DO I NEED TO OBTAIN LEAVE OF COURT TO APPEAL AGAINST AN INSOLVENT COMPANY?
In An Guang Shipping Pte. Ltd. (Judicial Managers Appointed) & 39 Ors v Ocean Tankers (Pte.) Ltd (In Liquidation) [2022] SGCA 13, the liquidators of an insolvent company failed in their application to strike out a notice of appeal. The liquidators had contended that the appellants had failed to obtain the leave of court under s. 133(1) of the Insolvency, Restructuring and Dissolution Act 2018 before taking up the appeal. This was rejected by the Court of Appeal.
Background. Ocean Tankers (Pte) Ltd (“OTPL”) was placed under judicial management in HC/OS 452/2020 (“OS452”). At that time, OTPL was the charterer of over one hundred vessels belong to forty associated companies (the “XH Companies”) and owed a substantial amount of charterhire. Some point thereafter, the XH Companies were also placed in judicial management.
Disputes arose between the judicial managers of OTPL and the judicial managers of the XH Companies. To resolve the dispute, the judicial managers of OTPL took out HC/SUM 2085/2021 in OS452 (“SUM 2085”) to sought directions from the court on how the charterhire debts were to be dealt with.
Before SUM 2085 was heard and determined, OTPL went into liquidation. The OTPL judicial managers were then appointed as liquidators and obtained orders allowing them to continue with SUM 2085.
Oral judgment was delivered on 20 September 2021 in SUM 2085, where the judge held that “while priority could be accorded to a small part of the XH Companies’ claims, the balance would have to be classified as ordinary unsecured debt. That would mean no priority and that these amounts would be settled on a pro-rata basis with the debts of other unsecured creditors.” The XH Companies were dissatisfied and filed the notice of appeal.
The application. OTPL then took up an application to strike out the notice of appeal filed by the XH Companies, arguing that as OTPL is a company in liquidation, leave of court was required pursuant to s. 133(1) of the Insolvency, Restructuring and Dissolution Act 2018 (the “IRDA”).
While the XH Companies do not dispute that no leave of court was applied for or granted under s. 133(1) IRDA, they argued that there was no need to seek leave of court as:
1. They had taken a “purely defensive step against the adverse ruling that OTPL had secured in Sum 2085”; and
2. That the “proceedings commenced by SUM 2085 and the consequent appeal do not fall within s 133(1) of the IRDA”
Purely defensive step? As held by the Court of Appeal, the argument based on a “purely defensive step” stemmed from Hyflux Ltd v SM Investments Pte Ltd [2020] 4 SLR 1265 (“Hyflux”), where the court allowed the defendant to proceed with its counterclaim despite not having obtain leave of court to commence or continue its counterclaim even though the plaintiff company was in the midst of a restructuring effort and protected by a moratorium.
The XH Companies argued that the decision in Hyflux “… was based on the longstanding principle that defensive actions, taken in response to claims brought by a company in liquidation, are not prohibited by virtue of a moratorium”. In other words, the XH Companies were arguing that the filing of the notice of appeal was a “defensive step“ taken by them.
However, the Court of Appeal observed that “It does appear to us to be difficult at a general level to describe an appeal as “a defensive step”. The purpose of an appeal is for the appellant to challenge a court ruling in favour of the respondent which the appellant does not agree with and replace that ruling with one in favour of the appellant. Described that way, an appeal seems to be offensive rather than defensive. …”
While ultimately the Court of Appeal did not decide on this issue, it appears from the grounds of judgment that the Court of Appeal had difficulties with the position canvassed by the XH Companies based on the facts of the case.
Not proceeding against OTPL. The Court of Appeal however held for the XH Companies and dismissed the striking out application on the separate ground that the original application was not one that was taken up against OTPL.
The Coourt of Appeal agreed that the observation of Richards LJ in the case of Thomas Evan v Mortgage Debenture Limited [2016] EWCA Civ 103 that “…whether leave is required or not “is to be judged by reference to the nature of the original application” is an apt one. It is the original application that will determine whether a proceeding in court is one that can be classified as “against the company” or not.”
In this case, the Court of Appeal held that SUM 2085, being an application taken up to determine the legal status of the charterhire debts, was one which “concerned the administration of the liquidation and not a claim against OTPL … The mere fact that they [the XH Companies] contested the position that the liquidators of OTPL were asking the court to adopt could not, however, turn SUM 2085 into a proceeding against OTPL.”
This is because there was not dispute over the quantum of the charterhire debts: the dispute was only over the priority, and hence SUM 2085 was to obtain directions from the court as to “… whether the charterhire debts enjoyed priority over the unsecured debts or were to be treated as part of the unsecured debts”.
Takeaways. In any appeals, it is always important to ask: do I need leave of court?
And when you are acting against an insolvent company, s. 133(1) IRDA is especially crucial to take note of.
This decision is important as it clarifies that if you are appealing against a judgment of the court and the other party may be insolvent, you may not always need to first obtain leave of court pursuant to s. 133(1) IRDA before proceeding with the appeal.
In addition, this decision makes clear that the “purely defensive step” as set out in Hyflux has limits and probably would not extend to appeals.
Nonetheless, this point remains undecided, and we eagerly await further clarifications from future decisions on the limits of the “purely defensive step”, given the importance of this issue to parties who have counterclaims against companies that are subject to statutory moratorium.
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