TERMINATING A WINDING UP & THE LIQUIDATION REMUNERATION AND DISBURSEMENTS
In the ex tempore judgment in Ascentury International Co Ltd v Viva Capital (SG) Pte Ltd [2024] SGHC 118, Goh Yihan J addressed a “seldom discussed point in Singapore about how a court should consider the interests of the liquidator in deciding to terminate a winding up” (at [4]).
The parties’ positions. The claimant applied to set aside the winding up order that was made in HC/CWU 138/2023 (“CWU 138”) against the defendant (at [1]).
The defendant’s joint liquidators (the “Liquidators”) did not object to this application, but sought certain directions to confirm that the liquidation remuneration and disbursements (the “Liquidation Remuneration and Disbursements”), from the date the defendant was wound up (at [6]) to the determination of this application, should be paid out of the defendant’s assets (at [2]).
The claimant argued that these directions ought to be dealt with separately from the claimant’s application and should be raised against the party who was the petitioning creditor in CWU 138 and who had engaged them (“61R”) (at [3]), because “those directions concern a contractual issue that the Liquidators should raise against 61R and do not give rise to a legitimate basis to object to this application.” (at [3])
Goh J found that the Liquidators were correct to seek the directions in relation to the Liquidation Remuneration and Disbursements in this (the claimant’s) application (at [4]).
Facts leading to the application. The claimant in this application had entered into a Deed of Sale and Assignment of Rights (the “Deed”) with 61R, where the claimant essentially bought over from 61R the debts owed by the defendant and CWU 138 (at [7]). The Deed did not require the claimant nor the defendant to bear the Liquidation Remuneration and Disbursements (at [7]).
Statutory power to terminate a winding up. The claimant submitted that the court should order a “setting aside” as opposed to a permanent stay of CWU 138 (at [10]). This, Goh J noted, appeared to be because the claimant was of the belief that the court had no statutory power to terminate the winding up (at [10]).
However, Goh J held that “the court now has the statutory power to terminate a winding up pursuant to s 186(1) of the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (“IRDA”), even though it did not have such a power under the predecessor legislation.” (at [10])
Therefore, Goh J held that the appropriate order was not that of a “setting aside”, but to terminate the winding up (see [12] – [16]).
Factors in terminating a winding up. Goh J referred to the three broad principles in relation to the court’s exercise of discretion under s 279(1) of the Companies Act to stay a winding up (at [17]), taking the view that “these principles apply equally to s 186(1) of the IRDA [termination of a winding up], with suitable modifications” (at [18]). See the judgment at [17] – [18]:
“17 … In the High Court decision of Phang Choo Ong v Gilcom Investment Pte Ltd (LRG Investments Pte Ltd and another, non-parties) [2016] 3 SLR 1156 (“Phang Choo Ong”), Chua Lee Ming JC (as he then was) explained (at [17]) that three broad principles can be extracted from the cases in relation to the court’s exercise of discretion under s 279(1) of the Companies Act to stay a winding up. Summarised, these principles are:
(a) First, the state of affairs that required the company to be wound up no longer exists (see Phang Choo Ong at [18]).
(b) Second, the granting of a stay would not be detrimental to commercial morality and the interests of the public at large (see Phang Choo Ong at [19]).
(c) Third, the interests of the creditors, the members, and the liquidator must be protected (see Phang Choo Ong at [20]).
18 In my view, these principles apply equally to s 186(1) of the IRDA, with suitable modifications made to cater for the court’s power to terminate a winding up under that section. Indeed, these three principles broadly mirror those that the Australian courts consider when applying s 482 of the Corporation Act 2001 (Cth) … [The considerations, as summarised, are]:
The attitude and interests of the creditors, including future creditors whose interests might be prejudiced if the company were released from winding up;
The interests of the liquidator, particularly with regard to remuneration;
The interests of contributories, so that a stay or termination will not generally be granted unless each member either consents to it or is bound not to object to it, or his or her rights are properly secured;
The public interest, including matters of commercial morality, and whether all the company’s debts have been discharged;
The company’s trading position and general solvency; and
Any explanation for any non-compliance with statutory duties and of the circumstances leading to the winding up.”
Therefore, the interests of the liquidator, particularly with regard to remuneration, is a relevant consideration ([at [19]].
Among others, Goh J referred to AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2022] 1 SLR 771 (“AnAn”), where the Court of Appeal reversed the winding up. As summarised in [21] – [22], in AnAn, in relation to the application for the alleged creditor “to bear the remuneration and expenses of its former liquidators and liquidators’ solicitors”:
“21 … the court held that it had the inherent power to order a petitioner creditor to bear the liquidator’s remuneration and expenses.
22 However, this power would only be exercised where it would be unjust for the company to bear the bulk of such remuneration and expenses. Indeed, the mere fact that the winding up order was reversed does not mean that the petitioning creditor should bear such remuneration and expenses. This is because, among other reasons, the statutory provisions, governing the liquidator’s claim for remuneration and expenses out of the company’s assets, must be satisfied. This is in turn grounded on the sound policy that, as officers appointed by the court, liquidators should expect the court to provide security for their remuneration by ensuring that they are paid out of the company’s assets. For completeness, I set out the court’s reasoning (at [100]–[102]):
100 Any order made by the court against a petitioner ought to assume the form of an order for the petitioner to indemnify the company for the remuneration paid to the liquidator. As a starting point, the liquidator must still be paid from the company’s assets pursuant to s 311 of the Companies Act or s 183 of the IRDA, which state that a liquidator’s remuneration and expenses “are payable out of the assets of the company”. This is a crucial point that must be observed in order not to subvert the statutory insolvency regime.
101 This would safeguard the liquidator’s entitlement for his remuneration. It should not be overlooked that while a liquidator is appointed pursuant to an application by a petitioning creditor, the appointment is made by the court (see [92] above) – hence the need to provide security for his remuneration.
102 With the aforementioned safeguards, any litigation over liability for a liquidator’s fees can be effectively confined between the petitioner and the company. …
[emphasis in original]”
(our emphasis added in bold)
Agreeing with these principles, Goh J held that “The starting position therefore remains that a liquidator’s remuneration and expenses ought to be paid out of the company’s assets. The practical import of this starting position is that a court, in deciding whether to terminate a winding up pursuant to s 186(1) of the IRDA, must consider whether the liquidator’s interests, especially with regard to remuneration and expenses, have been adequately protected. If not, the court may either not grant the application to terminate the winding up or allow the application but on such terms as would protect the liquidator’s interests.” (at [23])
Court made directions. Goh J found it necessary for directions to be made in relation to the Liquidation Remuneration and Disbursements (at [29]), such that “If the claimant takes the view that this upsets the bargain that it struck with 61R in the Deed and/or with the defendant, then it need not act on the directions, which would not trigger the termination of the defendant’s winding up.” (at [30])
Significance. Therefore, it is possible to apply to terminate a winding up in appropriate circumstances. But it is important to ensure that, among others, the liquidator’s interests, including the liquidator’s remuneration, is adequately protected in such an application. If not, then as alluded to by Goh J, the Court may not allow the winding up to be terminated.
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