STANDING OF SHAREHOLDER / CONTRIBUTORY TO OPPOSE WINDING UP APPLICATION
In Atlas Equifin Pte Ltd v Electronic Cash and Payment Solutions (S) Pte Ltd (Andy Lim and others, non-parties) [2022] SGHC 258 (“Atlas Equifin”), Goh Yihan JC (“Goh JC”) held that the shareholder-contributory had standing to challenge the creditor’s winding up application and did so successfully, leading to Goh JC dismissing the winding up application.
Facts. The claimant made an application under s 125(1)(e) of the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (“IRDA”) for a winding up order to be made against the defendant (at [1]).
The basis of the claimant’s application was that (at [1]):
The defendant’s Indian subsidiary, Equity Capital Advisors (India) Private Limited (“ECAPS India”), entered into a Loan Credit Facility with the claimant;
The defendant entered into a guarantee (“the Guarantee”) to pay the claimant all sums due and payable by ECAPS India;
ECAPS India defaulted on its payment and the defendant failed to satisfy the Guarantee;
The claimant proceeded to issue a statutory demand to the defendant which was not complied with.
What was important was that Mr Rakesh Kumar Aggarwal (“Rakesh”), who executed the Guarantee on behalf of the defendant, was both a director of the defendant as well as the director and controlling shareholder of the claimant that provided the loan (at [5]).
Ms Monica Kochhar (“Monica”, the second non-party), who was a 32.6% shareholder and contributory of the defendant, sought and obtained leave to oppose the winding up application (at [2]).
Goh JC considered that there were three issues before him in the present application (at [10]):
“(a) First, whether the claimant had made out the relevant ground for the defendant to be wound up.
(b) Second, whether Monica had legal standing to oppose the claimant’s winding up application.
(c) Third, if Monica had such legal standing, whether she had successfully challenged the claimant’s application.”
This article will focus on what Goh JC described as the “relatively unexplored issue” (at [3]) of the legal standing of a shareholder-contributory, who is not a creditor, to oppose a winding up application made against the company.
Ground for winding up. As a starting point, Goh JC was satisfied that the claimant had made out the ground for the defendant to be wound up on the basis that the defendant was unable to pay its debts under s 125(1)(e) read with the deeming provision in s 125(2)(a) of the IRDA (at [11] – [13]).
This was not disputed by Monica, who based her objections on the validity of the Guarantee that gave rise to the defendant’s debt (at [13]).
However, it is trite that while the creditor is prima facie entitled to a winding up order ex debitio justitiae, the court still retains the discretion to decline to make the winding up order (at [11]).
Furthermore, the Court found that the claimant could not obtain an order for winding up on this ground alone, in light of Monica’s opposition (at [12]).
Legal standing to oppose. As a preliminary point, Goh JC mentioned that as Monica had been granted leave by a High Court judge to file her affidavit to oppose the claimant’s application, the issue of her standing had already been decided by the Judge who granted such leave (at [17]).
However, Goh JC added that even on a substantive basis, he agreed that Monica had the legal standing as a shareholder/contributory to oppose the winding up application (at [18]).
Contributory. Goh JC addressed the term “contributory” and explained when it can be used interchangeably with the term “shareholder” (at [19]). The relevant excerpt is set out below.
“For clarity, the term “contributory”, in relation to a company, refers to a person liable to contribute to the assets of the company in the event of its being wound up and includes the holder of fully paid shares, as defined in s 4(1) of the Companies Act 1967 (2020 Rev Ed) (“the Companies Act”) (see s 2(1) of the IRDA). It is well-understood that prior to the commencement of winding up, that same person (ie, the contributory) would be referred to as a shareholder instead (see, for example, the decision of the High Court in Ee Kee Chai v Chew Joo Song John and Others [2006] SGHC 225 at [1] and the decision of the Court of Appeal in Seah Teong Kang (co-executor of the will of Lee Koon, deceased) and another v Seah Yong Chwan (executor of the estate of Seah Eng Teow) [2015] 5 SLR 792 at [47]). These terms can be used interchangeably depending on the context.”
Relevant subsidiary legislation. Goh JC noted that “while there is no explicit conferral of a right on a shareholder/contributory to oppose a winding up application, … the relevant subsidiary legislation is not inconsistent with such a right.” (at [19])
Goh JC examined the provisions in the Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020 (“CIR Rules 2020”) (at [19] – [21]) and held that:
Rule 69 entitled every creditor or contributory to a copy each of the winding up application and the supporting affidavit upon request and payment.
None of the provisions under Division 2 under Part 5 of the CIR Rules 2020 (which concern the hearing of winding up applications and winding up orders) explicitly exclude shareholders/contributories from being able to oppose a winding up application; and
Rule 72(1), which is concerned with the filing of affidavits to oppose a winding up application, does not limit the right to oppose a winding up application to only the company facing the winding up.
This led Goh JC to the conclusion that “at the very least, the scheme of the CIR Rules 2020 (and, by extension, the IRDA) does not exclude a shareholder/contributory like Monica from having legal standing to oppose the winding up application [and] it might be possible to read specific provisions as conferring, albeit indirectly, a right on shareholders/contributories to so oppose.” (at [22])
English authorities and the local context. Goh JC also noted that English authorities supported the proposition that shareholders/contributories have the legal standing to oppose a winding up application (at [23] – [26]).
Goh JC then found the seminal English High Court decision of Re Rodencroft Ltd [2004] 1 WLR 1566 to be a “persuasive authority” which can be applied in the local context, after comparing the English and local legislative schemes (at [27] – [32]).
As for “the residual policy concern that a wave of shareholders/contributories might inundate the court with frivolous applications to oppose the winding up”, Goh JC set out a “non-exhaustive basket of factors” which would assist the court in determining whether leave should be granted by the court for shareholders/contributories to oppose a winding up application (at [33]). In doing so, Goh JC was of the view that such a requirement for leave is necessary as a safeguard against frivolous opposition by shareholders. However, Goh JC also held that even if the requirement for leave could be considered to be unsuitable in light of the legislative framework, the shareholder’s opposition “may be considered as a matter of weight” (at [34]).
“34 In alluding to a leave requirement, I recognise that this may go against the grain of the reasons I have provided above in relation to the relevant subsidiary legislation and forms. However, I am of the view that such a requirement is necessary as a safeguard against frivolous opposition by shareholders. Indeed, the question of legal standing does not, by itself, confer a right for an opposition to be considered seriously by a court. A requirement for leave can co-exist consistently and is coterminous with the notion that a shareholder/contributory has the legal standing to be heard. However, if a leave requirement is thought to be unsuitable in the light of the legislative framework, the shareholder’s opposition to a winding up application may be considered as a matter of weight and could conceivably be attributed no weight at all so as to amount to a shareholder/contributory not being granted leave to be heard at all.”
Company agreements. For completeness, Goh JC noted that even if Monica did not have standing in relation to opposing the winding up application per se as a shareholder, Goh JC accepted that she had every right to raise submissions on the company agreements, such as the shareholder’s agreement in question (at [36]).
Triable issues. On the applicable standard of proof that Monica had to prove, it suffices to say that (at [40] – [46]):
Goh JC proceeded to decide the case on the “triable issues” standard espoused in Pacific Recreation Pte Ltd v S Y Technology Inc and another appeal [2008] 2 SLR(R) 491;
This “triable issues” standard is the same as the “unlikely to succeed” standard in Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] 2 SLR(R) 268;
Under this “triable issues” standard, what needs to be shown is that there exists a substantial and bona fide dispute in relation to the debt (or a cross-claim); and
Goh JC left the point open for future clarification on the applicability of the “prima facie” standard in Diamond Glass Enterprise Pte Ltd v Zhong Kai Construction Co Pte Ltd [2021] 2 SLR 510 beyond the construction context.
Ultimately, of the three arguments put forth, Monica succeeded in raising “a triable issue as to the validity of the board resolution which authorised the defendant to enter into the Guarantee, due to arguable questions about whether the requisite quorum for the relevant meeting was met” (at [58]), and for this reason alone, Goh JC declined to grant the winding up order sought by the claimant (at [59]).
Significance. This decision makes clear that a shareholder/contributory has legal standing to oppose a winding up application. However, leave of the court must be obtained, before the shareholder/contributory can oppose the winding up application.
And in considering whether to grant leave to a shareholder/contributory to oppose the winding up application, the court may apply the “non-exhaustive basket of factors” put forward by Goh JC, though Goh JC did not apply the factors to the present case as it was not necessary to do so (at [35]).
Additionally, even if leave to oppose is granted, the shareholder/contributory will still need to raise a triable issue that there exists a substantial and bona fide dispute in relation to the debt (or a cross-claim) in order to successfully challenge the winding up application.
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