
- Corporate Insolvency Division
- Individual Insolvency Division
- Trust Division
- Registry of Moneylenders & Pawnbrokers
LIQUIDATION/WINDING UP
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 back
2. Purpose of winding p
- Ensure just distributn of assets
- Terminate comp’s existence b eventual dissolution
(i) Members’ Voluntary WP: S.294 CA S.253 CA deals with application for compulsory
winding up:
- Special resolution passed by company in
general meeting. - Under s253 comp itself, creditors, contrib,
- The company must be solvent & a liquidator, judicial manager or minister may
‘declaration of solvency’ must have been present application to HC for winding up of comp
made by the directors.Co must be solvent
in a members’ WU - Requires an order by the Court
- Only private liquidators are appointed. - Co is insolvent
- Best used where comp able to pay debts - S.254 CA lists the grounds when company can be
within 12 mths after commencement of wound up by Court:
winding up - Most important ground: S.254(1)(e) CA – the
- Winding up commences at time of passing company is unable to pay its debt.
of resoln - The company is insolvent. The Official Receiver
or a private liquidator is appointed by the Court.
(ii) Creditors’ Voluntary WP: S.296 CA - In past, receiver the liquidator in all cases, but
now, where speicalised company where large amt
- Special resolution passed by company in of specilaised business or unus complicated
general meeting. business, will advise creditors to aply for private
- Company must hold creditors’ meeting; liquidators
company is insolvent. - eg where official receiver does not act – there is
- Creditors’ choice of private liquidator will dispute bet directors. OR normally x act where
prevail. any sort of internal dispute.
- Commences at date of presentation of application
The principle of pari passu distribution applies in both Voluntary Winding-Up and Compulsory Winding-
Up.
Compulsory Winding Up
- Under Section 253 CA, the company itself, creditors, contributories, liquidator, judicial manager, or the
Minister may present a petition to the High Court for the winding up of the company. The grounds to
support a petition for compulsory winding up are found in Section 254. Compulsory Winding Up
commences at the date of presentation of the petition S255.2
Differences
- • The difference between a voluntary liquidation and a compulsory liquidation lies in the manner in which
the winding up is initiated.
o • To initiate a voluntary liquidation, a resolution of the members must be passed.
o On the other hand, a compulsory liquidation is initiated by a petition to the court by a party
with locus standi to do so.
Section 253(1) CA: Provides for who may petition for winding up of a company:
- s 253 - Eligibility to be an applicant
o company; creditor; contributory
o NOT officers of the company – ie director cannot wind up comp unless shr or creditor.
- s 254 - Grounds for WU
o most common – comp unable to pay debts:
COURT LIQUIDATION
- Letterheads
o to be stamped “in liquidation”… so that the public at large must know that they are dealing
with the coy’s liquidator
- S.254(1) CA: Provides for the exhaustive list of grounds on which the Court may make an order for the
company to be wound up. The most common ground for winding-up is S.254(1)(e) – “the company is
unable to pay it debts”.
- S.254(2) CA: Provides the definition of inability to pay debts. There are 3 definitions:
(a) Failure by the company to satisfy the statutory demand served by the creditor (note: this is the
most commonly invoked provision)
• Demand served at co’s registered address for sum of more than $10,000, left
unsatisfied for more than 3 weeks
(b) Execution issued on a judgment which has been partially or wholly unsatisfied.
(c) When proved to the court that the company is unable to pay its debts.
(d) Just and equitable tt company be wound up – but reasons must be set out clearly. If not financial
reasons, usu court x look favourably on it.
o See Section 254(2) CA provides for a deeming provision for when a company is considered to be unable to
pay its debts.
Presumption of Insolvency
- • A company is deemed Insolvent when
o it is unable to pay debts as and when they fall due -
o when it has an excess of total liabilities over total assets. (even contingent liab are included)
- • The insolvency of a company may be established in either manner. It is on the onus of the petitioner to
prove to the satisfaction of the court that the company is unable to pay its debts (or insolvent by virtue
of total liab over total assets).
- • In determining whether a company is insolvent, the court will take into account the contingent and
prospective liabilities of the company.
o Eg if comp has contracts, petition for winding up, terminated => possib of contingent liab –
may be calc into total liab
VOLUNTARY LIQUIDATION
Procedures on Appointment
- • A voluntary liquidation is usually proposed by the company’s directors.
- • If the director’s file a declaration of solvency with the Accounting and Corporate Regulatory Authority
(ACRA) in accordance with Section 293, the winding up will proceed as a members’ voluntary liquidation.
o Ie they declre tt in their opinion, cam able to pay debts tt all due in next 12 mths
- • If they do not, then the winding up will be deemed as a creditors’ voluntary liquidation.
o Then liq must call for meeting of crediors to convert members liq into creditor liq
Declaration of Solvency
- • The declaration of solvency is a written declaration to the effect that the directors have made an inquiry
into the affairs of the company and have formed the opinion that the company will be able to pay its debts in
full within 12 months after the commencement of the winding up.
Difference
- • The main difference between a members’ and a creditors’ voluntary liquidation, is that in a members’
voluntary liquidation, the company is solvent (Company has excess of assets over liabilities and is able to
pay its debts as and when they fall due).
Powers of liquidator.
272. —(1) The liquidator may with the authority either of the Court or of the committee of inspection —
(a) carry on the business of the company so far as is necessary for the beneficial winding up thereof, but the
authority shall not be necessary to so carry on the business during the 4 weeks next after the date of the winding
up order;
(b) subject to section 328 pay any class of creditors in full;
(c) make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging
themselves to have any claim present or future, certain or contingent, ascertained or sounding only in damages
against the company, or whereby the company may be rendered liable;
(d) compromise any calls and liabilities to calls, debts and liabilities capable of resulting in debts and any claims
present or future, certain or contingent, ascertained or sounding only in damages subsisting, or supposed to
subsist, between the company and a contributory or other debtor or person apprehending liability to the company,
and all questions in any way relating to or affecting the assets or the winding up of the company, on such terms
as are agreed, and take any security for the discharge of any such call, debt, liability or claim, and give a
complete discharge in respect thereof; and
(e) appoint a solicitor to assist him in his duties.
(2) The liquidator may —
(a) bring or defend any action or other legal proceeding in the name and on behalf of the company;
(b) compromise any debt due to the company, other than calls and liabilities for calls and other than a debt where
the amount claimed by the company to be due to it exceeds $1,500;
(c) sell the immovable and movable property and things in action of the company by public auction, public
tender or private contract with power to transfer the whole thereof to any person or company or to sell the same
in parcels;
(d) do all acts and execute in the name and on behalf of the company all deeds, receipts and other documents and
for that purpose use when necessary the company’s seal;
(e) prove, rank and claim in the bankruptcy of any contributory or debtor for any balance against his estate, and
receive dividends in the bankruptcy in respect of that balance as a separate debt due from the bankrupt, and
rateably with the other separate creditors;
(f) draw, accept, make and indorse any bill of exchange or promissory note in the name and on behalf of the
company with the same effect with respect to the liability of the company as if the bill or note had been drawn,
accepted, made or indorsed by or on behalf of the company in the course of its business;
(g) raise on the security of the assets of the company any money required;
(h) take out letters of administration of the estate of any deceased contributory or debtor, and do any other act
necessary for obtaining payment of any money due from a contributory or debtor or his estate which cannot be
conveniently done in the name of the company, and in all such cases the money due shall for the purposes of
enabling the liquidator to take out the letters of administration or recover the money be deemed due to the
liquidator himself;
(i) appoint an agent to do any business which the liquidator is unable to do himself; and
(j) do all such other things as are necessary for winding up the affairs of the company and distributing its assets.
(3) The exercise by the liquidator of the powers conferred by this section shall be subject to the control of the
Court, and any creditor or contributory may apply to the Court with respect to any exercise or proposed exercise
of any of those powers.
Provisional Liquidators
- 2 instances
(1) Creditors’ voluntary winding up: at the meeting of the creditors’ winding up, they can appoint a
liquidator there and then… however, they can also appoint a provisional liquidator as of the date of the
declaration of insolvency… cos they want to ensure that they will not be made liable for any acts which
may run foul of the BA or CA … so that at the creditors’ meeting, the creditors can decide whether to
accept or reject the provisional liquidator so appointed
(2) Court appointed provisional liquidator
- Whether liquidator are appointed under either one, the provisional liquidator has powers of liquidators
- School of thought Provisional liquidator is only that?
o Saying that they are only to maintain status quo and preserve assets without dealing with the coy’s
assets
o Should wait for the confirmation of the creditors before taking any steps
Appeal
Appeal against decision of liquidator.
315. Any person aggrieved by any act or decision of the liquidator may apply to the Court which may confirm,
reverse or modify the act or decision complained of and make such order as it thinks just.
- Try not to go into private proseucitn – inform receiver abt what has happened – they have power to
prosecute officers partrly when they have not filed statement of affairs
General statistics
TOTAL ACTIVE CASES AS AT 31 AUGUST 2006
- Total Cases = 1,301
- Official Receiver 901 69.3%
- Pte Liquidator 400 30.7%
- Note tt when comp has a lot of money, more likely to have pte liq
- The Companies (Winding Up) Rules govern the procedures for winding-up of companies under the
Companies Act
- Winding up application
o Registered business address of co
o State ground for winding-up – usu when comp unable to pay debts
Mode of service
18. Except as otherwise provided by the Act, these Rules or any order —
(a) all notices, summonses and other documents except those of which personal service is required, shall be
deemed to be sufficiently served if left at or sent by prepaid post to the last known address of the person to be
served therewith or to the address (if any) at which such person has authorised service on him to be effected; and
the notice, summons or document if so sent by prepaid post shall be considered as served at the time that the
same ought to be delivered in the ordinary course of post by the post office, and notwithstanding the same may
be returned by the post office;
(b) no service shall be deemed invalid by reason that the name, or any of the names other than the surname of the
person to be served, has been omitted from the document containing the person's name if the Court is satisfied
that in other respects the service of the document has been sufficient; and
(c) when the solicitor for a party to be served accepts service of a document on behalf of that party and indorses
the original or a copy thereof to that effect, that service shall be deemed sufficient.
Service of winding up application and supporting affidavit
26. —(1) Every winding up application and supporting affidavit shall, unless filed by the company, be served
upon the company at the registered office of the company, and if there is no registered office, then at the principal
or last known principal place of business of the company, if any can be found, by leaving a copy with any
member, officer or employee of the company there, or in case no such member, officer or employee can be found
there, then by leaving a copy at such registered office or principal place of business, or by serving it on such
member or members of the company as the Court may direct; and where the company is being wound up
voluntarily, the winding up application and supporting affidavit shall also be served upon the liquidator (if any)
appointed for the purpose of winding up the affairs of the company. The affidavit of service of the winding up
application and supporting affidavit may be in Form 6 or Form 7 set out in the First Schedule.
(2) Where a winding up application is filed by any person other than the liquidator of the company in relation to
a company which is in the course of being wound up, the winding up application and supporting affidavit shall
be personally served upon the liquidator.
(3) A copy of the winding up application and supporting affidavit shall also be served upon the Official Receiver.
Copy of winding up application and supporting affidavit to be furnished to creditor or contributory
27. Every contributory or creditor of the company shall be entitled to be furnished by the applicant or his
solicitor with a copy of the winding up application and supporting affidavit within 48 hours after requiring the
same, upon payment of 50 cents per folio of 100 words for such copy.
- Advertisement in 1 English & 1 Chinese local daily newspaper & in Govt Gazette
o 7 clear days
- Memorandum of Advertisement
o stating tt have advertised in such newspaper and attach copies of adverts
- Registrar’s Memorandum
- Winding Up deposit of $4,400 to OR for purposes of admin
- Consent of liquidator of company – li takes a lto of resp and may become liable for breach of duties so
need to consents to what he is being informed of before comp being wound up.
- Substitution of applicant
At the time of passing of the resolution for voluntary At the time of presentation of the winding up petition.
winding up by the company.
- A) Stay of legal proceedings against WU co (whether to commence or continue) except with leave of Court
- s262(3)
o after commencement of a winding up, no action or proceeding may be commenced against the
company or proceeded with except with the leave of the court and upon such terms as the
court may impose.
o if it is a court winding up, then all proceedings are stayed…
o in a voluntary winding up, proceedings are not stayed, they are stayed only on application of
the liquidator
Korea Asset Management Corp v Daewoo Singapore Pte Ltd [2004] 1 SLR 671
o Facts
o This was an application by Korea Asset Management Corp (the “applicants”) for leave to initiate
compulsory winding up proceedings of Daewoo Singapore Pte Ltd (the “company”) while the company was
already in the process of a voluntary winding up. The applicants were the majority creditors in the company.
o On 26 May 2003, the company’s directors initiated a creditors’ voluntary winding up. On the same day,
without prior consultation with creditors, the company’s directors appointed three provisional liquidators. A
notice was issued to convene a shareholders’ and a creditors’ meeting on 23 June 2003. The applicants
requested a postponement of the meeting, as they were still evaluating their options. The liquidators did not
object to the postponement. The applicants also wrote to the liquidators regarding perceived conflicts of
interest.
o The shareholders’ meeting was conducted on 23 June 2003 and the company’s sole shareholder resolved for
the company to be wound up, nominating the provisional liquidators for the position of liquidators. The
liquidators held the creditors’ meeting on the same day despite having earlier agreed to the applicant’s
request for postponement. At the creditors’ meeting, the chairman declared that the meeting would lapse, as
it was not convened at a time and place convenient to the majority in value of the creditors. No resolutions
were voted on during this lapsed meeting. The applicants then became concerned and viewed the position
taken by the company, the liquidators and their advisors as an attempt to dilute and undermine their rights.
Additionally, the applicants had engaged a Korean based accounting firm (“Anjin”) to conduct a due
diligence exercise on the company. In the report prepared by Anjin (“Anjin’s report”), Anjin opined that the
company’s insolvency appeared to be inextricably linked to its relationship with related entities. Anjin’s
report also indicated that debts had been incurred in dubious circumstances which hinted at mismanagement,
and suggested fraud on the part of the directors and officers of the company.
o The applicants then sought leave to initiate compulsory winding up proceedings, despite the fact that the
company was already in the process of being voluntarily wound up. In their application, they voiced their
concerns over the state of the company’s affairs and pointed to the need for an enquiry into the reasons for
the company’s insolvency and the apparent lack of independence on the part of the liquidators. The company
and the liquidators objected to the application. In particular, the company was concerned about the
additional costs incurred through the possible appointment of new liquidators should the compulsory
winding up proceedings be initiated.
o Held, allowing the application:
o While convenience and the saving of costs were factors that would be taken into consideration, fair play and
commercial morality were of paramount importance. In the circumstances, the company’s contention that
additional costs would be incurred by the initiation of winding up proceedings was unsupported. Further, in
this case, a court appointed liquidator in a compulsory liquidation, as an officer of the court, might have
better served the interests of the creditors: at [42], [56] and [60].
o In cases where a voluntary winding up had already commenced, the court would carefully scrutinise any
application for a compulsory winding up to ensure that a party was not seeking to avail itself of a benefit
that would not otherwise be available to it through the conventional winding up procedure. Another
consideration would be whether such an application, if successful, would prejudice the claims of other
legitimate creditors in a manner that could negate the statutory scheme of pari passu treatment for all
unsecured creditors: at [48].
o If the claim or right that an applicant was pursuing could be adequately dealt with within the insolvency
regime, the court would not be inclined to grant leave to proceed. A good reason for refusing leave would
exist in cases where the company’s resources were threadbare and considerable costs would be incurred if
leave were granted: at [50].
o In cases where there had been an allegation of impropriety in relation to the cause of a company’s
insolvency, the liquidator’s role took on the added dimension of an investigator, on top of his administrative
function as a collector of assets. Such a liquidator should not be perceived as having any relationship with
the company’s officers or shareholders. In such a case, the public interest element may sometimes tip the
scales in favour of allowing a compulsory winding up:
at [54].
o The Anjin report necessitated further enquiry into the circumstances leading to the demise of the company.
In this respect, the liquidators had not given sufficient responses explaining away the intricate transactions
between the company and related entities: at [61].
o Liquidators should always view matters objectively. When concerns are raised and liquidators are
challenged on an issue involving an existing or potential conflict, they should pause and carefully review
their position dispassionately.
o It was surprising that the liquidators strenuously opposed the application. The liquidators should not have
been involved in this issue and doubt had been cast on their objectivity: at [70] and [72].
o [Qbservation: The main focus of a company and its liquidators once winding up had commenced should be
to prevent the fragmentation of its assets and to ensure that the interests of its creditors were protected to the
fullest extent. In other words, returns to legitimate creditors should be maximised; the process of collecting
assets and returning them to legitimate creditors should be attended to with all practicable speed.
Unnecessary costs should not be incurred; liquidators should act in the collective interests of all legitimate
stakeholders and not with a view to enhancing their own self-interests or fees.
o It stands to reason that those who had the greatest financial interest in the assets of the company should
usually be allowed the biggest say. Corporate democracy is seldom a quantitative exercise.]
Jumabhoy Rafiq v Scotts Investment (Singapore) Pte Ltd [2003] 2 SLR 422
- Retrospective leave
- Scotts Investments (Singapore) Pte Ltd (in compulsory liquidation) (“SIS”) commenced a suit against Rafiq
Jumabhoy (“RJ”). RJ counterclaimed and filed an application for summary judgment on the counterclaim.
After the hearing date for summary judgment was fixed, SIS claimed that RJ had not obtained leave of court
to commence and continue with his counterclaim, as required under s 262(3) of the Companies Act (Cap 50,
1994 Rev Ed). RJ thus filed the present originating summons to apply for leave retrospectively to commence
and continue the existing counterclaim. RJ’s application for summary judgment was adjourned, pending the
outcome of this application for leave. By this time, there was a possibility that part of RJ’s claim might have
become time-barred. The court considered two issues: first, whether RJ should be granted leave to
commence his counterclaim; secondly, whether the court has jurisdiction to grant leave retrospectively.
- Held: Allowing the application for leave
o While s 262(3) of the Companies Act (Cap 50) was intended to prevent the liquidators from
being distracted and the assets of the company in liquidation being expended to respond to
unnecessary actions, it could not have been the purpose of s 262(3) to allow liquidators, and
other unsecured creditors, an unexpected windfall which would arise if the court did not have
jurisdiction to grant retrospective leave and a plaintiff could not file a fresh action because of
limitation defences.
o The existence of the jurisdiction does not necessarily mean that the jurisdiction will be
exercised in favour of all applicants. It is still for applicants to persuade the court why such
leave should be granted, especially if retrospectively. The mere fact that time and costs have
already been incurred will not necessarily be sufficient always to persuade the court to grant
leave retrospectively.
- B) After the commencement of winding up, all dispositions of property, transfer of shares are void unless
Court orders otherwise - s 259
o Section 259 provides that any disposal of property after the commencement of a winding up is
void, unless the court otherwise orders.
o 2mths related parties 6 mths non related parties (going bsckward fr commencement)
o Once winding up commences, it is important that the assets of the company be preserved so as
to enable a fair distribution to all the company’s creditors.
o Section 259 CA seeks to achieve this by rending all dispositions of the company’s property,
after the commencement of the winding up, void.
o A lot of dirs are also guarantors so if compo goes under, creditors will go after dirs and they
may be made iundiv bankrupt – they will want to transfer assets quickly, this is why transfer
of shares are void – must take note. Share transactions just before winding up order or
application – may have underhand dealings,.
o *Re gray’s inn construction 1980 – court shld not validate any transaction tt might result in
one or more pre liquidaton creditors being paid in full at expense of other creditors in absenve
of special circuymstances making suc course desirable in interests of creditors as body; court
inclined to validate transaction which cld increase or has ncreased value of comp assets or
which wld preserve or ha preserved value of comp assets fr hyarm which wld result fr comp
business being paralysed
o eg dispoal of property for continuatin of business or in ord course of business wic may be
benefical not ony to comp but unsecured creditors
o sales of assets at ful market value may be validated since does not involve dissipation of comp
assets in tt value of assets not reduced
o disposition in good faith in ord course of business at time when parties unaware tt application
presented may be validated by court unless grds for thining tt transaction might involve
attempt to prefer disponee
- C) The company’s assets do not vest in the liquidator or the Official Receiver (c/f bankruptcy – where the
bankrupt’s assets vest in the OA)
o The company’s property does not vest in the liquidator unless there is a vesting Order, but the
liquidator is empowered to take the property into his custody or within his control
o Ie Control of assets - only the liquidator has control of the assets of the coy that is in liquidatihon
o liquidator has power to deal with the assets of the coy, while the directors’ power to deal with the
assets of the coy are gone
SHARE TRANSFERS
o without the liquidator’s consent, once the coy is in liquidation, there can be no transfer of shares
o the reason is to fix the members of the coy, so that the liquidators will know who are liable for the liabilities
of the coy
a) The company officers have no power to carry on business of the company. The liquidator takes over control
of the company. – if nt crim liability
b) The company officers have a duty to cooperate with and assist the liquidator – to disclose and surrender all
company’s property in their possession (including company’s books and records). – otherwise OR may
prosecute them. Fined or imprisoned section 285-287
- Court has power to issue warrant sof arrest against dir, former dir or contrib. if satsifeid tt he is abt
to ascdond or remove or conceal any of property for avoiding examination
c) The company officers must file a Statement of Affairs within 14 days after the date of the winding up order
or such other period as may be allowed by the OR, the court or the liquidator – the Statement of Affairs is to
provide the particulars of the company’s assets, liabilities, creditors and book debtors. It is a criminal
offence to file a false statement of affairs: Section 270 CA
- Criminal offence : fine up to 5000 /imprisonment for term up to 1 yr (section 270)
- In practice, usu punishment is fine for such offences,
Note also: dirs/officers who fail to comply despite conviction will be liable for firther offence under section
408.1
Default penalties.
408. —(1) Where a default penalty is provided in any section of this Act, any person who is convicted of an
offence under this Act or who has been dealt with under section 409 (4) or (5) for an offence under this Act
in relation to that section shall be guilty of a further offence under this Act if the offence continues after he
is so convicted or after he has been so dealt with and liable to an additional penalty for each day during
which the offence so continues of not more than the amount expressed in the section as the amount of the
default penalty or, if an amount is not so expressed, of not more than $200.
(2) Where any offence is committed by a person by reason of his failure to comply with any provision of this Act
under which he is required or directed to do anything within a particular period, that offence, for the purposes of
subsection (1), shall be deemed to continue so long as the thing so required or directed to be done by him
remains undone, notwithstanding that such period has elapsed.
(3) For the purposes of any provision of this Act which provides that an officer of a company or corporation who
is in default is guilty of an offence under this Act or is liable to a penalty or punishment, the phrase officer who is
in default or any like phrase means any officer of the company or corporation who knowingly and wilfully —
(a) is guilty of the offence; or
(b) authorises or permits the commission of the offence.
Winding up rules
STATEMENT OF AFFAIRS
Preparation of statement of affairs
41. —(1) Every person who under section 270 of the Act has been required by the liquidator to submit and verify
a statement as to the affairs of the company shall be furnished by the liquidator with a copy of Form 61 set out in
the Second Schedule to the Companies Regulations (Rg 1).
(2) The liquidator may from time to time hold personal interviews with every such person as is mentioned in
section 270 (2) (a), (b) and (c) of the Act for the purpose of investigating the company's affairs and it shall be the
duty of every such person to attend on the liquidator at such time and place as the liquidator may appoint and
give the liquidator all information that he may require.
Extension of time for submitting statement of affairs
42. When any person requires any extension of time for submitting the statement of affairs, he shall apply to the
liquidator who may, if he thinks fit, give a written certificate extending the time, which certificate shall be filed
and shall render an application to the Court unnecessary.
Information subsequent to statement of affairs
43. After the statement of affairs of a company has been submitted to the liquidator, it shall be the duty of each
person who has made or concurred in making it, if and when required, to attend on the liquidator and answer all
such questions as may be put to him and give all such further information as may be required of him by the
liquidator in relation to the statement of affairs.
Default
44. Any default in complying with the requirements of section 270 of the Act shall be reported by the liquidator
to the Court.
As to costs of preparing statement of affairs
45. A person who is required to make or concur in making any statement of affairs of a company shall, before
incurring any costs or expenses in and about the preparation and making of the statement, apply to the liquidator
for his sanction, and submit a statement of the estimated costs and expenses which it is intended to incur; and,
except by order of the Court, no person shall be allowed out of the assets of the company any costs or expenses
which have not, before being incurred, been sanctioned by the liquidator.
Conduct of officers -
- See if any assets wrongly transferred out by directors to increase pool of assets to be dealt with
- See provisions: 334 – 341, 340 –
o fraudulent trading – dirs trading knowing tt cannot pay debts when fall due
can look to dirs personally
o whether undue pref payments => where there is such a presumptn, onus on other side to prove
otherwise
o misfeasance (341)
o property and money – 340
- comp to prepare accts etc – once in liq, no such reqt – liq merely to keep cash book of all moneys received
and payments made
- regulation of liqduitors
o record of all cash receipts and payments – file 6 mthly return to official assignee’s office
o states – date/ who/ when/ net amt
- send to comptroller of income tax
- Creditor not entitled to retain benefit of exeuciton or attachment unless has compoleted these before date of
commencemtn of winding up – presentation of appicaiton
- Exception: Court may set aside rights of liquidator
- Generally where no fraud or trickery practiced, weighty reasons must exist before court will be induced to
allow creditor to retain benefit of uncompleted execution
d) s 334 Any execution that is not fully satisfied before commencement of WU may be avoided
e) Exceptions –
- Purchaser in good faith from bailiff
- Court’s discretion as to whether to favour the creditor & to what extent
(c) Costs of Execution by Bailiff = 1st charge on the seized goods prior to WU s 335
• The benefit or proceeds of any execution or attachment of debts against the company which are not
completed by the commencement of the winding up must be handed over to the liquidator. A creditor is not
entitled to retain the benefit of execution or attachment unless he has completed the execution or attachment
before the date of the commencement of winding up (ie: date of presentation of the petition)
- For Writ of Seizure & Sale: the goods must have been seized and sold.
- For Garnishee – there must be receipt of the debt by the creditor
- For Land – there must be sale by a valid or binding contract or the appointment of a receiver.
Section 334 CA: Restriction of rights of creditor as to execution or attachment.
Where a creditor has issued execution against the goods or land of a company or has attached any debt due to
the company and the company is subsequently wound up, he shall not be entitled to retain the benefit of the
execution or attachment against the liquidator unless he has completed the execution or attachment before the
date of the commencement of the winding up.
Exception:
s.334 CA (1)
(b) a person who purchases in good faith under a sale by the bailiff any goods of a company on which an
execution has been levied shall in all cases acquire a good title to them against the liquidator; and
(c) the rights conferred by this subsection on the liquidator may be set aside by the Court in favour of the
creditor to such extent and subject to such terms as the Court thinks fit.
Effect = Creditor must complete execution before the date of commencement of WU, if execution not complete,
creditor cannot retain the goods.
(if not, the creditor must return the goods and then file proof of debt and obtain pari passu.)
WSS: goods must be seized and sold
Garnishee: receipt of debt by the creditor
Land: Sale by a valid and binding contract or appointment of a receiver
Re Tiong Polestar Engineering Pte Ltd [2003] 4 1
Facts:
The liquidator of a company applied to recover a sum which had been received by a judgment creditor
of the company one day after the commencement of winding up, pursuant to a garnishee order absolute.
The judgment creditor sought to invoke the jurisdiction of the court to set aside the right of the
liquidator to recover this payment. The judgment creditor pointed out that its request for the payment of
the sum had been made several days before the commencement of winding up, and that the cashier’s
order by which the sum was paid was actually dispatched to it one day before, that is, the day of the
commencement of winding up.
Held:
The judgment creditor was not entitled to retain the benefit of the sum as against the liquidator. In his
Honour’s view, it is incumbent on a creditor to try and get payment as soon as possible and if receipt of
payment is delayed by the act of another party, the interests of the general creditors will have to prevail.
• Costs of execution by bailiff – Section 335 CA: provides that where any goods of a company are taken in
for execution, and notice has been served on the bailiff that a winding up order has been made, the bailiff is
required to deliver any goods and money seized or received to the liquidator. The costs of the execution shall
be a first charge on the goods or moneys so delivered.
- If distress is levied before commencement of winding up, the landlord is entitled to net proceeds of sale of
up to 12 months’ rent:
• Section 5, Distress Act.
• Effect is that the landlord is entitled to priority over unsecured creditors.
• So ensure tt creditor x have arrears of more thn 12 mths rent
- Not affected by s334 and s335 CA
- Cf Bankruptcy with its specific provisions dealing with distress. – this is different
- One major exception to the pari passu rule of distribution is that it does not apply to creditors who have
proprietary interests over the company’s assets (ie: a secured creditor such as debenture holder /
mortgagee)
- Subj to s328 CA, rules in BA governing rights of secured and unsecured creditors prevail
- S76.3 BA – winding up order x affect right of ssecured creditor to realize or deal with security
• However, the secured creditor is only entitled to 6 months interests from the date of the winding up order,
subject to extension by the Official Receiver. The aim of this rule is to exert some control over the secured
creditor.
• See Section 76(4) Bankruptcy Act (read with Section 327(2) Companies Act) – NOTE -:
Note: S.327(2) CA is the provision which imports the rules with regard to, inter alia, the rights of secured and
unsecured creditors under the Bankruptcy Act, to the winding up of an insolvency company.
Prevents Secured Creditors from sitting on it.
Proof of debts.
327. —(1) In every winding up (subject in the case of insolvent companies to the application in accordance with
the provisions of this Act of the law of bankruptcy) all debts payable on a contingency, and all claims against the
company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to
proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as
are subject to any contingency or sound only in damages, or for some other reason do not bear a certain value.
(2) Subject to section 328, in the winding up of an insolvent company the same rules shall prevail and be
observed with regard to the respective rights of secured and unsecured creditors and debts provable and the
valuation of annuities and future and contingent liabilities as are in force for the time being under the law relating
to bankruptcy in relation to the estates of bankrupt persons, and all persons, who in any such case would be
entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up
and make such claims against the company as they respectively are entitled to by virtue of this section.
- **Section 329 CA imports Sections 98 – 103 of the Bankruptcy Act to apply to insolvent companies.
Undue preference.
329. —(1) Subject to this Act and such modifications as may be prescribed, any transfer, mortgage, delivery of
goods, payment, execution or other act relating to property made or done by or against a company which, had it
been made or done by or against an individual, would in his bankruptcy be void or voidable under section 98, 99
or 103 of the Bankruptcy Act 1995 (read with sections 100, 101 and 102 thereof) shall in the event of the
company being wound up be void or voidable in like manner.
(2) For the purposes of this section, the date which corresponds with the date of making of the application for a
bankruptcy order in the case of an individual shall be —
(a) in the case of a winding up by the Court —
(i) the date of the making of the winding up application; or
(ii) where before the making of the winding up application a resolution has been passed by the company for
voluntary winding up, the date upon which the resolution to wind up the company voluntarily is passed,
whichever is the earlier; and
(b) in the case of a voluntary winding up, the date upon which the winding up is deemed by this Act to have
commenced.
(3) Any transfer or assignment by a company of all its property to trustees for the benefit of all its creditors shall
be void.
Transactions at an undervalue
98. —(1) Subject to this section and sections 100 and 102, where an individual is adjudged bankrupt and he has
at the relevant time (as defined in section 100) entered into a transaction with any person at an undervalue, the
Official Assignee may apply to the court for an order under this section.
(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it
would have been if that individual had not entered into that transaction.
(3) For the purposes of this section and sections 100 and 102, an individual enters into a transaction with a person
at an undervalue if —
(a) he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide
for him to receive no consideration;
(b) he enters into a transaction with that person in consideration of marriage; or
(c) he enters into a transaction with that person for a consideration the value of which, in money or money’s
worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the
individual.
Unfair preferences
99. —(1) Subject to this section and sections 100 and 102, where an individual is adjudged bankrupt and he has,
at the relevant time (as defined in section 100), given an unfair preference to any person, the Official Assignee
may apply to the court for an order under this section.
(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it
would have been if that individual had not given that unfair preference.
(3) For the purposes of this section and sections 100 and 102, an individual gives an unfair preference to a person
if —
(a) that person is one of the individual’s creditors or a surety or guarantor for any of his debts or other liabilities;
and
(b) the individual does anything or suffers anything to be done which (in either case) has the effect of putting that
person into a position which, in the event of the individual’s bankruptcy, will be better than the position he would
have been in if that thing had not been done.
(4) The court shall not make an order under this section in respect of an unfair preference given to any person
unless the individual who gave the preference was influenced in deciding to give it by a desire to produce in
relation to that person the effect mentioned in subsection (3) (b).
(5) An individual who has given an unfair preference to a person who, at the time the unfair preference
was given, was an associate of his (otherwise than by reason only of being his employee) shall be presumed,
unless the contrary is shown, to have been influenced in deciding to give it by such a desire as is mentioned in
subsection (4).
(6) The fact that something has been done in pursuance of the order of a court does not, without more, prevent
the doing or suffering of that thing from constituting the giving of an unfair preference.
Relevant time under sections 98 and 99
100. —(1) Subject to this section, the time at which an individual enters into a transaction at an undervalue or
gives an unfair preference shall be a relevant time if the transaction is entered into or the preference given —
(a) in the case of a transaction at an undervalue, within the period of 5 years ending with the day of the making of
the bankruptcy application on which the individual is adjudged bankrupt;
(b) in the case of an unfair preference which is not a transaction at an undervalue and is given to a person who is
an associate of the individual (otherwise than by reason only of being his employee), within the period of 2 years
ending with that day; and
(c) in any other case of an unfair preference which is not a transaction at an undervalue, within the period of 6
months ending with that day.
(2) Where an individual enters into a transaction at an undervalue or gives an unfair preference at a time
mentioned in subsection (1) (a), (b) or (c), that time is not a relevant time for the purposes of sections 98 and 99
unless the individual —
(a) is insolvent at that time; or
(b) becomes insolvent in consequence of the transaction or preference.
(3) Where a transaction is entered into at an undervalue by an individual with a person who is an associate of his
(otherwise than by reason only of being his employee), the requirements under subsection (2) shall be presumed
to be satisfied unless the contrary is shown.
(4) For the purposes of subsection (2), an individual shall be insolvent if —
(a) he is unable to pay his debts as they fall due; or
(b) the value of his assets is less than the amount of his liabilities, taking into account his contingent and
prospective liabilities.
Meaning of “associate”
101. —(1) For the purposes of sections 99 and 100, any question whether a person is an associate of another
person shall be determined in accordance with this section.
(2) A person is an associate of an individual if that person is the individual’s spouse, or is a relative, or the
spouse of a relative of the individual or his spouse.
(3) A person is an associate of an individual with whom he is in partnership, and of the spouse or a relative of any
individual with whom he is in partnership.
(4) A person is an associate of an individual whom he employs or by whom he is employed and for this purpose,
any director or other officer of a company shall be treated as employed by that company.
(5) A person in his capacity as trustee of a trust is an associate of an individual if the beneficiaries of the trust
include, or the terms of the trust confer a power that may be exercised for the benefit of, that individual or an
associate of that individual.
(6) A company is an associate of an individual if that individual has control of it or if that individual and persons
who are his associates together have control of it.
(7) For the purposes of this section, a person is a relative of an individual if he is that individual’s brother, sister,
uncle, aunt, nephew, niece, lineal ancestor or lineal descendant, treating —
(a) any relationship of the half blood as a relationship of the whole blood and the step-child or adopted child of
any person as his child; and
(b) an illegitimate child as the legitimate child of his mother and reputed father.
(8) References in this section to a spouse shall include a former spouse.
(9) For the purposes of this section, an individual shall be taken to have control of a company if —
(a) the directors of the company or of another company which has control of it (or any of them) are accustomed
to act in accordance with his directions or instructions; or
(b) he is entitled to exercise, or control the exercise of, one-third or more of the voting power at any general
meeting of the company or of another company which has control of it,
and where 2 or more persons together satisfy paragraph (a) or (b), they shall be taken to have control of the
company.
(10) In this section, “company” includes any body corporate (whether incorporated in Singapore or elsewhere);
and references to directors and other officers of a company and to voting power at any general meeting of a
company shall have effect with any necessary modifications.
Orders under sections 98 and 99
102. —(1) Without prejudice to the generality of sections 98 (2) and 99 (2), an order under either of those
sections with respect to a transaction or preference entered into or given by an individual who is subsequently
adjudged bankrupt may, subject to this section —
(a) require any property transferred as part of the transaction, or in connection with the giving of the preference,
to be vested in the Official Assignee;
(b) require any property to be so vested if it represents in any person’s hands the application of the proceeds of
sale of property so transferred or of money so transferred;
(c) release or discharge (in whole or in part) any security given by the individual;
(d) require any person to pay, in respect of benefits received by him from the individual, such sums to the
Official Assignee as the court may direct;
(e) provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or
in part) under the transaction or by the giving of the preference to be under such new or revived obligations to
that person as the court thinks appropriate;
(f) provide for security to be provided for the discharge of any obligation imposed by or arising under the order,
for such an obligation to be charged on any property and for the security or charge to have the same priority as a
security or charge released or discharged (in whole or in part) under the transaction or by the giving of the unfair
preference; and
(g) provide for the extent to which any person whose property is vested by the order in the Official Assignee, or
on whom obligations are imposed by the order, is to be able to prove in the bankruptcy for debts or other
liabilities which arose from, or were released or discharged (in whole or in part) under or by, the transaction or
the giving of the unfair preference.
(2) An order under section 98 or 99 may affect the property of, or impose any obligation on, any person whether
or not he is the person with whom the individual in question entered into the transaction or, as the case may be,
the person to whom the unfair preference was given.
(3) An order under section 98 or 99 shall not —
(a) prejudice any interest in property which was acquired from a person other than that individual and was
acquired in good faith, for value and without notice of the relevant circumstances, or prejudice any interest
deriving from such an interest; or
(b) require a person who received a benefit from the transaction or unfair preference in good faith, for value and
without notice of the relevant circumstances to pay a sum to the Official Assignee, except where he was a party
to the transaction or the payment is to be in respect of an unfair preference given to that person at a time when he
was a creditor of that individual.
(4) Any sums required to be paid to the Official Assignee in accordance with an order under section 98 or 99
shall be comprised in the bankrupt’s estate.
(5) For the purposes of this section, the relevant circumstances, in relation to a transaction or unfair preference,
shall be —
(a) the circumstances by virtue of which an order under section 98 or 99 could be made in respect of the
transaction or preference if the individual in question were adjudged bankrupt within the particular period after
the transaction is entered into or the unfair preference given; and
(b) if that period has expired, the fact that that individual has been adjudged bankrupt within that period.
Extortionate credit transactions
103. —(1) This section shall apply where a person who is adjudged bankrupt is or has been a party to a
transaction for or involving the provision to him of credit.
(2) The court may, on the application of the Official Assignee, make an order with respect to the transaction if the
transaction is or was extortionate and was entered into within 3 years before the commencement of the
bankruptcy.
(3) For the purposes of this section, a transaction shall be extortionate if, having regard to the risk accepted by
the person providing the credit —
(a) the terms of it are or were such as to require grossly exorbitant payments to be made (whether unconditionally
or in certain contingencies) in respect of the provision of the credit; or
(b) it is harsh and unconscionable or substantially unfair,
and it shall be presumed, unless the contrary is proved, that the transaction was extortionate.
(4) An order under this section may contain one or more of the following:
(a) provision setting aside the whole or part of any obligation created by the transaction;
(b) provision varying the terms of the transaction or varying the terms on which any security for the purposes of
the transaction is held;
(c) provision requiring any person who is or was party to the transaction to pay the Official Assignee any sums
paid to that person;
(d) provision requiring any person to surrender to the Official Assignee any property held by him as security for
the purposes of the transaction;
(e) provision directing accounts to be taken between any persons.
(5) Any sums or property required to be paid or surrendered to the Official Assignee in accordance with an order
under this section shall be comprised in the bankrupt’s estate.
Therefore, when applying Sections 98 – 103 of the Bankruptcy Act to a company which is being wound up, it is
essential to take account any modifications which the CABAR may cater for. I have made references below to
the relevant regulations which must be taken into account.
• Note: Regulation 6 CABAR provides that the court shall not make an order referred to in section 98 of the
Bankruptcy Act in respect of a transaction at an undervalue if it is satisfied –
(a) that the company which entered into the transaction did so in good faith and for the purpose of
carrying on its business; and
(b) that at the time it did so there were reasonable grounds for believing that the transaction would
benefit the company.
Section 99(4) BA states that the court shall not make an order in respect of an unfair preference unless the
individual (ie: the company) who gave the preference was influenced by a desire to prefer that creditor.
- Note: Section 99(5) BA provides for a presumption to prefer when the preference is given to an
associate. Therefore, when a company gives an unfair preference an associate, it will be presumed
(unless the contrary is shown) that the company had been influenced by a desire to prefer.
On the facts of this case, Millett J held that the company had no choice but to grant the bank security if it
wanted to continue to trade as the bank’s support was necessary to prevent the company from going into
liquidation. The directors had been motivated by the desire to continue trading, and not by a desire to give the
bank a preference in the event of a liquidation. Therefore, the preference given by the company was not
voidable.
General principles:
- onus of proving liab to pay and intent to prefer is on liquidtor *peat v Gresham trust 1934; to prove
o transaction at undervalue or without consideration
o act of preference was voluntary
o took plavec within 5 yrs (undervalue tansactions); n2 yrs (unfair pref with associate) or 6 mths
(unfair refernces) before commencement of winding up and
o comp insolvenet at transaction or due to transasction (presumptn if associates)
- gd faith or state of knowledge on part of preferred party irrelevant; intent on part of comp through dirs tt is
material
- act must have been vol on part of co,p and evid of pressure might negate this
- where entered into for bona fide overriding commercial reasons eg ayment if key suppliers to ensure
continuity of supplies intent to prefer may be negatived
- diff to ascertain whether comp still trading but insolvent
o comp prob insolvent if
unable to meet oblig actual or contingent as and when fall due
current lab exceed assets
Mercator & Noordstar NV v Velstra Pte Ltd (in liq) [2003] 4 SLR 667
o s.106 (6) and s.106(9) of BA:
o As long as company could have exercised control, it is an associate of the wound up company.
o Irrelevant that company did not actually exercise control.
o Even when Mercator did not know that the middle company had 97% shareholding of Velstra, it is still an
associate – presumed to have control
Note:
- No similar presumption for undervalue transactions: burden of proof always on the liquidator.
- Difficult to convince court unless can prove.
- Objective is to confer on seller of goods some security against isolv of comp by rserving property rights in
gds until seller fully paid
- ROT must be drafted with precision incontract for sale of goods
- Orig gds and prdts must be identifiable and kept separate
- Seller’s right ro follow goods into manufacturing process and sale proceeds must be expressly provided for
and fid rr of rincipal and agent or bailor and bailee is nec
- ROT clause insofar as might extend to finished prdts made out of goods supplied or proceeds, generally held
to be registrable charge void for non registration
- Aluminium industries v romalpa aluminium 1976
- Borden v Scottish timer 1979
- Re bond worth 1986
- Ian Chisholm textiles v griffiths 1994
- Modelboard v outer box 1993
Time periods
Section 100 BA - defines the ‘Relevant Time’ for the purposes of S.98 & S. 99 BA.
• The transaction at an undervalue or an unfair preference must have taken place at “the relevant time” as
defined in Section 100 BA. Broadly speaking, there are 2 requirements under Section 100 BA:
(a) The individual must be insolvent at the time of the transaction or preference; or has become
insolvent in consequence of the transaction or preference: Section 100(2) BA
(b) The transaction or the preference must have taken place within a certain time frame: Section
100(1) BA
• The ‘relevant time’ is calculated backwards from the date of commencement of the winding up (ie: date
of presentation of winding up petition). See table for summary of the applicable relevant time:
Type of transaction Relevant time – up to date of commencement of
winding up
Transaction at an undervalue 5 years
Unfair preference (given to an Associate) 2 years
Unfair preference (given to others) 6 months
Up to the date of commencement of winding up and not the actual WU order itself.
- This statutory right of set-off provides that where there are mutual debts and liabilities between the company
and the creditor, only the balance shall be provable. Thus, to the extent of the set-off, the creditor is paid in
full.
- This translates to a very important advantage to the creditor in that he can recover the full value of a debt
owed to him by the company to the extent that it does not exceed the value of any debt owed by him to the
company. (thus, the creditor is in the position of a secured creditor in respect of that portion of his claim
against the company)
Exceptions:
***Section 88(2) BA states that there shall be excluded from any set-off any debt or liability of the bankrupt
(ie: insolvent company) which –
(a) is not a debt provable in bankruptcy; or
(b) arises by reason of an obligation incurred at a time when the creditor had notice that a bankruptcy
petition (ie: winding up petition) relating to the bankrupt was pending.
Therefore, the debt cannot be set-off if the debt was incurred after the creditor had notice of that a winding
up petition had been presented against the company.
Appropriation of different types of debts (ie: preferential or non-preferential debts) to be carried out rateably.
• A creditor is not allowed to set-off non-preferential debt, and then claim for the preferential debt. In other
words, if the creditor has both preferential and non-preferential debts owed by the company, the creditor
cannot set-off the non-preferential debt, and then later claim the preferential debt.
LIMITATION
- On making of winding up order limitation period cases to run against creditor – re general rolling stock, jt
discount co’s claim 1872; re cases of taff wells 1992
- For creditor, period case to run against him on presentation of application
BUSINESS OPERATIONS OF COMPANY
- S272(1) – ceases on liquistaion but liqr may carry on business of nec for benef winding up of comp’s
business with auth of court or committee of inspection
- The liquidator may carry on the company’s businesses so far as is necessary for the beneficial winding up
for a period of up to 4 weeks after the making of the winding up order.
- He is not expected to ru the business (only receiver and jm); he only winds down the business
- on liquidation, the business of the coy ceases, but there are provisions in the Act which provide that the
liquidator can continue the business of the coy for 4/5 months, and can do so for longer period if with
consent of court/ creditors
Registration of charges.
131. —(1) Subject to this Division, where a charge to which this section applies is created by a company there
shall be lodged with the Registrar for registration, within 30 days after the creation of the charge, a statement
containing the prescribed particulars of the charge, and if this section is not complied with in relation to the
charge the charge shall, so far as any security on the company’s property or undertaking is thereby conferred, be
void against the liquidator and any creditor of the company.
(1A) In connection with the registration of a charge to which this section applies which is created by a company
there shall be produced to the Registrar, upon the Registrar’s request and for the purposes of inspection, at no
cost to the Registrar, the instrument (if any) by which the charge is created or evidenced or a certified true copy
thereof.
- Therefore, if the floating chargee failed to register his charge, he cannot enforce his security against the
liquidator or the other unsecured creditors. But note: His debt remains valid; he merely cannot rely on his
security. He will have to file a proof of debt and rank as an unsecured creditor.
Dresdner Bank v. Ho Mun-Tuke Don [1993] 1 SLR 114 (C/A)
LP Thean said that the object of Section 131 CA is to enable persons dealing with a company, who are minded
to make a ROC search, to ascertain whether the company has created certain charges on its assets. The
requirement of registration is for the protection of the general creditors of the company.
- Any floating charg given in 6 mth period will unless comp solvent immed afterwards be invalid except to
extent tt given to secure new money
- The purpose of Section 330 CA is to prevent companies on their ‘last legs’ from creating floating charges to
secure past debts or for moneys which do not go to swell their assets and become available for creditors.
- The effect of Section 330 CA is to avoid floating charges created by the company within 6 months of the
commencement of winding up, except to the amount of any cash paid to the company “at the time of or
subsequently to the creation of and in consideration for the charge”.
- Section 330 CA only invalidates the floating charge. The debt remains, but only as an unsecured debt (re
parkes garage *swadlincote) pte ltd) 1929.
• Certain Preferential Creditors are given priority over the holder of a Floating Charge - Section 328(5)
When the company’s assets available for payment to the general creditors are insufficient to meet certain
preferential debts, those debts shall be given priority over the claims of the holder of a floating charge are.
There preferential debts are as follow:
- costs and expenses of winding up
- wages and salaries
- retrenchment benefits
- Employer’s contribution for employees – CPF
- Remuneration for vacation leave
Section 328(5) CA
So far as the assets of the company available for payment of general creditors are insufficient to meet any
preferential debts specified in subsection (1)(a), (b), (c), (e), and (f) and any amount payable in priority by
virtue of subsection (4), those debts shall have priority over the claims of the holders of debentures under any
floating charge created by the company (which charge, as created, was a floating charge), and shall be paid
accordingly out of any property comprised in or subject to that charge.
• Payments of Preferential Debts out of the assets subject to Floating Charge in priority to claims under the
charge - Section 226 CA
Section 226(1) CA
Where a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating
charge or possession is taken by or on behalf of debenture holders of any property comprised in or subject to a
floating charge, then, if the company is not at the time in the course of being wound up, debts which in every
winding up are preferential debts and are due by way of wages, salary, retrenchment benefit or ex gratia payment,
vacation leave or superannuation or provident fund payments and any amount which in a winding up is payable
in pursuance of section 328(4) or (6) shall be paid out of any assets coming to the hands of the receiver or other
person taking possession in priority to any claim for principal or interest in respect of the debentures and shall be
paid in the same order of priority as is prescribed by that section in respect of those debts and amounts
EMPLOYEES
o for voluntary winding up: liquidation does not ip so facto terminate the contracts of employment, however,
if there certain powers in the employment contract to deal with assets, these powers cease
o for court ordered winding up, not sure whether it terminates automatically, but employer can give notice of
termination
Creditors
- secured creditor
o takes the full debt that he has against the coy by attaching to the security. If there is a surplus, then he
will have to return to the coy
- Preferential creditors
o See s328 CA
o After paying the secured creditors, any money that is realised has to be use to pay the preferential
creditors first, then can pay unsecured creditors
o Limit on employee’s entitlement: employee is only preferential up to the amount of $7,500
o However, there are no limits to the CPF contributions
- Floating charge holders
- Unsecured creditors
o In a member’s voluntary, all the creditors will be paid in full … if the liqudiator, at any time finds that
the coy will not be able to pay in full, then he will immediately have to call a creditors’ meeting and
convert it into a creditors’ winding up
o Pari passu principle on pro rata basis where there are not enough funds to pay in full
- Shareholders
o Only if after payment of all the above, and there is still surplus, then pay the shareholders
Proof Of Debt
• creditors shld lodge proof of debt tog with supporting docs with liqr as soon as possible after winding up of
comp
• Before declaring dividends, the liquidator is required to publish in the Gazette, a Notice of Intention to
Declare Dividends, and send the notice to all the creditors who had been disclosed in the Statement of
Affairs but had not filed proof of debts, giving them 14 days to lodge their claims.
• The liquidator will thereafter adjudicate all the claims lodged against the company and decide which to
admit or which to reject.
Teo Han Tong v. Tecta Pacific (S) Pte Ltd [1998] 1 SLR 267
In this case, the Respondent tried to argue that by operation of rule 91 of the Companies (Winding Up) Rules,
a creditor who failed to prove within time is completely excluded from any distribution of dividends.
Court of Appeal disagreed. Held that under rule 91, the failure on the part of a creditor to file his proof of debt
within the time frame stipulated by the liquidator would only have resulted in his exclusion from any
distribution made before the debts were proved. It did not extinguish his claim.
Therefore, the principles governing discretionary decisions taken by a liquidator had no application to
decisions take in discharge of quasi-judicial duties in admitting or rejecting proofs of debt, in which no
element of discretion was involved. The question of whether a proof of debt should be admitted or rejected is
dependent solely on whether the debt in question was a liability in law owing by the company.
Distribution Of Dividends
• Pari Passu Rule of Distribution
• The general principle is that upon the liquidation of an insolvent company, the property of the company
must be applied pari passu to satisfy the claims of all its creditors.
• The aim is to place all creditors of the same class in the same position of equality as regards distribution
of the company assets. The general philosophy is that winding up proceedings are collective and
intended for the benefit of all parties concerned.
Priorities.
328. —(1) Subject to the provisions of this Act, in a winding up there shall be paid in priority to all other
unsecured debts —
(a) firstly, the costs and expenses of the winding up including the taxed costs of the applicant for the winding up
order payable under section 256, the remuneration of the liquidator and the costs of any audit carried out
pursuant to section 317;
(b) secondly, subject to subsection (2), all wages or salary (whether or not earned wholly or in part by way of
commission) including any amount payable by way of allowance or reimbursement under any contract of
employment or award or agreement regulating conditions of employment of any employee;
(c) thirdly, subject to subsection (2) all amounts due to an employee as a retrenchment benefit or ex gratia
payment under any contract of employment or award or agreement that regulates conditions of employment
whether such amount becomes payable before, on or after the commencement of the winding up;
(d) fourthly, all amounts due in respect of workmen’s compensation under the Workmen’s Compensation Act
accrued before, on or after the commencement of the winding up;
Cap. 354.
(e) fifthly, all amounts due in respect of contributions payable during the 12 months next before, on or after the
commencement of the winding up by the company as the employer of any person under any written law relating
to employees superannuation or provident funds or under any scheme of superannuation which is an approved
scheme under the law relating to income tax;
(f) sixthly, all remuneration payable to any employee in respect of vacation leave, or in the case of his death to
any other person in his right, accrued in respect of any period before, on or after the commencement of the
winding up; and
(g) seventhly, the amount of all tax assessed and all goods and services tax due under any written law before the
date of the commencement of the winding up or assessed at any time before the time fixed for the proving of
debts has expired.
31/93.
(2) The amount payable under subsection (1) (b) and (c) shall not exceed an amount that is equivalent to 5
months’ salary whether for time or piecework in respect of services rendered by him to the company or $7,500,
which ever is the lesser.
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(2A) The Minister may, by order published in the Gazette, amend subsection (2) by varying the amount specified
in that subsection as the maximum amount payable under subsection (1) (b) (c).
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(2B)
(a) For the purposes of subsection (1) (b) and (c) —
"employee" means a person who has entered into or works under a contract of service with an employer and
includes a subcontractor of labour;
"wages or salary" shall be deemed to include —
(i) all arrears of money due to a subcontractor of labour;
(ii) any amount payable to an employee on account of wages or salary during a period of notice of termination of
employment or in lieu of notice of such termination, as the case may be, whether such amount becomes payable
before, on or after the commencement of the winding up; and
(iii) any amount payable to an employee, on termination of his employment, as a gratuity under any contract of
employment, or under any award or agreement that regulates conditions of employment whether such amount
becomes payable before, on or after the commencement of the winding up.
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(b) For the purposes of subsection (1) (c) —
"ex gratia payment" means the amount payable to an employee on the winding up of a company or on the
termination of his service by his employer on the ground of redundancy or by reason of any re-organisation of
the employer, profession, business, trade or work, and the amount payable to an employee for these purposes
means the amount stipulated in any contract of employment, award or agreement, as the case may be;
"retrenchment benefit" means the amount payable to an employee on the winding up of a company, on the
termination of his service by his employer on the ground of redundancy or by reason of any re-organisation of
the employer, profession, business, trade or work, the the amount payable to an employee for these purposes
means the amount stipulated in any contract of employment, award or agreement, as the case may be, or if no
amount is stipulated therein, such amount as is stipulated by the Commissioner for Labour.
(3) The debts in each class, specified in subsection (1), shall rank in the order therein specified but as between
debts of the same class shall rank equally between themselves, and shall be paid in full, unless the property of the
company is insufficient to meet them, in which case they shall abate in equal proportions between themselves.
(4) Where any payment has been made to any employee of the company on account of wages, salary or vacation
leave out of money advanced by a person for that purpose, the person by whom the money was advanced shall,
in a winding up, have a right of priority in respect of the money so advanced and paid, up to the amount by which
the sum in respect of which the employee would have been entitled to priority in the winding up has been
diminished by reason of the payment, and shall have the same right of priority in respect of that amount as the
employee would have had if the payment had not been made.
(5) So far as the assets of the company available for payment of general creditors are insufficient to meet any
preferential debts specified in subsection (1) (a), (b), (c), (e) and (f) and any amount payable in priority by virtue
of subsection (4), those debts shall have priority over the claims of the holders of debentures under any floating
charge created by the company (which charge, as created, was a floating charge), and shall be paid accordingly
out of any property comprised in or subject to that charge.
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(6) Where the company is under a contract of insurance (entered into before the commencement of the winding
up) insured against liability to third parties, then if any such liability is incurred by the company (either before or
after the commencement of the winding up) and an amount in respect of that liability is or has been received by
the company or the liquidator from the insurer the amount shall, after deducting any expenses of or incidental to
getting in such amount, be paid by the liquidator to the third party in respect of whom the liability was incurred
to the extent necessary to discharge that liability or any part of that liability remaining undischarged in priority to
all payments in respect of the debts referred to in subsection (1).
(7) If the liability of the insurer to the company is less than the liability of the company to the third party, nothing
in subsection (6) shall limit the rights of the third party in respect of the balance.
(8) Subsections (6) and (7) shall have effect notwithstanding any agreement to the contrary entered into after
29th December 1967.
S 258/67.
(9) Notwithstanding anything in subsection (1) —
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(a) paragraph (d) of that subsection shall not apply in relation to the winding up of a company in any case where
the company is being wound up voluntarily merely for the purpose of reconstruction or of amalgamation with
another company and the right to the compensation has on the reconstruction or amalgamation been preserved to
the person entitled thereto, or where the company has entered into a contract with an insurer in respect of any
liability under any law relating to workmen’s compensation; and
(b) where a company has given security for the payment or repayment of any amount to which paragraph (g) of
that subsection relates, that paragraph shall apply only in relation to the balance of any such amount remaining
due after deducting therefrom the net amount realised from such security.
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(10) Where in any winding up assets have been recovered under an indemnity for costs of litigation given by
certain creditors, or have been protected or preserved by the payment of moneys or the giving of indemnity by
creditors, or where expenses in relation to which a creditor has indemnified a liquidator have been recovered, the
Court may make such order as it thinks just with respect to the distribution of those assets and the amount of
those expenses so recovered with a view to giving those creditors an advantage over others in consideration of
the risks run by them in so doing.
- Secured creidots may put their security into omomn pool and join as unsecured creditors. Or they
may take tier cut earl and return surplus
- Interest on preferential debts rank equally with interest on non-preferential debts.
- If surplus after paying creditors and costs of liqn, liqr will apply to court to settle list of and adjust rights of
contribtories amongst themselves to enable return of K to them – rule 102 rules
Release of Liquidator
s 275 & 276 Co Act
Notice is given to all creditors of intention to seek release
Liquidator’s report & final accounts
Court application
Court Order : discharges liquidator from all liability in respect of conduct in the course of liquidation
o When the liquidator has completed all that he has to do, he is to apply to the Court for an order that he be
released and that the company be dissolved.
• Applying for Release of Liquidators and Dissolution of Company – Section 275 CA
• An order of the Court releasing the liquidator shall discharge him from all liability in respect of any act done
or default made by him in the administration of the affairs of the company or otherwise in relation to his
conduct as liquidator, but any such order may be revoked on proof that it was obtained by fraud or by
suppression or concealment of any material fact: Section 276(4) CA
Dissolution Of Company
- • Where a company is being wound up by the court, the liquidator may apply for an order that he be released
and the company dissolved. The company will be dissolved from the date of the order of the dissolution.
- • In the case of a voluntary liquidation (members or creditors), as soon as the affairs of the company are
fully wound up, the liquidator must make up an account showing how the winding up was conducted and
how the property was disposed of.
o Not a financial statement
o Acct of receipts and payments only showing how winding up conducted and how proepryt of
comp disposed of and costs incurred and balance and how much paid to shrs – ‘acct of liqn’
- • A final meeting of the company must be called for the purpose of laying the account before it *shrs or
creditors depending on whether membr;s vol or creditor’s vol.
o may dispute costs of eg lawyers etc
o Within 7 days of the holding of the final meeting, the liquidator must lodge a prescribed return
with the Registrar and the Official Receiver.
o 3 months after the lodging of the return, the company will be dissolved.
- When the conduct of the winding up has been completed, the company will be formally dissolved and it will
thereon cease to exist.
Section 345 CA
Deals with - Official Receiver to act as representative of defunct company in certain events
Section 346 CA
Deals with - Outstanding assets of defunct company to vest in Official Receiver
Section 347 CA
Deals with – Outstanding interests in property
Section 348 CA
Deals with – Liability of Official Receiver and Government as to property vested in Official Receiver.
RECEIVERSHIP
- Appointed by:
o Lender who has a debenture, who has both a fixed and floating charge over all the assets of the coy,
and the receiver’s main duty is to realise the assets of the coy and pay off the debenture holder only
o Court also has the power to appoint receivers; however, majority of receivers are appointed under
debentures
o Receiver appointed by debenture holder when:
Non-compliance with terms
• Not necessarily financial terms
Principal repayment outstanding
Borrowing limit breached
Breach of debenture provisions
==> the creditor has to follow all the procedures set out in the debenture before appointing a
receiver… so that the appointment is valid, and all acts done thereafter are also valid
- Definition
- • A Receiver is an authorized person entering into possession of any assets of a company for the
purpose of enforcing a charge, fixed or floating, for the benefit of the debenture holder.
- • The ultimate aim of a receivership is to pay off the creditors whose behalf the appointment of the
receiver was made i.e. Debenture Holder.
- • The function of a receiver is to gather in the assets (wherever they may be worldwide) subject to the
charge under the debenture, realize the assets and pay off the creditors.
- Qualifications of a Receiver
1. Approved Liquidator or Official Receiver
2. Cannot be undischarged bankrupt, director, employee or company secretary of the company
(mortgagor)
3. Cannot be a Corporation
Conflict of interest
- Whether liqn, JM or receivership – despite enron etc, this will still exist
- Now worldwide database as to who work with – whether any conflict
- Cognisant of fact tt there may be conflict
- For receiver – if there is audit client A owing a lot of money to company B, B given debenture to bank, then
goes and says can u act as receiver
o On face of it no technical or legal conflict because x audit comp B – but if become receivers of B, may
have to sue A – and it is audit client of theirs!
o So there may be rr conflict
o If B – clear conflict – u cannot act as receiver as well while auditing it
- Before accepting a receivership appointment, have to find out whether the coy that is in receivership is one
in which if appointment taken up, there will arise an apparent conflict of interert
- No need for there to be a real conflict …
Indemnities
- Ask debenture holder for indemnity – if do job properly and get sued, they will reimburse
- In old days, dbenture always staed tt receiver is agent of debenture holder
- If agent – then principal suffers if anything goes wrong
- Lawyrs advise bank to say tt receiver not their agent – to prxt banks
- So receiver no prxtn
- So now receiver also asking for indemnity fr bank – bevcuase cannot discharge personal liab – so need this
indemnity otherwise will not do work for the debenture holders
- Usually, the receivers will ask for indemnity from the persons appointing them; but will try as much as
possible not to rely on it, cos reflects badly on firm of receivers
Letter of Appointment
- bank wll always give this at first
- receivers will give copy of this and inform companies so tt dirs aware tt comp is in receivership
- ask dirs to acknowledge by way of return letter of at back of letter of apptment tt they know comp in
receivership
- at end, there will be letter of discharge
Taking control
- It is more important to take control where the assets are perishables
Continue Trading
- Diff decision for receivers – whether or not to cont trading
- Conseq of losing money and being made personally liable if neg
- So look at business/ contracts on hand/ profitability of contract/ cash flow – suff money to pay creditors?
- Prepare reasonable forecast – if makes sense , then cont
- If cont, will we get better value for business? – reason for contg to trade
- Also decisions – even if unsecured creditors, may still have to pay them first because when running
business, for eg, to pay utilities, repairs etc otherwise cannot run business!!!
Stationery
- if letters are sent on coy’s letter head, have to stamp “in receivership” to let the supplier or the public at large
know that the coy is in receivership
- to be very careful, tell the creditors or suppliers not to supply anything except under the signature of the
receivers
- some suppliers like PUB and Telecoms may tell the receiver that they will stop supply unless all previous
bills are paid… then these creditors are more equal then others
- otherwise, e.g. if the thing in receivership if a hotel, then all things will have to stop
- this is not a case of undue preference, cos it is only undue preference if the payment was made in the
window period prior to commencement of liquidation
Receivership vs Liquidation
• Receivership – To realize the secured assets for the benefit of Debenture holders
• Liquidation – To realize all assets for the benefit of the creditors (preferred, secured, unsecured)
1. Debenture
- • Like a natural person, a company may raise finance by borrowing. In certain cases, companies may raise
financing by the issue of debt securities in the form of debentures.
- Dealing only with sitn where receivership by virtue of debenture given by comp to lender
o There are court ordered receiverships –these are rare – happen when parties go to court and
say tt not happy with management, assets may be dissipated, want receiver to step in and take
control
Can happen – appted by court
But terms of apptment very strict – take assets under control
Cannot distribute monies when court ordered receivership
- • A debenture is a document which either creates a debt or acknowledges the debt. By virtue of the
debenture, a company gives security for the money that it borrows. The security may take the form of a
charge or mortgage of some sort or a pledge of chattels.
2. Charge
- • A charge is a security interest in property that is created by contract; it transfers neither title nor possession.
Company charges may be fixed or floating. A fixed or specific charge is one that attaches to a specified
asset.
- Must be registered within 30 days after creation – s131
Redemption of debentures
- Receiver’s job merely to take control of everything tt falls under debenture – scope of duties defiend by
debenture terms
- • Since a debenture represents a loan, a company may redeem debentures by repaying the money owed. The
redemption may be at the company’s option or at the option of the lender, or a fixed date or some
determinable time in the future.
- • When the loan owing under the debenture cannot be paid upon maturity or when other covenants of the
debenture are breached, the debenture holder may enforce the security charged under the debenture by the
appointment of a receiver.
o When comp ongoing, as long as keep paying, then have not breached any covenant
o But when breach covenant/fails to meet payment date. Then debenture holder has right to appt
receiver and maanager
Powers of Receivership
- If your power is granted by court order, whether you have a certain power is to be stated in the court order…
otherwise, have to go back to the court extend it
- If debenture appointed, then all the powers have to be stated in the debenture
- Receiver is agent of comp and shall have power wrt following: -
o Stat right to apply to court for directins s218(3)-(4)
- Possession of assets of comp charged
- Manage the business
o This is most important thing in receiverhip
o But have to be careful, cos provision in the CA states that if the receiver incurs costs during
realization of the assets, then the receiver to be personally liable
o Realise assets and Repay debenture holder
Sell or concur in selling assets charged and in exg power of sale to sell at price in his
absol discretion and to have regard to views of bank and not acctable for loss or
damaged tt might have been suffed by comp due to his discretion
- Make arrangements or compromise
- Dd and recover all proeprt and moneys of which he is aptped receiver by action, distress or
otherwise in name of comp or bank to full ext of estate or interest which comp cld dispose of and
give effectual receipts for same and ex powers tt might have lawfully delegated by bank to him
Person paying money to receiver x to be concerned to enq whether any evnt happened to
authorize receiver to act
- Commence or continue legal proceedings
- Appoint agents/ directors to carry out certain acts for them
o Basically, the powers do not change much, but the powers of receivers have to be found in court
order or debenture, as the case may be
- To effect an of purposes authorized by debenture, and for pwer of sale, receiver is appted bu bank as its
attorney in hisown name ir in name of comp to execute and deliber any deed or instruments and convey,
transfer any deed or instruments and ovey, transfer, assign or asure property or assets secured or any interest
to purchaser and with power to such attorney or agent under him in connection with the aforesaid purposes
- Power of apptment of receiver in addition to and not in derogation of any stat or other powers of bank
- Other duties and responsibilities
o Statutory
Give Notification of appointment s221, 222, 223(1) (a)
Duty to provide info under act
Accounts
• Income Tax and the ROC, and the debenture holder
• If the receiver while realizing the assets etc makes a profit, and does not provide
enough for payment of Income Tax, he may be personally liable
Observe creditors’ rights
• NB: have to look at whether the ppty is subjected to a fixed or floating charges
o Liab – generally an agent.
Personal liab re sectn 227/ s218
Cost of preparing SOA
o Enforcement of duty and liab for misfeasance and breach of trust/duty s227
o In a receivership, when the receiver becomes personally liable, it is usual for the receiver to get
indemnity from the appointer…cos after all, the receiver is working for the bank that appoints him/her
Payments of certain debts out of assets subject to floating charge in priority to claims under charge.
226. —(1) Where a receiver is appointed on behalf of the holders of any debentures of a company secured by a
floating charge or possession is taken by or on behalf of debenture holders of any property comprised in or
subject to a floating charge, then, if the company is not at the time in the course of being wound up, debts
which in every winding up are preferential debts and are due by way of wages, salary, retrenchment benefit or ex
gratia payment, vacation leave or superannuation or provident fund payments and any amount which in a
winding up is payable in pursuance of section 328 (4) or (6) shall be paid out of any assets coming to the
hands of the receiver or other person taking possession in priority to any claim for principal or interest in
respect of the debentures and shall be paid in the same order of priority as is prescribed by that section in
respect of those debts and amounts.
(1A) In subsection (1), “floating charge” means a charge which, as created, was a floating charge.
(2) For the purposes of subsection (1), the references in section 328 (1) (b), (c), (d) and (e) to the commencement
of the winding up shall be read as a reference to the date of the appointment of the receiver or of possession
being taken as aforesaid, as the case requires.
(3) Any payments made under this section shall be recouped as far as may be out of the assets of the company
available for payment of general creditors
- receiver must comply with s226 – list of payments tt must be made as pref to certain parties/ classes of
creditors out of proceeds of floating charge
- any balance will go to debenture holder
- earlier – liquidation – in there, also pref claims tt must be pad out of assets realized – governed by s328
- for receivership, 226 specifies
- diff bet the two is tax
- all taxes payable to govt are not preferential under 226 but preferential under 328
- this means tt in liquidation, comptroller of income tax/ GST paid before unsecured creditors
- in receivership, he does not
- under s227, RM acctable for actions in course of duties and liqr include OR may apply to court for
examntion of conduct with view to holdg him liable for msmangement, misfeasance etc
Preferential creditors
- • When a receiver is appointed, certain preferred debts are payable in priority to the claims of the
debenture holder.
- Sect 226(1) provides the debts which be preferred in a receivership on account of wages, salary,
retrenchment benefits, vacation leave will likewise receive priority in a receivership. A receiver must
set aside sufficient assets to pay off the preferred creditors.
- Best proced – calc what is due to preferred creditors under 226, pay them first, then pay debenture
hlders
o in practice, may only pay some to debenture holder first as interim payment so tt not out of
pocket when pay preferred creditors
Classes of Creditors
- receivers can be sued for not having sold for best value
o in old days, receiver solely resp to debenture holder
o not anymore
o new law in UK – receiver also resp to other stakeholders including unsecured creditors
- • Secured
- • Preferential (Section 226 read in conjunction with Section 328)
o Taxes are not preferential in receivership… cf: liquidation (provided in s328CA)
Priorities.
328. —(1) Subject to the provisions of this Act, in a winding up there shall be paid in
priority to all other unsecured debts
o Debenture may be covered by both fixed and floating charges; only assets that are secured by
way of floating charges, only the proceeds from floating charges would be used to pay the
preferential creditors … for proceeds realized from realization of assets that are subjected to
fixed charges, they are not subject to s328 CA
- • Special
o ⁻ Hire purchase & leasing
They will write to the receiver and claim what is effectively still their ppty
o ⁻ Judgment creditors
Their existence, as unsecured creditors, is no concern of the receiver’s
o ⁻ Reservation of title
Romalpha Case etc
- • Unsecured creditors: can completely ignore them – they are bottom of heap (actually the shrs are at bottom
in actual fact)
o no payment save for specific circumstances above
Effect of Receivership
- Practically, by the tme receivership does his job, has sold off everything and liq nth left to work with
o In most cases, comp receivership will eventually go into liquidation
o But stimes receivership may be lifted and comp goes back to directors
o The fact that a company goes into receivership does not inevitably lead to its demise.
o Receivership differs from liquidation in this respect: at the end of a liquidation, the company
is dissolved, whereas at the end of the receivership, the company is still an existing entity and
may continue its business.
- • The appointment of the receiver must be stated on every invoice, order for goods or business letter issued
by the company. (as per liquidation)
- Directors’ powers and duties
o D’s powers ceases upon appointment of receivers
o However, in a receivership, the directors’ statutory duties still remain (e.g. file annual audit, to
call members’ meeting)
o • The appointment of a receiver does not discharge the board of directors’ and their fiduciary
duties continue.
o Role as dirs x staightaway curtailed -> prob arise
o Dirs have duty to cont to prepare acct/ hold annual meetings/ file pprs with acra
o But no funds to do so with because everything taken by receivers?
o So invariably fall afoul of provn with registrar of businesses – failure to file accts etc
- Date of commencement
o The bank will write to the receivers, telling them that they are appointed, and that is the date of
commencement
- Business
o There must be explicit authority in the debenture for the receiver to manage the business of the coy …
cannot claim to appoint receiver and manager when the debenture only gives power to appoint receiver
o Need for managers: this is because sometimes, the assets of the coy can be sold for better terms when it
is still a going concern
- Powers of the coy
o Powers of the coy stay the same until the coy is put into liquidation and subsequently dissolved
o In receivership, the receiver and manager need not concern himself with unsecured creditors… he can
ignore them because he can take first without regard to the unsecured creditors
o If an unsecured creditor wants to wind up a coy in receivership, it can… but the liquidator cannot touch
any of the assets that it the subject of the receivership
- Employees
o The employees’ contract of employment are not automatically terminated, however, if there are powers
bestowed on employees to deal with assets of the coy, to that extent, the employee’s powers are
terminated
- Control of assets and custody
o Just the bank has appointed X as receiver, X is not in control yet
o X is only in control when he is in possession of the ppty or has taken physical control
- Statement of affairs
o The receiver has to file a statement of affairs: stating assets of the coy, what are the realizable assets an
who are the creditor
o However, in receivership, the identities of creditors not that important unless they are secured creditors
The Closure
- done work – so discharge
- but indemnity continues over the yrs (on safe side)
- the receiver will lay a statement of account to the debenture holder to say that all has been done, and ask for
a release
- if there is surplus, then it will go back to the coy, and the directors will take control; if in liquidation, then
the liquidator will take control of it
- Most important thing under receivership, is that everybody under s328 CA is to be paid back first before
paying the debenture holder
- if preferential holders are not paid, then the receivers may become personally liable
- no filings for receiverhip though at beg and end, one form for ACRA
JUDICIAL MANAGEMENT
Purpose
- cure for comp to be revived – no need to fall into liquidation
o nurse comp back to health
o s227 CA
o looks at employees/ shrs/ etc and decide how best to effect rescue
- • Until the enactment of the Companies Act 1987, a company that could not pay its debts when they fell due
could not prevent its creditors appointing a receiver or petitioning for its liquidation. Often, such an event
caused the demise of a company which could have otherwise have been nursed back to health.
- • In order to allow a company breathing space in which to effect a rescue operation, the Act now provided
for the appointment of a judicial manager by the court.
- • The idea behind this was that there should be a moratorium or staying off period while the judicial
management order is in force. During this moratorium, the judicial manager can come up with a scheme to
save the company without the necessity of a liquidation.
- • Under Section 227B, the making of a of a judicial management would be made if it is likely to achieve one
or more of the following purposes:
o • it is satisfied that the company is or will be unable to pay its debts ie insolvent; and
o • it considers that the order would be likely to achieve one or more of the following purposes
namely:
the survival of the company, or the whole or part of its undertaking as a going
concern
the approval under section 210 of a compromise or arrangement (scheme of
arrangement)
a more advantageous realization of the company’s assets would be effected than on a
winding up. -> (stop third parties fr claiming the goods etc)
- As opposed to receiverships and liquidations which signify the end of the life of the company, JM arises
when the company is in temporary difficulty
- When a company is in financial difficulty, the creditors would want their money back as soon as possible,
otherwise they will have little or none when the company goes down under
- Management of the company on the other hand, will want the company to continue as long as possible
o On the same side of the equation are the employees and trade unions
- There are hence many interests involved, and the legislative provisions in the CA etc were inadequate to
provide for all these interests… hence, the need for JM to enable the company to carry on its business to
enable an independent 3rd party to look at the affairs of the company and try and streamline the business …
or if not, then to try and achieve better realization of the assets (i.e. as going concern, as opposed to forced
sales)
Appointment
- • A judicial manager may be appointed by the court upon a petition presented by the company or by a
creditor. The nomination of the judicial manager is to be made by the petitioner.
o May also be petitioned by company itself
o Minister of finance may appt – but more for specialized comp like insurance comp or banks
- • The creditors may oppose the nomination of a person proposed as judicial manager by the petitioner.
- Who can be judicial managers?
o Approved company auditors [but you cannot be a JM of the company that you audit]
Cos during the JM, the judicial managers will find out misdeeds of the auditors and prosecute
o Others
Nomination by Minister of Finance
Appointment by Court
- Qualifications of a Judicial Manager
o • The nominee must be an approved company auditor who is not the auditor of the
company.
o See companies act
Approval of proposals
(1) If the creditors do not give the requisite approval, then go to court for directions
o can tell the creditors that if they do not agree to the JM proposal and the company goes into liquidation,
they may only get 10c to $1
o but if go into JM, may get up to 50c to $1
(2) Implementation of proposals if approved
(3) Revision of proposal
ELEVENTH SCHEDULE
POWERS OF JUDICIAL MANAGER
The judicial manager may exercise all or any of the following powers, namely:
(a) power to take possession of, collect and get in the property of the company and, for that purpose, to take such
proceedings as may seem to him expedient;
(b) power to sell or otherwise dispose of the property of the company by public auction or private contract;
(c) power to borrow money and grant security thereof over the property of the company;
(d) power to appoint a solicitor or accountant or other professionally qualified person to assist him in the
performance of his functions;
(e) power to bring or defend any action or other legal proceedings in the name and on behalf of the company;
(f) power to refer to arbitration any question affecting the company;
(g) power to effect and maintain insurances in respect of the business and property of the company;
(h) power to use the company’s seal;
(i) power to do all acts and to execute in the name and on behalf of the company any deed, receipt or other
document;
(j) power to draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf
of the company;
(k) power to appoint any agent to do any business which he is unable to do himself or which can more
conveniently be done by an agent and power to employ and dismiss employees;
(l) power to do all such things (including the carrying out of works) as may be necessary for the realisation of the
property of the company;
(m) power to make any payment which is necessary or incidental to the performance of his functions;
(n) power to carry on the business of the company;
(o) power to establish subsidiaries of the company;
(p) power to transfer to subsidiaries of the company the whole or any part of the business and property of the
company;
(q) power to grant or accept a surrender of a lease or tenancy of any of the property of the company, and to take a
lease or tenancy of any property required or convenient for the business of the company;
(r) power to make any arrangement or compromise on behalf of the company;
(s) power to call up any uncalled capital of the company;
(t) power to rank and claim in the bankruptcy, insolvency, sequestration or liquidation of any person indebted to
the company and to receive dividends, and to accede to trust deeds for the creditors of any such person;
(u) power to present or defend a petition for the winding up of the company;
(v) power to do all other things incidental to the exercise of the foregoing powers.
Effects Of Appointment Of Jm
Statement of Proposals
- key thing for JM is see whether possib to save comp
- • When a judicial manager is appointed, he has 60 days (or such longer period as the court may allow) to
send to the Registrar, the members and the creditors of the company a statement of proposals for the
achievement of the purposes for which the JM order was made.
- • A meeting of the creditors must be summoned within 60 days for the purpose of approving the proposals.
o So notice must be sent out earlier than this because 6o days t summon the meeting
- • At the meeting, the proposals may be approved by the majority of the creditors in number and value. If the
creditors decline to approve the proposals, the court may order the JM order to be discharged.
o Comp may then go into liwuidation
- • Modifications to the proposals if any must be approved by the court.
o Court meeting – creditors vote
o Court meeting of creditors to approve scheme
o Once sanctioned by court, scheme is effective – may call for full sumto be given, etc
Agency
- While the JM is an officer of the court, he is also an agent of the company, he becomes personally liable for
contracts entered into by him
- Of course, he can be indemnified by the assets of the company
- For a period of 28 days from JM order, he can choose whether to adopt or reject contracts contracted on
behalf or by the company
o During these 28 days, he will not be liable for any overt or covert acts that are linked to the contracts
o If you adopt such contracts, you can however, disclaim liability
- for contracts that are entered into AFTER judicial management commenced?
o JMs will usually provide in the contracts that they enter into that they will not be personally liable
Legal proceedings
- Legal moratorium: no legal proceedings to commence or proceed when JM appointed
Company/ Board
- • The board of director becomes functus officio. Their functions and powers are transferred to the Judicial
Manager. See S227
o ongoing tussle bet JMs and ACRA and board ->
o law states tt jm replaces board and need not call any meetgins of the company
o accts to be prepared and audited and filed
o who is resp?
directors, jm resp
but JM say no need to call meeting – so don’t need to prepare accts
merry go round
- • The Judicial Manager “shall do all things as may be necessary for the management of the affairs, business
and property of the company”.
o Can disclaim personal liab – s227I
- • A Judicial Manager may appoint people to run the company.
o May get experts to run the company
- • A creditor may not enforce any other security against the company unless the judicial manager or
the court allows it.
Floating charge
- where there are floating charges, can continue to deal with the assets of the company
Secured creditors
- if the JM sells a ppty that is subjected to fixed charge, have to inform the secured creditor and get court’s
approval + when get the proceeds, have to account to the secured creditor
Directors
- once the JM appointed, the directors are displaced… they lose all their powers and all duties under statute
etc
- BUT directors have to submit a statement of affairs as in receivership and liquidation
End Result Of Jm
- scheme to prov halfway house for comp to be saved – but provn for JM cannot be used/ will not work if
business of comp is itself intrinsically unwell
o there are a few cases where companies are actually saved by going into JMs
o but the fact is that creditors do get better returns when the company goes into JM rather than
liquidation
- if viable business but no funds/ working capital to do business for ptofit, then comp can be saved b
injnection of funds
- but if comp disastrous, no amt of time can save it
o if internal issues eg managmnet bad, can change managmenet
o but if no more customers – no more sales (external factor) – such comp cannot be saved
- petitioner needs to show why company can be saved
Protection Of Creditors Or Shareholders
- Position and poweer of jm quite powerful – sop creitoprs and shrs need prxtn
- At any time, they can go to court and aksfor review of actions of JM
Application of certain provisions in Parts VII and X to a company under judicial management.
227X. At any time when a judicial management order is in force in relation to a company under judicial
management —
(a) section 210 shall apply as if for subsections (1) and (3) thereof there were substituted the following:
(1) Where a compromise or arrangement is proposed between a company and its creditors, the Court may on the
application of the judicial manager order a meeting of creditors to be summoned in such manner as the Court
directs.
(3) If three-fourths in value of the creditors present and voting either in person or by proxy at the meeting agree
to any compromise or arrangement, the compromise or arrangement, if approved by the Court, is binding on all
the creditors and on the judicial manager.
; and
(b) sections 337, 340 , 341 and 342 shall apply as if the company under judicial management were a company
being wound up and the judicial manager were the liquidator, but this shall be without prejudice to the power of
the Court to order that any other section in Part X shall apply to a company under judicial management as if it
applied in a winding up by the Court and any reference to the liquidator shall be taken as a reference to the
judicial manager and any reference to a contributory as a reference to a member of the company.
- Committee of inspection
- liquidator, throughout liqn, does var things – may make decisions
o liqrs ask for creditors to appt committee of inspection
o this then assists liquidator in carrying out ots duties
o will comprise largest creditor – have biggest or loss – will agree with them price, etc when
want to sell
2 wyas to get gbetter return
- get better assets elsewhere
- reduce claims against comop
- in this, get comm of inspection
- they can also approve liq fees and costs