Corporate Recovery (2) 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 Corporate Insolvency Law Singapore’s corporate insolvency law is found mainly in the Companies Act. The Bankruptcy Act is relevant for some areas. (ie: right to set-off; avoidance of vulnerable transactions). As our Companies Act is modeled largely on UK and Australian companies legislation, case law from these jurisdiction have persuasive authority. The various processes in Singapore’s corporate insolvency regime are: A) Liquidation governed by the Companies Act (Part X), and the Companies (Winding-Up) Rules B) Judicial Management governed by the Companies Act (Part VIIIA, Sections 227A – 227X) invariably leads to Winding Up C) Schemes of Arrangement governed by the Companies Act (Section 210) D) Receivership governed primarily by Common Law, and the Companies Act (Part VIII, Sections 217 - 227) debenture holder appoints receiver to recover assets LIQUIDATION/WINDING UP -

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(starting comp easy but process of winding up complex) • “Liquidation” or “Winding Up” is the process by which a company is dissolved. • In a liquidation, the company’s business is closed down, its assets are sold off, the creditors are paid, the balance of the assets are distributed to the members (shareholders/ contributories) and, at the end of the whole process, the company ceases to exist upon dissolution o (Comp legal person) 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 Purpose of winding p Ensure just distributn of assets Terminate comp’s existence b eventual dissolution Just distribution of assets Comp assets and affairs pass into hands of indep liquidator whose powers and duties are regulated by statute Rights of unsecured creditors against assets frozen on commencemtn of winding up; further deterioriation of comp financial position and proliferation of liab; ord liab discharged on pari passu basis Liquidator may recover some of adv received fr comp by creditor or another party at expense of other creditors Liquidator may investigate into comp affairs and conduct

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4. A) B) C) D) E) F) G)

Reasons for termination of comp Comp ceased Management deadlock Oppression – shr dispute s216 Corporate or financial restructuring of grp to which comp belongs Minimise tax liab or maximize tax adv for grp to which comp belongs Breach of stt provns inckluding offences committed Comp acting outside scope of activities 2 Main types of Liquidation (more specifically, 3 types of liquidation) • Compulsory or Court Liquidation – court appts liquidator, liq takes over o (3) Compulsory/ Court ordered liquidation: 99.99% is where the coy is insolvent • Voluntary Liquidation – comp can vol palce itself in liq – by wy of meeting of members etc o (1) Member’s voluntary: where coy is still solvent (over-riding criteria) VOLUNTARY: cos no one has to go to court, the directors can make a declaration of solvency + state the coy is able to pay all its liabilities within 12 months, and call a members’ and creditors’ meeting and then go into liquidation (2) Creditor’s voluntary: coy actually has to be insolvent when put into liquidation Voluntary Winding-Up (2 types) (i) Members’ Voluntary WP: S.294 CA Special resolution passed by company in general meeting. The company must be solvent & a ‘declaration of solvency’ must have been made by the directors.Co must be solvent in a members’ WU Only private liquidators are appointed. Best used where comp able to pay debts within 12 mths after commencement of winding up Winding up commences at time of passing of resoln Compulsory Winding-Up (winding-up by court) S.253 CA deals with application for compulsory winding up: Under s253 comp itself, creditors, contrib, liquidator, judicial manager or minister may present application to HC for winding up of comp Requires an order by the Court Co is insolvent S.254 CA lists the grounds when company can be wound up by Court: Most important ground: S.254(1)(e) CA – the company is unable to pay its debt. The company is insolvent. The Official Receiver or a private liquidator is appointed by the Court. In past, receiver the liquidator in all cases, but now, where speicalised company where large amt of specilaised business or unus complicated business, will advise creditors to aply for private liquidators eg where official receiver does not act – there is dispute bet directors. OR normally x act where any sort of internal dispute. Commences at date of presentation of application

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(ii) Creditors’ Voluntary WP: S.296 CA Special resolution passed by company in general meeting. Company must hold creditors’ meeting; company is insolvent. Creditors’ choice of private liquidator will prevail.

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The principle of pari passu distribution applies in both Voluntary Winding-Up and Compulsory WindingUp. NB : Same principles of asset realisation & dividend distribution

Members’ Voluntary Winding Up

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The members of the company may pass a resolution that the company be wound up and also appoint a liquidator. This mode of winding up is best adopted where the company is able to pay its debts in full within 12 months after the commencement of winding up. Winding up commences at the time of passing of the resolution. When it is proposed to wind up the company voluntarily, the directors of the company is required under Section 293 CA to make a statutory declaration that they have formed the opinion that the company will be able to pay its debts in full within 12 months after the commencement of winding up.

Creditors’ Voluntary Winding Up If the company is not able to meet its liabilities, the company can convene a meeting of its creditors to consider its proposal for a voluntary winding up of the company. If a resolution is passed in favour of the winding up, the company will appoint a liquidator, subject to any preference the creditors may have as to choice of liquidators. 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. Who can apply for winding up: Section 253(1) CA: Provides for who may petition for winding up of a company: s 253 - Eligibility to be an applicant 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: Application for winding up. 253. —(1) A company, whether or not it is being wound up voluntarily, may be wound up under an order of the Court on the application — (a) of the company; (b) of any creditor, including a contingent or prospective creditor, of the company; (c) of a contributory or any person who is the personal representative of a deceased contributory or the Official Assignee of the estate of a bankrupt contributory; (d) of the liquidator; (e) of the Minister pursuant to section 241 or on the ground specified in section 254 (1) (d) or (l); (f) of the judicial manager appointed pursuant to Part VIIIA; (g) in the case of a company which is carrying on or has carried on banking business, of the Minister charged with the responsibility for finance; or (h) of the Minister on the ground specified in section 254 (1) (m), or of any two or more of those parties. (2) Notwithstanding anything in subsection (1) — (a) a person referred to in subsection (1) (c) may not make a winding up application on any of the grounds specified in section 254 (1) (a), (b), (c), (e) or (i), unless — (i) the company has no member; or (ii) the shares in respect of which the contributory was a contributory or some of them were originally allotted to the contributory, or have been held by him and registered in his name for at least 6 months during the 18 months

before the making of the winding up application or have devolved on him through the death or bankruptcy of a former holder; (b) a winding up application shall not, if the ground of the application is default in lodging the statutory report or in holding the statutory meeting, be made by any person except a contributory or the Minister nor before the expiration of 14 days after the last day on which the meeting ought to have been held; (c) the Court shall not hear the winding up application if made by a contingent or prospective creditor until such security for costs has been given as the Court thinks reasonable and a prima facie case for winding up has been established to the satisfaction of the Court; and (d) the Court shall not, where a company is being wound up voluntarily, make a winding up order unless it is satisfied that the voluntary winding up cannot be continued with due regard to the interests of the creditors or contributories. COURT LIQUIDATION Upon appointment of liquidator Notices o Statement of affairs: For creditors’ voluntary and court ordered … which is a statement of the coy’s assets and liabilities o Notice to regulatory bodies Letterheads

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to be stamped “in liquidation”… so that the public at large must know that they are dealing with the coy’s liquidator

Preliminaries to Acceptance of Appointment - members: declaration of solvency liquidator’s consent to act o ensure that no conflict: e.g. Ernst & Young is auditor of A coy, and is also asked to act as liquidator of B coy, which is in liquidation and A coy is a creditor of coy B or vice versa, then this would be a situation of conflict have to ensure that meetings are in order and resolutions are passed (see the rules prescribed in the CA, e.g. require special resolution etc) To file notice of appointment with Registrar In the case of court appointed liquidators, security has to be given o In a court appointed situation, the liqudiator becomes an officer of the court, so that if the liquidator runs away, there is some security with the Official Assignee Circumstances in which company may be wound up by Court • A winding up by the court is initiated by the presentation of a petition by a person who is entitled to do so. - • A petition must state the grounds on which it is sought to wind up the company. A company may be wound up by the court on the grounds as stated in Section 254. • The most common ground on which a petition is presented is usually on grounds of “Insolvency” or “the company’s inability to pay its debts”. o comp may have assets but no cash -> unable to pay debvts

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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. See Section 254(2) CA: Definition of inability to pay debts Compared with Bankruptcy Statutory Demand: o There is no need to follow a prescribed from for letter of demand unlike Bankruptcy proceedings.

Circumstances in which company may be wound up by Court. 254. —(1) The Court may order the winding up if — (a) the company has by special resolution resolved that it be wound up by the Court; (b) default is made by the company in lodging the statutory report or in holding the statutory meeting; (c) the company does not commence business within a year from its incorporation or suspends its business for a whole year; (d) the company has no member; (e) the company is unable to pay its debts; (f) the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatever which appears to be unfair or unjust to other members; (g) an inspector appointed under Part IX has reported that he is of opinion — (i) that the company cannot pay its debts and should be wound up; or (ii) that it is in the interests of the public or of the shareholders or of the creditors that the company should be wound up; (h) when the period, if any, fixed for the duration of the company by the memorandum or articles expires or the event, if any, happens on the occurrence of which the memorandum or articles provide that the company is to be dissolved; (i) the Court is of opinion that it is just and equitable that the company be wound up; (j) the company has held a licence under any written law relating to banking, and that licence has been revoked or has expired and has not been renewed; (k) the company has carried on banking business in Singapore in contravention of the provisions of any written law relating to banking; (l) the company has carried on multi-level marketing or pyramid selling in contravention of any written law that prohibits multi-level marketing or pyramid selling; or (m) the company is being used for an unlawful purpose or for purposes prejudicial to public peace, welfare or good order in Singapore or against national security or interest. Definition of inability to pay debts. (2) A company shall be deemed to be unable to pay its debts if — (a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding $10,000 then due has served on the company by leaving at the registered office a demand under his hand or under the hand of his agent thereunto lawfully authorised requiring the company to pay the sum so due, and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; (b) execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) it is proved to the satisfaction of the Court that the company is unable to pay its debts; and in determining whether a company is unable to pay its debts the Court shall take into account the contingent and prospective liabilities of the company. (3) For the purpose of subsection (1) (m), a certificate issued by the Minister charged with the responsibility for internal security stating that he is satisfied that the company referred to in the certificate is being used for purposes against national security or interest shall be conclusive evidence that the company is being used for such purposes. (4) Upon the making of an application by the Minister under section 253 (1) (h) for the winding up of a company under subsection (1) (m) on the ground that it is being used for purposes against national security or interest, the Court, upon the application of the Minister, may, pending the hearing of the winding up application or the making of a winding up order, make — (a) an order restraining the company or its directors, manager, officers or employees from doing any act or from carrying out any activity as may be specified in the order; and (b) such other interim orders as the Court thinks fit.

(5) Any person who acts in contravention of an order made by the Court under subsection (4) shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $10,000 or to imprisonment for a term not exceeding 2 years or to both. Re Dayang Construction & Engineering Pte Ltd [2002] 3 SLR 379 • Demand did not refer to the 3-week period or any warning of WU if left unsatisfied. Belinda Ang JC (as she then was) held that it is not necessary for a demand to refer to the period of three weeks within which the debtor company is to make payment, and that such a demand would be valid even if it stipulated some shorter period for payment. The three-week period is relevant only for determining whether the company’s non-compliance with the demand has given rise to the presumption of insolvency, and is not required to be stated in the demand itself. Ang JC also held that it is not necessary for a demand to contain a warning that the company may be wound up if it fails to comply with the demand, or state that the company has, apart from payment, the options of securing or compounding the debt to the reasonable satisfaction of the creditor. - In considering the form in which a demand was expressed, one ought to bear in mind that ultimately the court had the discretion whether to wind up the company. In this regard, the learned judicial commissioner noted that, in the instant case, it was not suggested that the company had been misled by the statutory demand. - As long as the demand has met all the statutory requirements in S.254(2) in substance, the statutory presumption applies. Re Management Recruiters International (Asia) Pte Ltd [2002] 4 SLR 561 • Quantum of debt disputed. Execution issued on a judgement partially or wholly unsatisfied Just and equitable that co be wound up Court dismissed petition - No evidence to show debt meets the statutory limit for presumption to operate. The debt on which a winding up petition was founded must be unambiguous and clearly above the statutory sum of $10,000. The petition should be dismissed where the debt did not obviously exceed $10,000. The court was satisfied that the dispute as to the debt was genuine and plausible. First, the “without prejudice” correspondence, if admissible (which in the first place was not), showed that some debt was due which amount could not be determined without a trial. Second, the company had a valid counterclaim against MRI. Therefore, no obvious debt above $10,000 The WU petition was dismissed rather than stayed. What is the test for insolvency? There are 2 tests for insolvency: ‘Cash-flow’ test of insolvency – when the company cannot meet its obligations/ debts as and when they fall due. easiesr to prove. Grd more commonly used. (b) ‘Balance-sheet’ test of insolvency – when the current liabilities of the company exceed its assets. – must show tt assets not large enough to cove current liab – not popular because i. must balance assets and valuation can differ greatly ii. fact tt current liab exceeds assets may not mean tt current insolvent and not workable – may have devpt in pipeline making it profitable

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See Section 254(2) CA provides for a deeming provision for when a company is considered to be unable to pay its debts.

Section 254(2) CA: Definition of inability to pay debts A company shall be deemed to be unable to pay its debts if – (a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding $10,000 then due has served on the company by leaving at the registered office a demand under his hand or under the hand of his agent thereunto lawfully authorized requiring the company to pay the sum so due, and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor;

(b) (c)

execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or it is proved to the satisfaction of the court that the company is unable to pay its debts; and in determining whether a company is unable to pay its debts the Court shall take into account the contingent and prospective liabilities of the company. • Under Section 254(2), o if execution or other process issued on a judgment, decree or order is returned unsatisfied in whole or in part, and the company is unable to pay its debts, then the company is deemed to be insolvent. o • If a creditor is owed more than S$ 10,000, he may serve a statutory demand on the company at its registered office requiring payment of the sum due. • If the company has not paid or secured or compounded the claim within 21 days, it is presumed to be insolvent and the creditor is entitled to present a petition to wind up the company.

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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). Who can be a liquidator? Two persons can act as a liquidator under the Companies Act: (e) The Official Receiver – the default liquidator S.263 CA clearly states that the Official Receiver, by virtue of his office, is the default liquidator when no liquidator has been appointed or when the liquidator has vacated his post.

Appointment, style, etc., of liquidators. 263. The following provisions with respect to liquidators shall have effect on a winding up order being made: (a) if an approved liquidator, other than the Official Receiver, is not appointed to be the liquidator of the company, the Official Receiver shall by virtue of his office become the provisional liquidator and shall continue to act as such until he or another person becomes liquidator and is capable of acting as such; (b) if there is no liquidator appointed, the Official Receiver shall summon separate meetings of the creditors and contributories of the company for the purpose of determining whether or not an application is to be made to the Court for appointing a liquidator in the place of the Official Receiver; (c) the Court may make any appointment and order required to give effect to any such determination, and, if there is a difference between the determinations of the meetings of the creditors and contributories in respect of the matter aforesaid, the Court shall decide the difference and make such order thereon as the Court may think fit; (d) in a case where a liquidator is not appointed by the Court, the Official Receiver shall be the liquidator of the company; (da) in a case where a winding up order is made under section 254 (1) (m) on the ground that the company is being used for purposes against national security or interest, the Official Receiver shall be the liquidator of the company; (e) the Official Receiver shall by virtue of his office be the liquidator during any vacancy; (f) any vacancy in the office of a liquidator appointed by the Court may be filled by the Court; (g) a liquidator shall be described, where a person other than the Official Receiver is liquidator, by the style of “the liquidator”, and, where the Official Receiver is liquidator, by the style of “the Official Receiver and liquidator”, of the particular company in respect of which he is appointed, and not by his individual name. Role Of The Official Receiver (a) Liquidator in compulsory winding-up (b) Amicus curiae (Assist Court) at winding-up proceedings and any matters involving winding-up of companies (c) Institutes civil or criminal proceedings ( esp where there is prosecution & disqualification) o Apart fr prosecution of dirs/officers who fail to file SOA, delinquent dirs and officers of comp in liqn can also be held liable for rang of offences – s336 – for offences committed prior to and subseq to commencement in winding up – including  Falsification of bks s338; failure to keep proper accts s339 and fraudulent trading s340 o Delinquent officers can also be made pereosnally liable in damages for misfeasance or breach of trust against comp s341 on appictn of liqr incl OR to court for assessment of damagesagainst guilty officers and court may also direct tt prosecution be instituted for any crim liab on part of officers found liable s342 o Investigation of such offences wld be handled by police with assistance of OR (d) Supervise private liquidators- if complaint by third party. When pricate liquidator finishes ujob, will send copuy of liquidatin report to OR to get clearance. Once get clearance, then less likelihood of objections to release of private liquidator. (e) Representative of defunct and dissolved companies – where comp has been wound up and dissolved, there may still be assets coming in. (f) Reviews corporate insolvency law – consultation exercises done fr time to time (g) Administers winding-up of unincorporated entities (ie: trade unions, societies, mutual benefit organizations) – societies and MBO most likely to be wound up.

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An “approved Liquidator” (as defined in S.2 CA) S.2 CA defines an “approved liquidator” as an approved company auditor who has been approved by the Minister under s. 9 CA as a liquidator and whose approval has not been revoked. Note: A liquidator is an Officer of the Court and subject to supervision of the High Court, the Official Receiver and a Committee of Inspection (if any). i. Comprises reps of creditors – if get creditor to agree on certain actions usu on same terms Any person approved by the Minister can be Approved Liquidator Approved company auditors Can seek directions from the court

Powers of a Liquidator – Section 272

S.272 CA lists some of the powers of a liquidator. The powers of the liquidator include: (a) Power to investigate into affairs of company & conduct of company officers (b) Carry on the business of the company so far as is necessary for the beneficial winding up of the company. – dangerous course of action unless company has available assets to pay expenses; May need approval for longer periods (c) (Subject to S.328 CA on preferential creditors) pay any class of creditors in full. (d) Make any compromise or arrangement with creditors (e) Power to access records, books (f) Appoint a solicitor to assist him in his duties (g) Bring and defend any actions in the company’s name ie Institute or continue legal proceedings (h) Have access to investigate into the affairs of the company & conduct of company officers (i) Disclaim onerous contracts (which are not beneficial to the company pursuant to Section 332 CA. (j) Set aside transactions pursuant to Sections 98 – 103 BA read with Section 329 CA (k) Do all such other things as are necessary for winding up the affairs of the company and distributing its assets (l) Others: i. • Take control of assets of the company ii. • Sell the assets of the company and distribute the proceeds (surplus) to the contributories iii. • Execute documents and deeds on behalf of the company including the use of the common seal iv. • Appoint an agent to do any business which the liquidator is unable to do himself 1. eg valuers v. Pay creditors what is owed to them (but subject to s328 CA) vi. Power to sell assets vii. Power to act on behalf of the coy viii. Raise funds by charging assets ix. Appointing of agents x. Authorize directors for certain acts 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. Disclaimer of onerous property. 332. —(1) Where any part of the property of a company consists of — (a) any estate or interest in land which is burdened with onerous covenants; (b) shares in corporations; (c) unprofitable contracts; or (d) any other property that is unsaleable, or not readily saleable, by reason of its binding the possessor thereof to the performance of any onerous act, or to the payment of any sum of money, the liquidator of the company, notwithstanding that he has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation thereto, may, with the leave of the Court or the committee of inspection and, subject to this section, by writing signed by him, at any time within 12 months after the commencement of the winding up or such extended period as is allowed by the Court, disclaim the property; but where any such property has not come to the knowledge of the liquidator within one month after the commencement of the winding up, the power of disclaiming may be exercised at any time within 12 months after he has become aware thereof or such extended period as is allowed by the Court. (2) The disclaimer shall operate to determine, as from the date of disclaimer, the rights, interest and liabilities of the company and the property of the company in or in respect of the property disclaimed, but shall not, except so far as is necessary for the purpose of releasing the company and the property of the company from liability, affect the rights or liabilities of any other person. (3) The Court or the committee before or on granting leave to disclaim may require such notices to be given to persons interested, and impose such terms as a condition of granting leave, and make such other order in the matter as the Court or committee thinks just. (4) The liquidator shall not be entitled to disclaim if an application in writing has been made to him by any person interested in the property requiring him to decide whether he will or will not disclaim, and the liquidator has not, within a period of 28 days after the receipt of the application or such further period as is allowed by the Court or the committee, given notice to the applicant that he intends to apply to the Court or the committee for leave to disclaim, and, in the case of a contract, if the liquidator after such an application in writing does not within that period or further period disclaim the contract the liquidator shall be deemed to have adopted it. (5) The Court may, on the application of a person who is, as against the liquidator, entitled to the benefit or subject to the burden of a contract made with the company, make an order rescinding the contract on such terms as to payment by or to either party of damages for the non-performance of the contract, or otherwise as the Court thinks just, and any damages payable under the order to that person may be proved by him as a debt in the winding up. (6) The Court may, on the application of a person who either claims any interest in any disclaimed property or is under any liability not discharged by this Act in respect of any disclaimed property and on hearing such persons as it thinks fit, make an order for the vesting of the property in or the delivery of the property to any person entitled thereto, or to whom it seems just that the property should be delivered by way of compensation for such liability as aforesaid, or a trustee for him, and on such terms as the Court thinks just, and on any such vesting order being made and a copy thereof and an office copy thereof being lodged with the Registrar and the Official Receiver, respectively, and if the order relates to land with the appropriate authority concerned with the recording or registration of dealings in that land, as the case requires, the property comprised therein shall vest accordingly in the person therein named in that behalf without any further conveyance, transfer or assignment. (7) Notwithstanding anything in subsection (6), where the property disclaimed is of a leasehold nature, the Court shall not make a vesting order in favour of any person claiming under the company, whether as under-lessee or as mortgagee, except upon the terms of making that person — (a) subject to the same liabilities and obligations as those to which the company was subject under the lease in respect of the property at the commencement of the winding up; or (b) if the Court thinks fit, subject only to the same liabilities and obligations as if the lease had been assigned to that person at that date,

and in either event, if the case so requires, as if the lease had comprised only the property comprised in the vesting order, and any under-lessee or mortgagee declining to accept a vesting order upon such terms shall be excluded from all interest in and security upon the property, and, if there is no person claiming under the company who is willing to accept an order upon such terms, the Court may vest the estate and interest of the company in the property in any person liable personally or in a representative character and either alone or jointly with the company to perform the lessee’s covenants in the lease, freed and discharged from all estates, incumbrances and interests created therein by the company. (8) Any person injured by the operation of a disclaimer under this section shall be deemed to be a creditor of the company to the amount of the injury, and may accordingly prove the amount as a debt in the winding up. 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 Role arises in three ways o As liquidator  May be ordered as liqr of cpmp wound up compulsorily  Req tt Statemen of affairs be filed promp,tly  S270 CA – made out and verified in prescribe form and manner and submitted to OR  Realization of assets consisting of • Cash in hand and in banks and other financial institn – notice of winding up transmitted immed after winding up order to inform banks of OR’s apptment • Sale of office fittings and properties pwned by comp • Call of npaid capital • Collection of bk debts • Recovery of monies fr o Dispositions made by comp aftercommencement og winding up void unless ordered otherwise b court s259  *overseas union finance – court validated payments made to depositers after preseantatin of winding up application as depositors were secured creditors under s41 Finance Companies Act; sn does not affect third parties o undue prefence of creditors – law of bankruptcy wld apply except that in case of winding up, commencement date is date of presenationgo application  onus of proing fraudulent pref is on liqwuiator o sales ade to dirs by comp within period of 2 yrs before commencement of winding up  bk debts • once SOF filed by OR, action to recover bk debts • OR not laible to incur any expenses iro winding up unless suff available assets • For insolv comp, creditor’s meeting is convened fo get consent to pursue claim and meet expense of pusuing claim  Sale of assets by OR

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If comp has assets, OR may sell them by auction, public tender or private contract • Doen in ma,e and on behalf of comp and comp seal used if nec  Observations • Once SOA filed, OR will submit prelim report to all creditors in SOA for their info and invite them to prov info on comp affairs  See below on proof of debt, distribn and dissolutoin As liquidator where receiver and manager is appted under debenture  In ts case OR wqaits until receiver and maager has realized all assets  Then surrenders acct bks belonging to comp to OR  Reaisation of assets – RM will consult oR on sale price to avoid future examination of sale by OR  RM acctable to OR for all assets  Secured creditors will deal with OR wrt their securities  RM T comply wi Private liquidation  Private liqrs are officers of the court and subj to supervision of committee of inspection, high court etc  Once SOA submitted to him, private liqr has to odge copy of it with OR and registrar of companies  If pricate liqr resigns OR steps in as liqr s263 CA  Before he can proceed with winding up comp, to deposit sufficient security to be determined by OR before capable of acting as liqr s264 CA  Security usu fixed by acctant in OR’s office based on financial statements furnished by private liqr  Private iqr also to file 6 mthly accts of receipts and payments in course of liqn with OR s317 CA  OR may at any time req liqr to ans queries in relation to winding up or if OR of view tt he has not done duties faitfully • OR may apply to court to examine him on oath concerning winding up s265 CA  Where no committee of inspection, OR may on aplicatn of private lkiqr to any thing or give directn or permission authorized under the act or reqd to be given by committee s314 CA  After payment of creditors or making of final distribn, private liqr shall pay any monies or unclaimed assets in his hand or under his control, to OR to be placed in Companies Liquidation Acct s322 CA  All applications mde to court by private liqr to be served on OR

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 VALUE OF ASSETS REALISED : JAN - AUG 2006 $1,6M has been realised from:

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book debts shares/bonds real estate rentals furniture stocks plant & equipment cars deposits & cash in hand/at bank successful suits

DIVIDENDS DECLARED BETWEEN JAN TO AUG 2006 $3.1 Million was paid out to 353 creditors - small sum compared to the sums claimed by creditors Procedures for winding-up of companies PROCESS OF ADMINISTRATION (9 steps) Winding up order -> Filing of Statement of Affairs (to be done quickly after winding up order – here directors if find it slow or difficult to file SOF, may have two reasons: 1. may have to go into comp docs to provide clear pic 2. hiding sth – those advising liquidators to take nte., if dirs giving excuss, this may mean tt hiding sth) -> Investigations -> Realization of assets -> Adjudication of Claims -> Declaration of Dividends -> Return of Capital to contributories (usually rare, nt even money to pay creditors much less shrs) -> release of liquidator -> Dissolution of company

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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

Form of winding up application 22. —(1) Every application for the winding up of a company by the Court shall be made by originating summons. (2) The application for the winding up of a company shall be — (a) in Form 2 set out in the First Schedule if it is made by the company itself; and (b) in Form 3 set out in the First Schedule if it is made by a person other than the company. (3) Where an application to wind up the company is made by a person other than the company, that person shall be referred to in Form 3 set out in the First Schedule and all proceedings as the plaintiff. Filing of winding up application 23. —(1) A winding up application shall be filed at the office of the Registrar who shall appoint the time and place at which the winding up application is to be heard. (2) Notice of the time and place appointed for hearing the winding up application shall be written on the winding up application and sealed copies thereof, and the Registrar may at any time before the winding up application has been advertised, alter the time appointed and fix another time.

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Affidavit fr officer of company supporting application o AVP – affidavit verifying petition (this is the same as affid supporting petition)

Affidavit supporting application for winding up 25. —(1) Every application for the winding up of a company by the Court shall be supported by an affidavit. (2) The affidavit supporting an application to wind up a company shall state — (a) the date of incorporation of the company; (b) the registered office of the company; and (c) the grounds on which the application for winding up is made.

(3) The affidavit supporting a winding up application shall be in Form 5 set out in the First Schedule and shall be made by the applicant or by one of the applicants, if more than one, or, in the case where the application is made by a corporation, by some director, manager, secretary or other principal officer thereof and shall be filed and served together with the winding up application, and such affidavit shall be prima facie evidence of the statements therein.

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Affidavit of Service – Company & OR o proced for service must be carried out properly o must show tt comp has notice of winding up

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.

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Advertisement in 1 English & 1 Chinese local daily newspaper & in Govt Gazette o 7 clear days

Publication in the Gazette 19. Except as otherwise provided by the Act, these Rules or any order — (a) all matters which require to be gazetted shall be published once in the Gazette; (b) all matters which require to be advertised shall be published once in a local newspaper; (c) all matters required to be gazetted subsequent to a winding up order shall be gazetted by the liquidator; (d) where any winding up order is amended or any matter which has been gazetted has been amended or altered or where any matter was wrongly or inaccurately gazetted or advertised the order or matter shall be re-gazetted or re-advertised with the necessary amendments and alterations. Advertisement of winding up application 24. Every winding up application shall be advertised 7 clear days (or such longer time as the Court may direct) before the hearing, in Form 4 set out in the First Schedule as follows: (a) once in the Gazette and once at least in one English and one Chinese local daily newspaper or in such other newspapers as the Court may direct; and

(b) the advertisement shall state the day on which the winding up application was filed and the name and address of the applicant and of his solicitor and contain a note at the foot thereof, stating that any person who intends to appear on the hearing of the winding up application, either to oppose or support, must send notice of such intention to the applicant or to his solicitor, within the time and in the manner prescribed by rule 28, and an advertisement of an application for the winding up of a company by the Court which does not contain such a note shall be deemed irregular, and if the applicant or his solicitor does not within the time hereby prescribed or within such extended time as the Registrar may allow duly advertise the winding up application in the manner prescribed by this rule, the appointment of the time and place at which the winding up application is to be heard shall be cancelled by the Registrar and the winding up application shall be removed from the file unless the Judge or the Registrar shall otherwise direct.

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Memorandum of Advertisement o stating tt have advertised in such newspaper and attach copies of adverts

Memorandum of advertisements to be filed 20. Unless otherwise expressly provided in the Act, these Rules or unless otherwise expressly ordered, where any matter is gazetted or advertised in connection with any proceedings under the Act or under these Rules — (a) a memorandum as in Form 70 set out in the First Schedule referring to and giving the date of the Gazette or advertisement, signed by the person responsible for the publication in the Gazette or newspaper or his solicitor shall be filed — (i) if the advertisement relates to proceedings for or in connection with a winding up by the Court, by the liquidator; or (ii) in any other case, by the party responsible for publishing the advertisement; (b) in the case of an advertisement for or in connection with a winding up by the Court, a copy of the newspaper or Gazette in which the advertisement appeared shall be delivered to the Official Receiver and a copy to the liquidator by the party responsible for publishing the advertisement; and (c) such a memorandum shall be prima facie evidence that the advertisement to which it refers was published in the Gazette or in the issue of the newspaper mentioned in it.

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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.

Approved liquidator to be nominated 31. —(1) When filing the winding up application, the applicant may nominate in writing an approved liquidator who may be appointed liquidator if an order for the winding up of the company is made by the Court. Consent of liquidator (2) Before the hearing of the winding up application, the applicant or his solicitor shall obtain and file the consent in writing of the approved liquidator nominated.

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Notice of Intention to Appear on Petition

Notice of intention to appear 28. —(1) Every person who intends to appear on the hearing of a winding up application shall serve on the applicant or his solicitor notice of his intention. The notice shall be signed by such person or by his solicitor and shall give the address of the person signing it and shall be served, or if sent by post shall be posted in such time as in the ordinary course of post to reach the address not later than 12 o'clock noon of the day previous to the day appointed for the hearing of the winding up application. (2) The notice may be in Form 8 set out in the First Schedule with such variations as circumstances may require. (3) A person who has failed to comply with this rule shall not, without special leave of the Court, be allowed to appear at the hearing of the winding up application.

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List of Parties attending – eg supporting creditors usually.

Attendance on Registrar 32. —(1) After a winding up application has been filed, the applicant or his solicitor shall on a day to be appointed by the Registrar attend before the Registrar and satisfy him that — (a) the winding up application has been duly published in the Gazette and advertised; (b) the affidavit supporting the winding up application and the affidavit of service, if any, have been duly filed; (c) the consent in writing of the approved liquidator nominated by the applicant has been obtained and filed; (d) the provisions of these Rules as to winding up applications have been duly complied with; and (e) a sum of $4,400 has been deposited with the Official Receiver to cover the fees and expenses to be incurred by the approved liquidator or the Official Receiver, as the case may be, and any goods and services tax chargeable under the Goods and Services Tax Act (Cap. 117A) on the supply of services to which those fees or expenses relate. This deposit shall be refunded to the applicant by the liquidator before he takes any action under section 328 of the Act. (2) No order, except an order for the dismissal or adjournment of the winding up application, shall be made on the application of any person making the winding up application who has not, prior to the hearing of the winding up application, attended before the Registrar at the time appointed and satisfied him in the manner required by this rule.

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Substitution of applicant

Substitution of any person as applicant 33. —(1) When an applicant is not entitled to make a winding up application or, whether so entitled or not, where he — (a) fails to take all the steps prescribed by these Rules preliminary to the hearing of the winding up application; (b) consents to withdraw his winding up application or to allow it to be dismissed or the hearing to be adjourned; or (c) fails to appear in support of his winding up application when it is called on in Court on the day originally fixed for the hearing thereof or on any day to which the hearing has been adjourned or if appearing does not apply for an order in terms of the prayer of his winding up application, the Court may, upon such terms as it thinks just, substitute as applicant any person who, in the opinion of the Court, would have a right to make the winding up application and who is desirous of proceeding with the winding up application. (2) An order to substitute an applicant may, where an applicant fails to advertise his winding up application within the time prescribed by or under these Rules or consents to withdraw his winding up application, be made by the Registrar or the Court at any time before the date fixed for the hearing of the winding up application.

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OR = liquidator for WU company used for purposes against national security

Effects of Liquidation (All Types) (for Creditors vol liqn) - Sequence – director’s meeting first/ shrs meeting/ decide to choose liquidator/ then creditors’ meeting/ choice to accept shrs’ choice of liquidator or have one of their own - In court liq and creditors liqn – their choice of liquidator DATE OF COMMENCEMENT (determines the clawback period of transaction values, etc) Time of presentation of the WU application - s 255(2) Co Act o Retrospective effect = transactions entered into after WU application made but before WU order will be affected o ie if winding up application is entered into at end of may 2006 and winding up order made aug, transactions may be bet end may and august – they may be made void. Those who enter transactions may have to pay back moneys or proceeds. Time of passing resolution of the company (for voluntary WU) or the appointment of a provisional liquidator o essential for purposes of claw back transactions

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– Once the Court approves a liquidation, the day of commencement is on the day the petition was presented. In a members’ voluntary liquidation, the day of commencement is on the day the company passes a special resolution to approve the winding up.  For vol – it is the day on which resolutions are passed Determining the time of commencement of winding up is very important. It is the relevant date for which provisions in the Companies Act refer to. For example: the date of commencement of winding up is relevant as the ‘claw-back’ date for the avoidance of transactions entered into at an undervalue and unfair preferences. Date of Commencement of Winding Up (defined in Section 255 CA) Voluntary Winding Up Compulsory Winding Up

At the time of passing of the resolution for voluntary winding up by the company.

At the time of presentation of the winding up petition.

Commencement of winding up. 255. —(1) Where before the making of a winding up application a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and, unless the Court on proof of fraud or mistake thinks fit otherwise to direct, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken. (2) In any other case the winding up shall be deemed to have commenced at the time of the making of the application for the winding up. • Notification that the company is in liquidation – o Once a winding up commences, every invoice, order for goods or business letter issued by the company must have the words ‘In Liquidation’ added after the name of the company to serve as a warning to all those who deal with the company.

EFFECT OF WINDING UP ON COY’S PROPERTY & LEGAL PROCEEDINGS rights of creditors, contributories and third parties affected *re lines bros Ltd 1983 – brightman LJ commented tt liqudation of insolvent comp is process of collective enforcement of debts for benefit of general body of creditors; not process of exeuciton because not for benefit of one partr creditor but akin to execution because purpose is to enfore on pari passu basis payment of admitted or proved debts of comp’ when comp goes into liquidation, process is initiated which for all creditors is similar to process initiated for 1 creditor by execution 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

Section 262(3) CA: Actions stayed on winding up order (3) When a winding up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except — (a) by leave of the Court; and (b) in accordance with such terms as the Court imposes Power to stay or restrain proceedings against company. 258. At any time after the making of a winding up application and before a winding up order has been made, the company or any creditor or contributory may, where any action or proceeding against the company is pending,

apply to the Court to stay or restrain further proceedings in the action or proceeding, and the Court may stay or restrain the proceedings accordingly on such terms as it thinks fit.

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Rationale for leave o *re Toronto wood and sihngle 1894 – intention of legis wrt insolvency is to get within control of court all esate of insolv coimp, settle claims of debt, privilege, mortgage, lien etc in simkplest and lease expensive way and distrib assets among creditos in most expeditious manner p0ossible and not have proceedgs of winding up court or distribn assets delayed or impeded by or dependent on outsid or expensive litigation in other courts o to avoid unseemly scramble by creidotr to achvie priority at last mmt - *Roberts petroleum v Bernard Kenny 1983 writ served on comp without leave after winding up order is null *Wilson v banner scaffolding 1982 – court will consider convenience and expediency in deciding whether to give leave to commence or cont proceedings o prvent escalation of costs o prevent dissipation of assets o prevent delay or impediment to liquidation

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

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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]. 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]. 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]. 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]. 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. 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]. [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. 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.

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B) After the commencement of winding up, all dispositions of property, transfer of shares are void unless Court orders otherwise - s 259

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Section 259 provides that any disposal of property after the commencement of a winding up is void, unless the court otherwise orders. 2mths related parties 6 mths non related parties (going bsckward fr commencement) 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. Section 259 CA seeks to achieve this by rending all dispositions of the company’s property, after the commencement of the winding up, void. 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,. *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 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 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 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

Avoidance of dispositions of property, etc. 259. Any disposition of the property of the company, including things in action, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court shall unless the Court otherwise orders be void.

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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

Custody and vesting of company’s property. 269. —(1) Where a winding up order has been made or a provisional liquidator has been appointed, the liquidator or provisional liquidator shall take into his custody or under his control all the property and things in action to which the company is or appears to be entitled. (2) The Court may, on the application of the liquidator, by order direct that all or any part of the property of whatever description belonging to the company or held by trustees on its behalf shall vest in the liquidator and thereupon the property to which the order relates shall vest accordingly and the liquidator may, after giving such indemnity, if any, as the Court directs, bring or defend any action or other legal proceeding which relates to that property or which it is necessary to bring or defend for the purpose of effectually winding up the company and recovering its property. (3) Where an order is made under this section, every liquidator of a company in relation to which the order is made shall lodge within 7 days of the making of the order — (a) a copy of the order with the Registrar; and (b) where the order relates to land, an office copy of the order with the appropriate authority concerned with the registration or recording of dealings in that land, and every liquidator who makes default in complying with this section shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $2,000 and also to a default penalty. (4) No vesting order referred to in this section shall have any effect or operation in transferring or otherwise vesting land until an appropriate entry or memorandum thereof is made by or with the appropriate authority.

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s 323 Liquidator not to incur expenses in WU unless there are sufficient available assets o very impt. If have to advise lkiquidator who wants to sue for debts, if not enough money in liquidation acct – get other creditors to chip in and prov money for lawsuit o be careful. If incur expenses for lawsuit and not successful, liq may be asked to pay shortfall personally

Expenses of winding up where assets insufficient. 323. —(1) Unless expressly directed to do so by the Official Receiver, a liquidator shall not be liable to incur any expense in relation to the winding up of a company unless there are sufficient available assets. (2) The Official Receiver may, on the application of a creditor or a contributory, direct a liquidator to incur a particular expense on condition that the creditor or contributory indemnifies the liquidator in respect of the recovery of the amount expended and, if the Official Receiver so directs, gives such security to secure the amount of the indemnity as the Official Receiver thinks reasonable. 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 EFFECT OF WINDING UP ON COMPANY OFFICERS • Cessation of directors’ powers – – once a company is placed into liquidation, the board of directors is effectively functus officio. – the powers of the directors ceases upon liquidation (commencenent), but the liquidator, may in writing authorize the directors to do certain acts – in voluntary winding ups, the liquidator can seek the consent of creditors to give the directors the requisite authy to do certain acts – e.g. construction coy, liquidators may require the directors to drive certain contracts to fruitation The power to run the company lie vested with the liquidator. His job is to wind up the company’s business, realize the assets, pay off the creditors and return whatever is left over to the members. the liquidator has the same powers that the coy had prior to going into liquidation until the coy is eventually dissolved a) b) 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 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

Power to summon persons connected with company. 285. —(1) The Court may summon before it any officer of the company or person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or any person whom the Court considers capable of giving information concerning the promotion, formation, trade dealings, affairs or property of the company. (2) The Court may examine him on oath concerning the matters mentioned in subsection (1) either by word of mouth or on written interrogatories and may cause to be made a record of his answers, and any such record may be used in evidence in any legal proceedings against him. (3) The Court may require him to produce any books and papers in his custody or power relating to the company, but where he claims any lien on books or papers the production shall be without prejudice to that lien, and the Court shall have jurisdiction to determine all questions relating to that lien. (4) An examination under this section or section 286 may, if the Court so directs and subject to the Rules, be held before any District Judge named for the purpose by the Court, and the powers of the Court under this section and section 286 may be exercised by that Judge.

(5) If any person so summoned, after being tendered a reasonable sum for his expenses, refuses to come before the Court at the time appointed, not having a lawful excuse, made known to the Court at the time of its sitting and allowed by it, the Court may cause him to be apprehended and brought before the Court for examination. Power to order public examination of promoters, directors, etc. 286. —(1) Where the liquidator has made a report under this Part stating that, in his opinion, a fraud has been committed or that any material fact has been concealed by any person in the promotion or formation of the company or by any officer in relation to the company since its formation or that any officer of the company has failed to act honestly or diligently or has been guilty of any impropriety or recklessness in relation to the affairs of the company, the Court may, after consideration of the report, direct that the person or officer, or any other person who was previously an officer of the company, including any banker, solicitor or auditor, or who is known or suspected to have in his possession any property of the company or is supposed to be indebted to the company or any person whom the Court considers capable of giving information concerning the promotion, formation, trade dealings, affairs or property of the company, shall attend before the Court on a day appointed and be publicly examined as to the promotion or formation or the conduct of the business of the company, or in the case of an officer or former officer as to his conduct and dealings as an officer thereof. (2) The liquidator and any creditor or contributory may take part in the examination either personally or by a solicitor. (3) The Court may put or allow to be put such questions to the person examined as the Court thinks fit. (4) The person examined shall be examined on oath and shall answer all such questions as the Court puts or allows to be put to him. (5) A person ordered to be examined under this section shall before his examination be furnished with a copy of the liquidator’s report. (6) Where a person directed to attend before the Court under subsection (1) applies to the Court to be exculpated from any charges made or suggested against him, the liquidator shall appear on the hearing of the application and call the attention of the Court to any matters which appear to him to be relevant and if the Court, after hearing any evidence given or witnesses called by the liquidator, grants the application the Court may allow the applicant such costs as the Court in its discretion thinks fit. (7) The record of the examination — (a) may be used in evidence in any legal proceedings against the person examined; and (b) shall, at all reasonable times, be made available to any creditor or contributory for review at the court premises. (8) The Court may if it thinks fit adjourn the examination from time to time. Power to arrest absconding contributory, director or former director. 287. The Court, at any time before or after making a winding up order, on proof of probable cause for believing that a contributory or a director or former director of the company is about to leave Singapore or otherwise to abscond or to remove or conceal any of his property for the purpose of evading payment of calls or of avoiding examination respecting the affairs of the company, may cause the contributory, director or former director to be arrested and his books and papers and movable personal property to be seized and safely kept until such time as the Court orders.

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,

Statement of company’s affairs to be submitted to Official Receiver. 270. —(1) There shall be made out and verified in the prescribed form and manner and submitted to the Official Receiver or the liquidator, as the case requires, a statement as to the affairs of the company as at the date of the winding up order showing — (a) the particulars of its assets, debts and liabilities; (b) the names and addresses of its creditors; (c) the securities held by them respectively; (d) the dates when the securities were respectively given; and (e) such further information as is prescribed or as the Official Receiver or the liquidator requires.

(2) The statement shall be submitted by one or more of the persons who are, at the date of the winding up order, directors, and by the secretary of the company, or by such of the persons hereinafter mentioned as the Official Receiver or the liquidator, subject to the direction of the Court, requires, that is to say, persons — (a) who are or have been officers of the company; (b) who have taken part in the formation of the company at any time within one year before the date of the winding up order; or (c) who are or have been within that period officers of or in the employment of a corporation which is, or within that period was, an officer of the company to which the statement relates. (3) The statement shall be submitted within 14 days after the date of the winding up order or within such extended time as the Official Receiver or the liquidator or the Court for special reasons specifies, and the Official Receiver or the liquidator shall within 7 days after its receipt cause a copy of the statement to be filed with the Court and lodged with the Registrar and, where the Official Receiver is not the liquidator, shall cause a copy to be lodged with the Official Receiver. (4) Any person making or concurring in making the statement required by this section may, subject to the rules, be allowed, and be paid, out of the assets of the company, such costs and expenses incurred in and about the preparation and making of the statement as the Official Receiver or the liquidator considers reasonable subject to an appeal to the Court. (5) Every person who, without reasonable excuse, makes default in complying with the requirements of this section shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $5,000 or to imprisonment for a term not exceeding 12 months or to both and also to a default penalty. 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 EFFECT OF WINDING UP ON RIGHTS OF CREDITOR AS TO EXECUTION PROCESS Creditors’ rights of execution or attachment affected -> restriction of rights of creditor as to executin or attachment s334 s 260 Any attachment, distress or execution after WU is void Avoidance of certain attachments, etc. 260. Any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of the winding up by the Court shall be void. Restriction of rights of creditor as to execution or attachment. 334. —(1) 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, but — (a) where any creditor has had notice of a meeting having been called at which a resolution for voluntary winding up is to be proposed, the date on which the creditor so had notice shall for the purposes of this section be substituted for the date of the commencement of the winding up; (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. (2) For the purposes of this section — (a) an execution against goods is completed by seizure and sale; (b) an attachment of a debt is completed by receipt of the debt; and (c) an execution against land is completed by sale or, in the case of an equitable interest, by the appointment of a receiver. 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

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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 s 334 Any execution that is not fully satisfied before commencement of WU may be avoided Exceptions – Purchaser in good faith from bailiff Court’s discretion as to whether to favour the creditor & to what extent

d) e)

EFFECT OF WINDING UP ON EXECUTION PROCESS (a) Effect : Creditor must complete execution before the date of commencement of WU, if execution not complete, creditor cannot retain the goods. i. Writ of Seizure & Sale - goods must be seized & sold ii. Garnishee - receipt of the debt by the creditor iii. Land - sale by a valid & binding contract or the appointment of a receiver note these three areas!!! If process not completed, client cannot retain monies or obtain goods.

(b) i. (c) •

Re Tiong Polestar Engineering Pte Ltd [2003] 4 SLR 1 Cashier’s order received 1 day after WU petition due to delay of 3rd party 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.

EFFECT OF WINDING UP ON LANDLORDS Distress Proceedings Landlords have no right to distrain for rent after the commencement of winding up. – s260 Section 260 CA: Avoidance of certain attachments, etc. Any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of the winding up by the Court shall be void. 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

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EFFECT OF WINDING UP ON SECURED CREDITORS - Note: The general principle is that upon the liquidation of an insolvency company, the property of the company must be applied pari passu to satisfy the claims of all its creditors.

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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 Therefore, the security is not under the liquidator’s control. The secured creditor has 3 options:

• •

(a) (b) (c)

realize the security and prove for the balance of sale proceeds as an unsecured creditor after deducting net amt realized – most common surrender security to liquidator and rank as an unsecured creditor and prove for whole debt – never happens. If do this, then giving away money. State in proof of debt partrs of security, date given and value assessed, and entitled to receive dividends only iro balance due to him after deducting alue so assed; assess value of security and claim for balance after deducting assessed value. – third party valuation. Not a prob. liq before winding up, will see whether proof of debt still current. One possible option OR has discretion to offer asset for sale if dissatisfied with valuation given by creditor

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 -:

Section 76(3) & (4) BA (3) This section shall not affect the right of any secured creditor to realise or otherwise deal with his security in the same manner as he would have been entitled to realise or deal with it if this section had not been enacted. (4) Notwithstanding subsection (3) and section 94, no secured creditor shall be entitled to any interest in respect of his debt after the making of a bankruptcy order if he does not realise his security within 6 months from the date of the bankruptcy order or such further period as the Official Assignee may determine 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. EFFECT OF WINDING UP ON ANTECEDENT TRANSACTIONS : Claw-back provisions **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. Also note: Companies (Application of Bankruptcy Provisions) Regulations [CABAR]. Regulation 3 of CABAR requires the avoidance provisions under Ss.98, 99, 100, 101, 102 and 103 BA to be read subject to the modifications set out in regulations 4 – 9; and such textual and other modifications as may be necessary for their application to a company being placed under judicial management or being wound up, as the case may be. 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. a) Section 98 BA - deals with Avoidance of ‘Transactions at an Undervalue’ • Section 98(3) BA states that an individual enters into a transaction with a person at an undervalue if – 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. he enters into a transaction with that person in consideration of marriage; or - 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. To be significant undervalue

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Mercator & Noordstar NV v Velstra Pte Ltd (in liq) [2003] 4 SLR 667 CA case: Value the consideration at the time of the transaction. The argument that the consideration was either worthless or worth significantly less than the US$5.08m because LDF subsequently went into liquidation was rejected. The court should not refer to subsequent events to determine the value of the consideration. It would gravely undermine bona fide business arrangements entered into between parties BUILDSPEED CONSTRUCTION PTE LTD [2000] 4 SLR 776 (1) Court found that the agreement was entered into within 5 years of the date upon which the winding up commenced, and so satisfied section 100(1)(a) BA – which defined the ‘relevant time’ for transaction at an undervalue. (2) Court found that at the date of entering into the agreement, the company was insolvent, and so satisfied section 100(2) & (4) BA. (3) The transaction that was entered into by the company was not done for the purpose of carrying on its business as the company had ceased its business by then. Thus, Regulation 6 CABAR was not applicable (4) Court found that the value of the consideration given was significantly less then the value of the consideration provided by the company. In this case, the consideration provided was short by $2,500.

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.

b) Section 99 BA - deals with Avoidance of ‘Unfair Preferences’ • rarely proved. Find doubt by inference fr circumstantial evidence. • Section 99(3) BA provides that 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 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 things had not been done. • Requirement under S.99(4) BA: Influenced by Desire to Prefer To constitute an unfair preference, when giving the preference, the company must have been influenced by the desire to put the creditor into a position which, in the event of the company’s insolvency, will be better than the position he would have been if the preference had not been given 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.

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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.

Re Libra Industries [2000] 1 SLR 84 Following the decision of Millett J (as he then was) in MC Bacon [1990), Kan Ting Chiu J held that Section 99 BA required that the payor of the unfair preference to have been influenced by a desire to prefer the payee in the event of the payor going insolvent. He held it was not necessary to show that there was a dominant intention (which was ‘objective’) to prefer; it was sufficient to show that the decision was influenced by the requisite desire (which was ‘subjective’) to produce the effect. Re MC Bacon [1990] BCLC 324 In this case, Millett J said that to show that a transaction was voidable as an unfair preference, it was necessary to show that the company was influenced by a desire to produce the effect (ie: to improve the creditor’s position in the event of insolvent liquidation). Millett J said that ‘desire’ was subjective in nature. No longer

nec to est dominant intention to prefer. As long as one of factors which operated on mind of person who made decision reqt is satisfied. 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 Section 101 BA - defines the concept of an “Associate” - Presumption to desire : Associate - Regulation 4 of CABAR seeks to modify the BA when applying the concept of “associate” to a company which is being wound up. Regulation 4 CABAR states that any reference to an ‘associate’ of an individual shall be read as a reference to a ‘person connected with a company’. - Regulation 2 CABAR defines ‘a person connected with a company’ to mean a person who is: (a) a director or shadow director of the company or an associate of such a director or shadow director; or (b) an associate of the company. “person connected with the company” (dir/shadow dir)  Show Theatres Pte Ltd v Shaw Theatres [2002] 4 SLR 145  2 co with a common director are connected persons  Mercator & Noordstar NV v Velstra Pte Ltd (in liq) [2003] 4 SLR 667 s101(6) & (9) : As long as co could have exercised control, it is an associate of the wound up co. Irrelevant that the co did not exercise control.  Re Tiong Polestar Engineering (S) Pte Ltd [2003] 4 SLR 1

 

Associate company; unfair preference

[Note: Section 103 BA deals with Extortionate Credit Transactions] Show Theatres Pte Ltd v Shaw Threatres [2002] 4 SLR 145 o Facts: o The first and second respondents (respectively, “STPL” and “EWPL”) incorporated the appellants (“Show Theatres”), between them held all their shares., and the two Shaws and Goh were also directors of STPL and EWPL respectively. o The respondents gave two loans to Show Theatres, which later repaid them despite their being insolvent.

o
o

Show Theatres’ liquidator considered the repayment constituted an unfair preference and applied, unsuccessfully, to have the repayments returned. This was because the repayments were not made to “persons connected” with Show Theatres, and were made more than six months before they were placed under liquidation (see [2002] 2 SLR 144). On appeal, the issue was whether the respondents were “persons connected” (ASSOCIATE) with Show Theatres when the repayments were made. Held: By virtue of s 101(4), the three directors of Show Theatres were to be treated as employed by the respondents as they were also the respondents’ directors. Hence, the two Shaws were associates of STPL and vice versa; similarly for EWPL and Goh. Where two companies had a common director or directors, one company would be treated as connected with the other.

o

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. Re Tiong Polestar Engineering (S) Pte Ltd [2003] 4 SLR 1 o It was not disputed that TAM was an associate company under s 99 and 100(1)(b) of the Bankruptcy Act (‘BA’). However, it was argued that the definition of ‘associate’ as applicable to companies was found in the Companies (Application of Bankruptcy Act Provisions) Regulations (‘the 1995 Regulations’) which were ultra vires because (i) they should have been prescribed under s 410 CA by the Rules Committee instead of by the Minister under s 411 CA; and (ii) because the 1995 Regulations should have been made under the BA and not the CA. o The definition of ‘prescribed’ in s 2 CA includes ‘prescribed under the Act’ and ‘Act’ is defined as including ‘any regulations’. As such the 1995 Regulations were valid whether prescribed under the CA or the regulations (s 411 CA) or the rules (s 410 CA). o The 1995 Regulations were correctly made under the CA because they were intended to apply certain bankruptcy provisions to companies. c) s331 – sale to director d) s103 BA imported by civil law act – extortionate credit transactions above also subj to clawback principles must be act of comp or indiv. If act of parent then no issue. Recipient can be traced Principle being – whenever there is clawback, any recipient can be affected. But general rule is qualified by see s102(3)(b) BA – order under those sns shal nto prej interest in property acqd by person other than tt indiv ie the bankrupt. If receive direct, then applies but if does not receive direct – then if acqd in good faith, for good value and without notice of relevant circumstances. (// common law bona fide purchaser defence) WINDING UP AND FRAUDULENT TRADING Fraudulent trading [s329 CA] o Happens when the directors carry on business with a view to deceiving the creditors o When the coy is winding up, even the creditors can go to court to make the officer or directors personally liable If prior to winding pu any business carried on with intention of defeating of defradugin creditors or any fraudnlent purpose, creditor, kiquidator or contributory may apply to cour tot make person resp for or party to activities to be personally liable for debs of company s340 Also penal conseq and persons involved are liable on conviction to fine not exceeding 15000 or term of imprisonment up to 7 yrs or both

Responsibility for fraudulent trading. 340. —(1) If, in the course of the winding up of a company or in any proceedings against a company, it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court, on the application of the liquidator or any creditor or contributory of the company, may, if it thinks proper to do so, declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court directs. (2) Where a person has been convicted of an offence under section 339 (3) in relation to the contracting of such a debt as is referred to in that subsection, the Court, on the application of the liquidator or any creditor or contributory of the company, may, if it thinks proper to do so, declare that the person shall be personally responsible without any limitation of liability for the payment of the whole or any part of that debt. (3) Where the Court makes any declaration pursuant to subsection (1) or (2), it may give such further directions as it thinks proper for the purpose of giving effect to that declaration, and in particular may make provision for making the liability of any person under the declaration a charge on any debt or obligation due from the company to him, or on any charge or any interest in any charge on any assets of the company held by or vested in him or any corporation or person on his behalf, or any person claiming as assignee from or through the person liable or any corporation or person acting on his behalf, and may from time to time make such further order as is necessary for the purpose of enforcing any charge imposed under this subsection. (4) For the purpose of subsection (3), assignee includes any person to whom or in whose favour by the directions of the person liable the debt, obligation or charge was created, issued or transferred or the interest created, but does not include an assignee for valuable consideration (not including consideration by way of marriage) given in good faith and without notice of any of the matters on the ground of which the declaration is made. (5) Where any business of a company is carried on with the intent or for the purpose mentioned in subsection (1), every person who was knowingly a party to the carrying on of the business with that intent or purpose shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $15,000 or to imprisonment for a term not exceeding 7 years or to both. (6) Subsection (5) shall apply to a company whether or not it has been, or is in the course of being, wound up. (7) This section shall have effect notwithstanding that the person concerned is criminally liable apart from this section in respect of the matters on the ground of which the declaration is made. (8) On the hearing of an application under subsection (1) or (2), the liquidator may himself give evidence or call witnesses. WINDING UP AND RETENTION OF TITLE CLAUSES S227H9 - definition Power to deal with charged property, etc. 227H. (9) For the purposes of sections 227C and 227D and this section — "retention of title agreement" means an agreement for the sale of goods to a company, being an agreement — (a) which does not constitute a charge on the goods; but (b) under which, if the seller is not paid and the company is wound up, the seller will have priority over all other creditors of the company as respects the goods or any property representing the goods. 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. RIGHT TO SET OFF Section 88 BA read with Section 327(2) of the Companies Act. Section 327(1) CA provides for S.88 BA to be applicable in the winding up of an insolvent company. Section 88 BA deals with set-off: Mutual credit and set-off 88. —(1) Where there have been any mutual credits, mutual debts or other mutual dealings between a bankrupt and any creditor, the debts and liabilities to which each party is or may become subject as a result of such mutual credits, debts or dealings shall be set-off against each other and only the balance shall be a debt provable in bankruptcy. (2) There shall be excluded from any set-off under subsection (1) any debt or liability of the bankrupt 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 application relating to the bankrupt was pending. Effect is that creditor becomes a secured creditor for that amount. 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)

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‘Set-off’ rule is Mandatory:

Note: The rule providing for set-off is mandatory, and may not be excluded by agreement between the company and the creditor: Natwest Bank v. Halesowan Presswork & Assemblies [1972] AC 785.

Only “provable debt” may be set-off • Section 88(2) BA makes it clear that only provable debs may be set-off. It also makes it clear that any debt or liability, incurred at the time when the creditor has notice of the winding up petition, cannot be set-off. 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.

Time for determining ‘mutuality’ • Is at the date of commencement of winding up Meaning of mutuality of dealing

For mutuality of dealings to exist, 2 conditions must generally be satisfied: (per Lai J in Good Property Land Development Pte Ltd v. Societe Generale [1996] 2 SLR 239) (a) Each claimant must be personally liable for the debt owed to the other claimant (liability must be established) (b) Each claimant must beneficially own the claim which is owed to him by the other claimant, and his ownership interest in that claim must be clear and ascertainable without inquiry.

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 EFFECT OF WINDING UP ON FLOATING CHARGES Section 131 CA provides for the Registration of Floating Charges A charge over the assets of the company which is required to be registered under Section 131 CA, but which is not registered, is void against the liquidator and any creditor of the company. 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. • Section 330 CA: Effect of Floating Charges created by the Company

Effect of floating charge. 330. A floating charge on the undertaking or property of the company created within 6 months of the commencement of the winding up shall, unless it is proved that the company immediately after the creation of the charge was solvent, be invalid 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 together with interest on that amount at the rate of 5% per annum. Floating charges given 6 months prior to winding up is invalid, if the coy was insolvent at that time Fixed charge: 3 months 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. But cash advanced at time of or after creation is regarded as an unsecured debt s 328(5) & s 226

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Certain preferred creditors given priority over floating chargee Liquidator’s expenses, wages, retrenchment benefits, CPF, tax Receive payment out of floating charge assets and surplus to floating chargee

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. Section 87 BA read with Section 327(2) of the Companies Act • The types of debts which are provable in the winding up of an insolvent company are generally the same as those in bankruptcy.


This is the effect of Section 327(2) CA, which imports the rules relating to provability of debt in the law of bankruptcy, and makes them applicable to the winding up of a company – see above What debts may be proved? Section 87 BA defines the types of debts which are provable in bankruptcy (ie: and also for winding up of companies by virtue of S.327(2) CA).

In short, a debt is provable it is has been incurred before the date of the winding up order. If the creditor incurred a debt with the company when he had notice of the winding up petition, the creditor cannot prove for the debt.

Description of debts provable in bankruptcy 87. —(1) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust shall not be provable in bankruptcy. (2) A person having notice of the making of a bankruptcy application shall not prove under the bankruptcy order made thereon for any debt or liability contracted by the bankrupt subsequently to the date of his so having notice. (3) Subject to this section and section 90, any debt or liability to which the bankrupt — (a) is subject at the date of the bankruptcy order; or (b) may become subject before his discharge by reason of any obligation incurred before the date of the bankruptcy order, and any interest on such debt or liability which is payable by the bankrupt in respect of any period before the commencement of his bankruptcy shall be provable in bankruptcy. (4) An estimate shall be made by the Official Assignee of the value of any debt or liability provable under this section which, by reason of its being subject to any contingency or contingencies, or for any other reason, does not bear a certain value. (5) Any person aggrieved by any such estimate may appeal to the court. (6) If in the opinion of the court the value of the debt or liability is incapable of being fairly estimated, the court may make an order to that effect, and thereupon the debt or liability shall, for the purposes of this Act, be deemed to be a debt not provable in bankruptcy. (7) If in the opinion of the court the value of the debt or liability is capable of being fairly estimated, the court may assess the same and may give all necessary directions for this purpose, and the amount of the value when assessed shall be deemed to be a debt provable in bankruptcy. (8) An amount payable under any order made by a court under any written law relating to the confiscation of the proceeds of crime shall be provable in bankruptcy. • Failure to file proof of debt within time stipulated by the liquidator Failure by a creditor to file proof of debt within the time frame stipulated by the liquidator does not extinguish his claim for distribution of future dividends; it only resulted in his exclusion from any distribution of dividends made before the debts were proved. (This of course depends on whether it is an interim or a final dividend) if misses first dividnd, usu very little money left

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Rule 91, Companies (Winding Up) Rules The liquidator in any winding up may from time to time fix a day on or before which the creditors of the company are to prove their debts or claims, or be excluded from the benefit of any distribution made before the debts are proved. 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. • Provability of interest: Section 94 BA Section 94 BA deals with the provability of interest. The interest on the debt proved by a creditor is set by the Bankruptcy Rules (Rule 87) at 6% until the date of the winding up order. Thereafter, any higher (contractual) interest on the debt is to be paid out from any surplus.

Section 94(1) BA: Interest on debts Where a debt which has been proved in a bankruptcy includes interest, that interest shall, for the purposes of distribution of dividend, be calculated at such rate as may be prescribed by the rules without prejudice to the

right of any creditor to receive out of the surplus of the estate after all the debts proved in the bankruptcy have been paid in full any higher rate of interests to which he may be entitled.

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Liquidator to act in a quasi-judicial capacity in admitting or rejecting each proof of debt.

Rule 92 of the Companies (Winding Up) Rules The liquidator shall examine every proof of debt lodged with him and the grounds of the debt, and shall in writing admit or reject it, in whole or in part, or require further evidence in support of it. If he rejects a proof he shall state in writing in the Form 48 set out in the First Schedule to the creditor the grounds of the rejection. Westpac Banking Corp. v. Totterdell [1998] 29 ACSR 448 Held: The decision of a liquidator to admit or reject a proof of debt was not a discretionary management decision. It was a decision taken by the liquidator acting in a quasi-judicial capacity while discharging an adjudicatory function. 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. Appeal by dissatisfied creditor - A creditor who is dissatisfied with the decision of the liquidator may apply to the court to reverse or vary the liquidator’s decision. Rule 93 of the Companies (Winding Up) Rules If a creditor or contributory is dissatisfied with the decision of the liquidator in respect of a proof, the Court may, on the application of the creditor or contributory, reverse or vary the decision; but subject to the power of the Court to extend the time, no application to reverse or vary the decision of the liquidator in a winding up by the Court rejecting a proof sent to him by a creditor, or person claiming to be a creditor, shall be entertained, unless notice of the application is given before the expiration of 21 days from the date of service of the notice of rejection. Procedure for filing Proof of Debt - the creditor must file Form 77 [Second Schedule, Companies Regulations) Form 77 : paper submission & e-filing Rule 81(1) of the Companies (Winding Up) Rules A statutory declaration proving a debt shall be in the Form 77 set out in the Second Schedule to the Companies Regulations and shall contain a statement of account showing the proof of debt and shall specify the vouchers, if any, by which the debt can be substantiated. Interest (RULE 87): Interest computed until date of WU order at 6% and thereafter higher (contractual) interest to be paid out from the surplus if any rarely used – not enough money to pay debt, not to say interest 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.

Exception to the Pari Passu Rule

(a)

(b)

Secured creditors stand outside the liquidation regime. The pari passu rule of distribution does not apply to creditors who have proprietary interests over the company’s assets. Section 76(3) BA makes it clear that that the winding up order does not affect the right of the secured creditor to realize or deal with his security. Preferential Creditors provided under Section 328 CA

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. 22/93. (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). 22/93. (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. 22/93. (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. 22/93. (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) — 22/93. (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. 22/93. (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. • Order of Priority for Preferential Creditors – Section 328 CA Section 328(1) CA provides that in a winding up, the following shall be paid in priority to all other unsecured debts (a) First, the costs and expenses of the winding up, including the taxed costs of a petitioner payable under s.256, the remuneration of the liquidator etc. (b) Second, all wages or salaries, including amount payable as allowance or reimbursement not exceeding amt eq to 5 mths salary whether for time of piecework iro services or 7500 whichever is lesser (c) Third, retrenchment benefit or ex gratia payment equiv to 5 mths salary or 7500 whichever lesser (d) Fourth, workmen’s compensation under workmen’s compensation act

(e) Fifth, contributions by company as employer provided under any written law (ie: CPF) payable during 12 mths next before comemncemtn of winding up (f) Sixth, remuneration payable to employee in respect of vacation leave (g) Seventh, all taxes and GST due (IRAS)

ORDER OF PRIORITY FOR DISTRIBUTION OF DIVIDENDS (1) Secured Creditors (2) Cost of Winding Up (liquidator’s fees etc) (3) Employee’s Wages & Salaries (4) Retrenchment Benefits (5) Workmen’s Compensation (6) Employer’s contribution to CPF (7) Remuneration for Vacation Leave (7) Tax – IRAS (8) All Other Unsecured Creditors (9) Surplus assets will be distribution to the contributories 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

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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 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

Release of liquidators and dissolution of company. 275. When the liquidator — (a) has realised all the property of the company or so much thereof as can in his opinion be realised, without needlessly protracting the liquidation, and has distributed a final dividend, if any, to the creditors and adjusted the rights of the contributories among themselves and made a final return, if any, to the contributories; or (b) has resigned or has been removed from his office, he may apply to the Court — (i) for an order that he be released; or (ii) for an order that he be released and that the company be dissolved. Court’s orders for Release of Liquidator or Dissolution of Company – Section 276 CA

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The Court may require the preparation of a report on the accounts of the liquidator by the Official Receiver or by some approved company auditor: Section 276(2) 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

As to orders for release or dissolution. 276. —(1) Where an order is made that the company be dissolved, the company shall from the date of the order be dissolved accordingly. (2) The Court — (a) may cause a report on the accounts of a liquidator, not being the Official Receiver, to be prepared by the Official Receiver or by a public accountant appointed by the Court; (b) on the liquidator complying with all the requirements of the Court, shall take into consideration the report and any objection which is urged by the Official Receiver, auditor or any creditor or contributory or other person interested against the release of the liquidator; and (c) shall either grant or withhold the release accordingly. (3) Where the release of a liquidator is withheld, the Court may, on the application of any creditor or contributory or person interested, make such order as it thinks just charging the liquidator with the consequences of any act or default which he may have done or made contrary to his duty. (4) 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. (5) Where the liquidator has not previously resigned or been removed his release shall operate as a removal from office. (6) Where the Court has made — (a) an order that the liquidator be released; or (b) an order that the liquidator be released and that the company be dissolved, a copy of the order and an office copy of the order shall, within 14 days after the making thereof, be lodged by the liquidator with the Registrar and with the Official Receiver, respectively and a liquidator who makes default in complying with the requirements of this subsection shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $2,000 and also to a default penalty. 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.

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Termination of the company’s existence Dissolution may be declared void on application of liquidator or interested person within 2 years - s 343 for vol liqns, comp also dissolved 3 mths after private liqr files his return on holding of final meeting s308 comp also dissolved if struck off by registrar of comp if satisfied tt it is defunct comp s344 All assets of defunct company vest in OR –

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OR will be vested with title to all utstanding poperty in defunct comp not disposed of and may deal with it in any matter s346 and 347 All unclaimed assets will be paid to OR and will be transferred to govt’s consol fund after 7 yrs unless claim made earlier Claimant can make claim for monies even after it is paid into consolidated fund s322 Co assets discovered after dissolution – hardly because creditors usu obj to dissolution beforehand. unclaimed dividends – may involve monies or properties s 345 to 348 OR also given auth to act as rep of defunct comp in execution of docs or completn of transaction or matter which his of admin nature s345

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Official Receiver to act as representative of defunct company in certain events. 345. —(1) Where, after a company has been dissolved, it is proved to the satisfaction of the Official Receiver — (a) that the company, if still existing, would be legally or equitably bound to carry out, complete or give effect to some dealing, transaction or matter; and (b) that in order to carry out, complete or give effect thereto some purely administrative act, not discretionary, should have been done by or on behalf of the company, or should be done by or on behalf of the company, if still existing, the Official Receiver may, as representing the company or its liquidator under this section, do or cause to be done any such act. (2) The Official Receiver may execute or sign any relevant instrument or document adding a memorandum stating that he has done so in pursuance of this section, and such execution or signature shall have the same force, validity and effect as if the company if existing had duly executed such instrument or document. Aust.s.309. Outstanding assets of defunct company to vest in Official Receiver. 346. —(1) Where, after a company has been dissolved, there remains any outstanding property, movable or immovable, including things in action and whether in or outside Singapore which was vested in the company or to which it was entitled, or over which it had a disposing power at the time it was so dissolved, but which was not got in, realised upon or otherwise disposed of or dealt with by the company or its liquidator, such property except called and uncalled capital, shall, for the purposes of the following sections of this Subdivision and notwithstanding any written law or rule of law to the contrary, by the operation of this section, be and become vested in the Official Receiver for all the estate and interest therein legal or equitable of the company or its liquidator at the date the company was dissolved, together with all claims, rights and remedies which the company or its liquidator then had in respect thereof. (2) Where any claim, right or remedy of the liquidator may under this Act be made, exercised or availed of only with the approval or concurrence of the Court or some other person, the Official Receiver may for the purposes of this section make, exercise or avail himself of that claim, right or remedy without such approval or concurrence. Aust.s.310. Outstanding interests in property how disposed of. 347. —(1) Upon proof to the satisfaction of the Official Receiver that there is vested in him by operation of section 346 or by operation of any corresponding previous written law or of a law of a designated country corresponding with section 354 any estate or interest in property, whether solely or together with any other person, of a beneficial nature and not merely held in trust, the Official Receiver may sell or otherwise dispose of or deal with such estate or interest or any part thereof as he sees fit. (2) The Official Receiver may sell or otherwise dispose of or deal with such property either solely or in concurrence with any other person in such manner for such consideration by public auction, public tender or private contract upon such terms and conditions as he thinks fit, with power to rescind any contract and resell or otherwise dispose of or deal with such property as he thinks expedient, and may make, execute, sign and give such contracts, instruments and documents as he thinks necessary. (3) The Official Receiver shall be remunerated by such commission, whether by way of percentage or otherwise, as is prescribed in respect of the exercise of the powers conferred upon him by subsection (1). (4) The moneys received by the Official Receiver in the exercise of any of the powers conferred on him by this Subdivision shall be applied in defraying all costs, expenses, commission and fees incidental thereto and thereafter to any payment authorised by this Subdivision and the surplus, if any, shall be dealt with as if they were unclaimed moneys paid to the Official Receiver in pursuance of section 322.

Liability of Official Receiver and Government as to property vested in Official Receiver. 348. Property vested in the Official Receiver by operation of this Subdivision or by operation of any corresponding previous written law shall be liable and subject to all charges, claims and liabilities imposed thereon or affecting such property by reason of any statutory provision as to rates, taxes, charges or any other matter or thing to which such property would have been liable or subject had such property continued in the possession, ownership or occupation of the company; but there shall not be imposed on the Official Receiver or the Government any duty, obligation or liability whatsoever to do or suffer any act or thing required by any such statutory provision to be done or suffered by the owner or occupier other than the satisfaction or payment of any such charges, claims or liabilities out of the assets of the company so far as they are in the opinion of the Official Receiver properly available for and applicable to such payment. • When the conduct of the winding up has been completed, the company will be formally dissolved and it will thereon cease to exist. Declaration that dissolution was void – Section 343 CA An application may be made to the Court by the liquidator or an interested party within 2 years for a declaration that the dissolution be void.

Power of Court to declare dissolution of company void. 343. —(1) Where a company has been dissolved, the Court may at any time within two years after the date of dissolution, on application of the liquidator of the company or of any other person who appears to the Court to be interested, make an order upon such terms as the Court thinks fit declaring the dissolution to have been void, and thereupon such proceedings may be taken as might have been taken if the company had not been dissolved. (2) The person on whose application the order was made shall, within 7 days after the making of the order or such further time as the Court allows, lodge with the Registrar and with the Official Receiver a copy of the order and an office copy of the order, respectively, and if he fails to do so shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $1,000. • All assets of defunct company vest in Official Receiver In an appropriate case, the Official Receiver may deal with any outstanding matters on behalf of the company which has been dissolved. These are dealt with by Sections 345 – 348 of the Companies Act: 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 Reasons for Insolvency Overtrading o Directors expand the business, without a corresponding expansion in the assets of the coy Declining industry o e.g. Defalcation by employees and directors o Where the directors treat the assets of the coy as their own, and over a long period, may have dissipated a large part of the coy’s assets

The Receiver Liquidator – may be personally held liable for costs – receivership cannot disclaim personal liab either For jm, can escape personal liab Most flexible but also most risky A Receiver is an authorized person entering into possession of any assets of a company for the purpose of enforcing any charge, fixed or floating, for the benefit of the debenture holder(s). Less procedural, cos normal appointment is under the terms of debentures 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 Circumstances under which receiver appted: o Debenture normally prov tt bank may at any time after principal sum becomes due appt receiver o Principal sum becomes immed payable in any of events following  On dd made by bank  On comp ceasing or threatening to cease to carry on business

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On distress or execution being levied on or issued against any of property of comp and not paid by comp within 7 days On order being made or effective resoln passed for winding up of comp other than for purposes of reconstruction of amalgamation Receiver of comp’s undertaking or proerty or any part thereof being appted and such appted being deemed by bank to be prejudicial to debenture or security created Comp committing or threatening to commit beach of covenant or stipulation and to e observed or performed and failing to remedy it after notie fr bank reqg it to do so

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. Receiver vs Receiver & Manager • Receiver – gather in the charged assets • Receiver and Manager – power to run the business with a view to realize the assets as a going concern 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

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Other preliminaries to appointment

Time to appoint Debenture holders alwys wait to last minute to appt receivers o 1. nobody likes to pull plug o 2. dirs alwys fight hard to keep it going – ask for few more mths and in sg, bankers do wait by this time, recovery is affected because assets dissipated so diff to save company at end of day Very often banks appoint receivers too late, so that they will not be able to recover as much as they would have it the coy was put into receivership earlier This is because they don’t want to be seen as not accommodating etc 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 Debenture and its validity Impt first step First check whether can act as receiver Also look at debventure and go to law firm and check whether apptment is valid Steps o 1. themselves – whether can accept o 2. whether it is valid – eg banks mst comply with notice reqt dne very fiast within day or two so tt don’t lose control of assets 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

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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)

Types of security that receiver to realize 1.

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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. 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 Fixed & Floating Charges • A fixed or specific charge is one that attaches to a specified asset; can also apply to book debts • Generally, a charge is floating if it has the following characteristics: o if it is a charge on a class of assets of a company present and future o if that class is one which, in the ordinary course of the business of the company, would be changing from time to time o if it is contemplated that until some future step is taken by or on behalf of those interested in the charge the company may carry on its business in the usual way as far as concerns the particular class of assets in question

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3.

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Crystallization of Floating Charges

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• Until a floating charge crystallizes, it remains ambulatory and shifting and the chargor is at liberty to use the assets charged. The charge only becomes fixed when an event occurs which crystallizes it. This may occur upon: o Appointment of a Receiver o Winding up of a company  NOTE: Comp can be in liqn and have receiver over it as well o Debenture holder can appt receiver and manager under debenture o He takes control of assets o Sole duty is to realize assets and pay debengture holder o All other creditors wait o Unsecured creditors wiat o They may go to lawyer and ask for comp to be wound up o Liquidator then appted o But liquidator does not control asset tt fals under debenture o Receiver does o Liquidator to wait until receiver has finishd his work o So comp can have both at the same time o No pt however for windin u0p because cant touch assets anyway o But he can look over shoulder of receiver – good value? Fees charging? o Cessation of company’s business o Option exercised by creditor if provided for in debenture – terms tt lawyers will draft – can state any term which if breached can alow creditor to appt receiver/ crystallization of charge

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

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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


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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

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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 Liab – generally an agent.  Personal liab re sectn 227/ s218  Cost of preparing SOA Enforcement of duty and liab for misfeasance and breach of trust/duty s227 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

Realization of Assets by receiver - • Assets under fixed charge – All proceeds go to Debenture Holder - • Assets under floating charge – Proceeds applied towards preferential claims ( Sect 226 Co. Act read with Sect 328(5) Co. Act ) 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

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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

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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

Receiver’s Duty of Care (towards other creditors) • Primary duty to Debenture Holder • Duty of care also owed to the Guarantors or even the Company in the realization of the assets 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 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

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• Special ⁻ 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

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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.

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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

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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.

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• 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:

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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)

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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)

Circumstances where company can make an application for JM

(1) (2)

unable to pay its debts; and  petitioner has to show that the company unable to pay it has to be in the interests of the creditors of the company

Petitioner has to prove to the satisfaction of the court that: Unable to pay debts & Achieve one of the following: (1) survival of the company (2) approval under s210 (scheme of arrangement) (3) more advantageous realization

(4) [the business reasons must also be sound, have to have a business basis for putting the company into JM… if no one wants to buy the goods, then no real business reason for allowing a JM] 2 reasons why the company finds itself in difficulties (1) Internal reasons: weak management: not enough employees, not enough know-how (2) External reasons: market shortage the court will look at both the internal and external factors and see whether there is hope of recovery the person petitioning has to address, in his petition, why despite the failure and difficulties faced by the company now, there is a chance that they can recover Who can make the application? Company, through it directors (after passing resolutions) Any creditor can also make a petition for JM o ==> normally the costs of petitioning are borne by the company when the petition is successful, and where the petition is unsuccessful, then it will be borne by the petitioner If a petitioner makes a petition for JM, a notice of petition has to be published in the Gazette and a Chinese and English Daily, and the petition has to be served on the company (if petition made by creditor), and petition has to be served on any and all debenture holders also Why must serve notice of petition on debenture holder? o COS the debenture holder may have both a fixed and floating charge, and the debenture holder may have the right to appoint a receiver and manager o And at the hearing of the appointment of JM, if the debenture holder states that he wants to appoint receiver and manager, then no JM order will be given o This is cos debenture holder has priority o However, if the debenture holder does not appear in court to contest, and a JM is appointed, he cannot later try and appoint a receiver and manager

Restrictions on when JM can be ordered Instances when JM order will not be made: o • When liquidation has commenced/ in progress  Once the company is in liquidation, cannot later put the company into liquidation o • For Banks, Finance or Insurance companies  Cos they are governed by separate Acts o When a receiver is already in place (unless it is deemed in the interest of the public to do so)  when someone goes to court and petitions for JM order, notice msyt be given to relevant parties one of hwom is the debenture holder – esp where there is charge of substnail part of assets of company  with notice, debenture hlde rif wants to stop JM, he must appear in court – can say tt he wants to appt receiver and manager  law in UK – sufficient for debenture holder to go to court and say tt he is thinking of apptg receiver. Then JM order may not be granted  JM out in the open – officer of court – (c.f. receiver) – so more scrutiny of what he does  Bintan case – court x appt JM because receiver already in place o After Receiver and Manager has been appointed, no JM 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

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 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

General Powers & Duties of a JM – Section 227G • Control & custody of assets • Management powers as governed by the articles & memorandum of association • Summon meetings of creditors to approve proposals Implement proposal o Make proposals in writing o To have creditors vote and approve the proposal o If creditors approve, then have to go to court to get sanction o Only then, can the JM implement the proposal - • Exercise powers under the companies act and the 11th schedule Proposals - From date of appointment, have 60 days to send proposals to o Registrar of Companies o Creditors o Shareholders Approval is by creditors majority in number and value o if the company owes the creditors $10M, and there is no way can pay the creditors in full under the proposals… the JM may tell the creditors that they will pay them in 3 years 80%, and have to wait for rest of 20% o may in 3-5 years… all the money o Where you have a scheme under s210, require majority in number and ¾ in value Modifications – have to go back to the court o Cos when implementing original proposal, had to have court’s sanction, hence, when modifications are substantial, have to go back to the court 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

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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. o

Winding up & Receivership once the company is in JM, no creditor can petition for winding up. And no debenture holder can appoint receiver and manager note that notice would have been given to the debenture holders so no prejudice can be raised. 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 Priority Payments of Creditors • No Priority • Sec 328 Co. Act does not apply • Court has power to vary • No priority in a judicial management technically under s227 law states clearly tt cannot pay evenone dollar of pre JM debt – need approval of court o if small payment, pay first – lawyer go and justify – this is in breach of CA! • Section 328 does not apply o salaries/ etition leaves/ CPF etc o x apply o all rank equally o CPF board – if oit goes to court prior to the scheme meeting and tell court not to allow meeting because in liqn, preferential – not clear. Where goes AFTER meeting, cannot be referential. • Court ultimately has the power to vary 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 by creditors or shareholders [s227r] o Creditors and shareholders can make application to court when they feel that they have been unduly prejudiced

Protection of interests of creditors and members. 227R. --(1) At any time when a judicial management order is in force, a creditor or member of the company may apply to the Court by petition for an order under this section on the ground — (a) that the company’s affairs, business and property are being or have been managed by the judicial manager in a manner which is or was unfairly prejudicial to the interests of its creditors or members generally or of some part of its creditors or members (including at least himself) or of a single creditor that represents one quarter in value of the claims against the company; or (b) that any actual or proposed act or omission of the judicial manager is or would be so prejudicial. (2) On a petition for an order under this section, the Court may make such order as it thinks fit for giving relief in respect of the matters complained of, or adjourn the hearing conditionally or unconditionally, or make an interim order or any other order that it thinks fit. Review by the Court o When applying for sanction by the court, the court may impose condition for the JMs to report to the court every few months o court will NOT ask for rpoert every time, but done in one case o ie can be reviewed at any time by the court

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. these sections are actually imported into the JM regime o Offences under CA s337, 340, 341, 342 o 227 – all these sections can apply to comp under JM as they would apply in liquidation

Effect of the provisions s.337: inducement to be liquidator – offence s340: liquidator or any creditor or contributory of the company, may, if it thinks proper to do so, declare that any person who was knowingly a party to the carrying on of the business intending to defraud shall be personally responsible s.341: Court may (on application of liquidator or any creditor) order delinquent officers of the company at start or during the coy’s existence to be liable for any money or property of the company or been guilty of any misfeasance or breach of trust or duty in relation to the company s.342: Criminal prosecution of the offending officer Committee of inspection

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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

creditors committee (for JM) JM more complicated than liquidation Unlike liquidation – here, shrs also have seats – no decision making auth but directors may become part of cred committee because most curcial aspect of this is runin business Dirs best persosn to run company Many times during JM, cooperation of dir very impt – but usu they are shut out

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