APPLICATION TO SET ASIDE LIQUIDATOR’S REJECTION OF PROOF OF DEBT AND TO STAY PROCEEDINGS
In Law Ching Hung v Aw Eng Hai (in his capacity as a joint and several liquidator of Park Hotel CQ Pte Ltd (in liquidation)) and others [2024] SGHC 263, the applicant made an application to contest the rejection of his Proof of Debt (“POD”) by a joint and several liquidator of Park Hotel CQ Pte Ltd (in liquidation) (“PHCQ”) and requested that the Court stay this application until another case (“Suit 364”) was resolved (at [1]), on the basis that the findings in Suit 364 may affect his right to claim against PHCQ (at [2]).
Facts. The applicant was a director of PHCQ (at [4]). PHCQ was placed in liquidation and the respondents are the liquidators of PHCQ (at [4]).
In considering whether to stay this application, the question was whether there was a connection between Suit 364 and the applicant’s right to claim against PHCQ (at [3]).
Applicant’s claims against PHCQ. The applicant (by way of a director’s loan) loaned to PHCQ the sum of $7,812,000 (the “Loan”) (at [5]). This was repaid by PHCQ partially, leaving an outstanding balance of $4,800,000 (at [5]).
The applicant then transferred a total sum of $4,000,000 (the “Relevant Transfers”) from PHCQ to Park Hotel Management Pte Ltd (“PHMPL”), which, according to the applicant, “were made to partially set off the Loan, and were part of the internal reorganisation of inter-company loans” (at [6]). The applicant then, in his capacity as director of PHMPL, caused PHMPL to transfer $4,413,505.21 (of which $4,000,000 was transferred from PHCQ to PHMPL) to himself (at [7]).
The respondents, in their capacities as liquidators for PHCQ, commenced Suit 363 against the applicant (at [7] – [8]), which was settled without any admission of liability on the applicant’s part (at [10]).
The respondents, in their capacities as liquidators of PHMPL, together with PHMPL (the “Suit 364 Plaintiffs”), had also commenced Suit 364 against, among others, the applicant (at [11]). In Suit 364, the respondents alleged the applicant of, among others (at [11]):
Disposing PHMPL’s assets at an undervalue and/or in breach of his duties; and
Making substantial payments to himself in breach of his duties as a director, as well as ss 224 and 225 of the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (“IRDA”).
Suit 364 was refixed to be heard in early 2025 (at [12]).
After the commencement of Suit 363 and Suit 364, the applicant’s solicitors submitted the POD to the respondents in their capacities as the liquidators of PHCQ (at [13]). The claim was rejected in full by the liquidators of PHCQ on 10 July 2024 (at [14]).
Application for stay. The applicant took the position that the findings in Suit 364 was relevant to whether he may have to seek recourse against PHCQ. The applicant contended that if the court in Suit 364 finds that the Relevant Transfers are improper, then the applicant would have to seek recourse against PHCQ. However, as the POD had been rejected, the applicant would then be “left in an impossible situation” of not being able to make a claim against PHMPL and no longer being able to make a claim against PHCQ (at [15]).
General power. The High Court noted that, notwithstanding para 9 of the First Schedule of the Supreme Court of Judicature Act 1969 (2020 Rev Ed) (“SCJA”) (which appears to be exhaustive), the court has the inherent power to order a stay of proceedings (at [19]).
Nevertheless, going strictly by the wording of para 9 of the First Schedule to the SCJA, the High Court found that there was “no multiplicity of proceedings here and hence no reason for this court to exercise its power to stay this application.” (at [20])
This was because:
This application concerns PHCQ, whereas Suit 364 concerns PHMPL, which is a separate legal entity (at [20]);
There is no connection between this application and the eventual outcome in Suit 364 because PHCQ is not a party to Suit 364 and any orders made in Suit 364 cannot affect PHCQ’s debts and liabilities (at [21]).
The applicant also tried to rely on s 6(2) of the IRDA as a source of the court’s power to stay this application (at [22]).
While accepting that s 6(2) of the IRDA is broadly worded, the High Court was of the view that “para 9 of the First Schedule to the SCJA, which deals with when the court’s general power to grant a stay should be exercised, is materially relevant.” (at [22])
More broadly, the High Court found that the “impossible situation” was “the consequence of [the applicant’s] own actions” because the applicant had transferred to PHMPL the debt of $6,100,000 originally owing from PHCQ to himself, leaving no debt owing to the applicant by PHCQ (at [23]).
Consequently, the High Court declined to stay this application pending the conclusive determination of Suit 364 (at [24]).
Application dismissed. The High Court then dealt with the application and dismissed it for two reasons (at [25]).
Firstly, the High Court found that the liquidator was “correct in rejecting the POD based on the accounting records and SOA” which did not disclose a debt owing to the applicant by PHCQ (at [26]) within the meaning of s 218(2) of the IRDA (at [28]).
The documents raised by the applicant were older than PHCQ’s management accounts, and at best, only showed that there was a debt, but not that it existed as of PHCQ’s winding up (at [29]). The High Court noted that the extract of PHCQ’s general ledger showed clearly that the applicant made various adjustments to PHCQ’s accounts, such that “an amount of $6,100,000 recorded as owing by PHCQ to him was transferred over to PMHPL and recorded as owing by PHCQ to PHMPL. Thus, as of 30 November 2020, PHCQ no longer owed the applicant any sum but owed $6,100,000 to PHMPL instead” (at [29]).
Secondly, there was also no contingent debt pursuant to s 218(2)(a)(ii) of the IRDA that is dependent on the outcome of Suit 364 (at [30]). The High Court added that “it cannot be the purpose of s 218(2)(a)(ii) to allow a person in the applicant’s position, who insists that his conduct of transferring the subject debt away (which is eventually paid out to him) is proper, to hedge his position by preserving that very debt as a “contingent debt” that is “contingent” on the court’s ruling as to whether those transfers are proper.” (at [30])
Therefore, the High Court dismissed this application (at [31]).
Conclusion. As this case demonstrates, when dealing with transfers of debt and liabilities, it is important to pay close attention to the legal entities involved. Additionally, the High Court’s statement at [30] on the purpose of s 218(2)(a)(ii) IRDA is relevant to bear in mind when considering whether that debt can be proved in a company’s liquidation.
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