The Singapore Court of Appeal in AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2021] SGCA 112 dealt with an important and novel area of winding up law. If a winding up order is subsequently reversed or set aside, who should pay for all the winding up expenses, including the liquidator’s fees?
While this is a Singapore decision, it would be persuasive in Malaysia as our laws are similar. The aim of this update is to focus on this key issue and set out the takeaway points to apply in a Malaysian context.
Summary of the Facts
VTB is the alleged creditor of the debtor company, AnAn. At the Singapore High Court, VTB succeeded in obtaining a winding up order against AnAn. AnAn appealed.
The Singapore Court of Appeal allowed the appeal and reversed the winding up. The reason was that the Court found that there was a prima facie dispute of the debt and that the dispute was to be resolved via arbitration.
Next, with the winding up reversed, AnAn filed an application in the High Court winding up proceedings. AnAn applied for VTB to bear the remuneration and expenses of AnAn’s former liquidators and liquidator’s solicitors. The High Court dismissed the application and AnAn appealed to the Court of Appeal.
The Singapore Court of Appeal explained its power to order a petitioning creditor to bear the liquidator’s remuneration.
Court Can Order a Petitioning Creditor to Bear the Liquidator’s Remuneration: Inherent Jurisdiction
First, the Singapore Court of Appeal essentially explained that the power to make such an order against a petitioning creditor does not fall within the court’s power to order “costs“. The liquidator’s remuneration and expenses would not fall within “costs” of the legal proceedings.
Second, the Companies Act already provides that liquidators are entitled to reimbursement for their reasonable remuneration and expenses. By default, such reimbursement is to already be paid out of the assets of the wound-up company in priority to the company’s other debts. But the Companies Act does not cover whether a petitioner may be made liable to, or may be ordered to indemnify, a liquidator for his/her remuneration and expenses.
Third, the Singapore Court of Appeal held that there is the Court’s inherent jurisdiction to order a petitioner to bear such remuneration and expenses. This is in certain cases where it would be unjust for the company to bear the brunt of the liquidator’s remuneration and expenses.
The 6 Guiding Principles for the Exercise of Such Inherent Jurisdiction
From the case, I extract the following six guiding principles:
- When a company is wound up, and the winding up order is reversed on appeal, the Court has the power to order the petitioning creditor to bear a part or the whole of the liquidator’s remuneration and expenses.
- The mere fact that a winding up order is reversed will be insufficient to warrant the order against the petitioning creditor. The debtor company must be able to point to some fault or unfair conduct on the petitioner’s part.
- The statutory provisions governing the liquidator’s claim for his/her remuneration must still be satisfied i.e. reasonable remuneration.
- The court’s order against a petitioner ought to be in the form of the petitioner to indemnify the company for the remuneration paid to the liquidator. This is because the liquidator must still be paid from the company’s assets. This is consistent with the statutory insolvency regime.
- With that, any litigation over liability for a liquidator’s remuneration can be effectively confined between the petitioner and the debtor company.
- Finally, the court can also order a petitioner to indemnify the company partially. The court can make nuanced and measures orders in order to achieve justice.
The Singapore Court of Appeal cited some cases as examples of the type of fault or unfair conduct that may justify an order being made against the petitioning creditor.
Teelek Realty Pte Ltd and others v Ng Tang Hock [2021] SGCA 70: Singapore decision. A minority oppression action where the Singapore High Court ordered the winding up of the company. The Singapore Court of Appeal reversed the winding up order. Nonetheless, one party was found to still be guilty of oppressive conduct against the shareholders. The Court ordered that party to personally bear the liquidator’s fees and expenses.
Locker Group Pty Ltd v HEA Australia Pte Ltd [2015] VSC 752: Australian decision. The petitioning creditor had failed to disclose material information when securing the winding up order. The petitioner stated that it had served papers on the company on 3 June 2014 when the papers only reached the company on 10 June 2014. The company was wound up on 11 June 2014 when no company representative appeared at the winding up hearing. The company successfully applied to set aside the winding up order.
Victorian Workcover Authority v Barroaghan Pty Ltd [2001] VSC 413: Australian decision. There were significant matters not disclosed to the winding up court when the winding up order was made. In fact, there was no debt owing by the company at the time of the service of the statutory demand. The court held that there was an abuse of process. The court allowed the order to terminate the winding up and ordered the petitioning creditor to pay the costs of the liquidation.
Baldwin v Baldwin (1947) 82 Cal App 2d 851: California Court of Appeal decision. This was a case not involving winding up but a court-ordered receivership. The party who had sought the appointment of the receiver was then ordered to pay the receiver’s costs and expenses. The appointment of the receiver was made in reliance upon false allegations and the receivership was found to be unnecessary, wrongful and inequitable.
I make also some additional observations.
First, while the AnAn decision concerned an appeal against the winding up order, I would argue these same principles can apply if the court sets aside a winding up order and also if there is a stay or termination of the winding up order. In Malaysia, the Federal Court has confirmed that the court can set aside its own winding up order under certain limited circumstances, while a stay is allowed under section 492 of the CA 2016 and termination is under section 493 of the CA 2016.
Second, there appears to be some flexibility on the timing on when to argue and try to secure this consequential order against the petitioning creditor.
The petitioning creditor, VTB, had argued that any order for indemnity to be made against VTB has to be made at the hearing of the appeal against the winding up order. VTB argued it was now too late after the appeal to then secure orders against the petitioning creditor.
The Singapore Court of Appeal disagreed with VTB’s position. The cases cited by VTB did show that the issue on the liquidator’s remuneration was considered during the appeal at which the winding up orders were reversed. However, the court in those decisions never held that such relief must only be pursued at that stage. There was no legal impediment to prevent the court now examining the liability for the liquidator’s remuneration.
It may still be safer to raise the issue of making any indemnity order against the petitioning creditor at the hearing of the appeal or the setting aside hearing.