Case Update: Singapore Court Addresses Residuary Powers of Directors in Judicial Management

Wong Li Qi writes a case update on a Singapore High Court decision on the interaction between the judicial manager’s powers and the directors’ residuary powers of management.

The Singapore High Court in Ocean Tankers (Pte) Ltd v Rajah & Tann Singapore LLP [2021] SGHC 47 dealt with the standing of directors to bring an action on behalf of the companies after interim judicial managers were appointed.

Summary of Decision and Significance

Two related companies, Ocean Tankers (Pte) Ltd and Hin Leong Trading (Pte) Ltd (the Companies), engaged Rajah and Tann Singapore LLP (R&T) to advise on insolvency issues and restructuring options. Subsequently, R&T filed judicial management applications on behalf of the Companies. The Court appointed interim judicial managers while the judicial management applications were still pending.

The appointed interim judicial managers retained the services of R&T. As a result, the directors of the Companies filed injunction applications against R&T on behalf of the Companies.

The Singapore High Court struck out the injunction applications on the basis that the directors did not have standing to bring the applications on behalf of the Companies.

The Singapore High Court held that the directors of the Companies could not exercise any powers and entitlements that were vested in the interim judicial managers following their appointment. Bringing an action on behalf of the Companies was a power vested in the interim judicial managers.

Background Facts

The Companies are part of the Hin Leong Trading group of companies that were owned and managed by the Lim Family. Mr Lim Chee Meng and Ms Lim Huey Ching (the Lims) were the directors of the Companies.

In or about the first quarter of 2020, the Companies experienced financial difficulties. The Companies then engaged R&T to advise on issues related to the Companies’ insolvency and to advise on available restructuring options.

The Companies first applied for a proposed debt restructuring exercise, but the applications were subsequently withdrawn. Later, the Lims decided to place the Companies under judicial management and to appoint interim judicial managers. R&T filed all of the above applications on behalf of the Companies.

The Singapore High Court then placed the Companies under interim judicial management. The appointed interim judicial managers retained the services of R&T.

As a result, the Lims filed two injunction applications in the name of the Companies to restrain R&T from, among others, advising the interim judicial managers. The Lims did not seek the consent of the interim judicial managers to file the injunction applications on behalf of the Companies.

Subsequently, the High Court granted the judicial management orders, and where the interim judicial managers were appointed as the judicial managers. The judicial managers continued to retain the services of R&T. The Lims did not seek the consent of the judicial managers to continue with the injunction applications made in the name of the Companies.

R&T then filed an application to strike out the injunction applications. The basis for the striking out was that the Lims did not have the standing to commence and proceed with the applications on behalf of the Companies once the interim judicial managers and judicial managers were appointed.

The Lims argued that they retained their residuary powers as directors of the Companies to bring the injunction applications on behalf of the Companies.

Decision

The High Court struck out the injunction applications. The Court held that the Lims did not have standing to bring the injunction applications on behalf of the Companies.

Effect of the appointment of interim judicial managers and judicial managers

First, the Court held that under section 277(B)(10)(b) of the Singapore Companies Act (similar to section 405(5)(b) of Malaysia’s Companies Act 2016), the powers of an interim judicial manager are defined with reference to the terms of the order appointing the interim judicial manager.

In the present case, the Orders appointing the interim judicial managers provided that:

“2. The affairs, business and property of the Company [ie, HLT and OTPL] be managed by the Interim Judicial Managers during the period in which the Order for the appointment of the Interim Judicial Managers is in force;

3. The Interim Judicial Managers be empowered and authorised to exercise all powers and entitlements of a judicial manager and all powers and entitlements of directors of the Company conferred by the Companies Act (Cap. 50) (the “Act”) and/or by the memorandum and articles of association of the Company, or by any other applicable law in force, but nothing in this Order shall require the Interim Judicial Managers to call any meetings of the Company;”

 

The Court noted that the powers conferred by the Orders appointing the interim judicial managers were identical to the powers of a judicial manager as set out in section 277G(2) to (4) read in conjunction with the Eleventh Schedule of the Singapore Companies Act. These Singapore provisions are similar to section 414(2) to (4) and the Ninth Schedule of Malaysia’s Companies Act 2016.

The said sections 227G(2) to (4) provide as follows:

“(2) During the period for which a judicial management order is in force, all powers conferred and duties imposed on the directors by this Act or by the constitution of the company shall be exercised and performed by the judicial manager and not by the directors; but nothing in this subsection shall require the judicial manager to call any meetings of the company.

(3) The judicial manager of a company –

(a) shall do all such things as may be necessary for the management of the affairs, business and property of the company; and

(b) shall do all such other things as the Court may by order sanction.

(4) Without prejudice to the generality of subsection (3)(a), the powers conferred by that subsection shall include the powers specified in the Eleventh Schedule.”

 

In particular, under paragraphs (d) and (e) of the Eleventh Schedule, a judicial manager may exercise the power to:

“(d) appoint a solicitor or accountant or professionally qualified person to assist him in the performance of his functions;

(e) bring or defend any action or other legal proceedings in the name and on behalf of the company;”

 

Therefore, the Court held that the Orders appointing the interim judicial managers, and the relevant provisions of the Companies Act, had effectively divested the powers of the directors and vested them in the interim judicial managers.

Essentially, upon the appointment of interim judicial managers, the board of directors was “effectively functus officio”. Therefore, the Lims did not have the power as directors of the Companies to bring the injunction applications on behalf of the Companies.

Similarly, the terms of the judicial management orders reflected the identical provisions under the Companies Act. Therefore, the same principles applied. After the Companies were placed under judicial management, the directors had no power to proceed with the injunction applications on behalf of the Companies.

Residuary Powers of Directors

The Court also commented on the existence and extent of residuary powers of directors of a company being placed under interim judicial management or judicial management.

  1. Any residuary powers of directors may be defined with reference to the powers which the interim judicial managers and judicial managers did not or could not assume under the court orders. For example, the powers to:
  • challenge the appointment of interim judicial managers or judicial managers on behalf of the company. This is because these powers cannot be vested in the interim judicial managers or judicial managers themselves; and
  • conduct the application for the company to be placed under judicial management, even if an interim judicial manager has already been appointed.
  1. The ultimate question is whether the interim judicial managers or judicial managers have or could have assumed the power that the director seeks to assert. If the answer is yes, then the director cannot exercise that power during the period of the interim judicial management or judicial management.

 

 Wong Li Qi is a paralegal with Lim Chee Wee Partnership. She graduated from the University of Bristol and completed her Bar Professional Training Course at City Law School.

 

Leave a Reply