The article discusses the need for a section within the Companies Act (Cap 50) that allows for the termination of a winding-up order.
The purpose of this article is to briefly set out a commentary on the provisions of s 279 of the Companies Act (‘Act’). Section 279 is perhaps one of the lesser utilised sections with Part X of the Act. It is also a section which has been somewhat neglected,compounded by it’s own constraints in cases where a termination, rescission of discharge of a winding-up order is sought.It is hoped that the relevant authorities will consider amending legislation to attune s 279 to the prevailing needs and times in due course.
Before dealing directly with s 279, a brief back ground of events would be use ful to depict a specific instance in which recourse to s 279 was sought.
An ex-director and shareholder of a company (‘company’)
obtained judgment against the Company for a sum owing to him. He proceeded to
petition the court for the winding-up of the Company pursuant to s 254 of the
Act. The winding –up order was made over the Company in October 2001 and
private liquidators (‘Liquidators’) were appointed at the instance of the
petitioning creditor. The Company’s principal activity was in the business of
an investment holding company. The Company wholly owned the shares of three
subsidiaries (‘subsidiaries’). The subsidiaries owned substantial assets both
within and outside
Subsequently, negotiations ensued between the petitioning creditor and the other shareholders/creditors of the Company as it emerged that the majority shareholder was prepared to purchase the shares of the petitioning creditor. The Liquidators could have sold the undertaking of the Company to a separate company incorporated by the majority shareholder, but this would have been time consuming and costly especially as there was immoveable property involved. Further, goodwill could also have been lost in such event. The negotiations proceeded so as to enable the remaining shareholders/creditors to arrange a ‘buy out’ of the petitioning creditor’s shares and have his debt compromised in full and final settlement of the amount owed to him. The Liquidators sought directions of court pursuant to s 273 of the Act for directions to hold over the realization of the assets and to allow the negotiations to proceed. An order was granted by the court on the Liquidators’ application to facilitate the settlement discussions and the ‘buy out’ plan.
The parties agreed upon the terms and conditions in connection with the buy out’. A deed of settlement and Release (‘Deed’) was then executed by them. The result of the execution of the Deed enabled the Company to continue operating as a going concern ad, hence, there was no need for an order for the winding-up of the Company. It was a term of the Deed that the Liquidators would apply to court for the termination(or stay of the winding-up in the event a termination was not granted) pursuant to s 279 consequently. The Liquidators thereby applied to court to obtain an order terminating the liquidation of the Company or, alternatively, permanently staying all proceedings in the liquidation of the Company.
A careful examination of the Act will reveal that there are no provisions to terminate the winding-up of a company. There is no provision in the Act for the discharge, rescission or withdrawal of a winding-up order after it has been perfected. It is settled law that a winding-up order is a final order (Re Baxters Ltd (1898) WN 60). The proper course for an aggrieved company would be to appeal against the winding-up order – Sri Hartamas Development Sdn Bhd v MBF Finance Bhd (1991) 3 MLJ 325 as cited with approval recently in Perdana Merchant Bankers Bhd v Maril Rionebel (M) Sdn Bhd(1996) 4 MLJ 343.
The closest provision in the Act that can possibly achieve a termination is s 279, as set out here:
Power to
stay winding-up
(1) At any time after an order for winding-up has been made, the Court may, on the application of the liquidator or of any creditor or contributory and on proof to the satisfaction of the Court that all proceedings in relation to the winding-up ought to be stayed, make an order staying the proceedings either altogether of for a limited time on such terms and conditions as the Court thinks fit.
(2) On any such application the Court may, before making an order, require the liquidator to furnish a report with respect to any facts or matters which are in his opinion relevant.
(3) A copy of an order made under this section and an office copy of such an order shall be lodged by the company with the Registrar and the Official Receiver, respectively, within 14 days after the making of the order.
(4) Any person who fails to comply with subsection (3) shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $1, 000 and also to a default penalty. (emphasis addede)
The section allows for a stay of proceedings altogether or for a limited time. The court has a discretion to make such an order if ti is just and beneficial to do so, and upon the relevant criteria being satisfied.
Before a stay can b granted, there are, naturally, certain
principles to be fulfilled. A detailed examination of the grounds is not
possible presently, but it is important to note the following principles as set
out in two cases:
Re Warbler Pty Ltd (1982) 6 ACLR 526:
. The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay.
. There must be service of notice of the application for a stay on all creditors and contributories, and proof of this.
. The nature and extent of the creditors must be shown, and whether or not all debts have been discharged.
. The attitude of creditors contributories and the liquidator is a relevant consideration.
. The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought.
. If there has been non –compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given.
. The general background and circumstances which led to the winding-up order should be explained.
. The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to ‘commercial morality’ or the ‘public interest’.
. The liquidator’s position was fully safeguarded, either by paying him the proper amount of his expenses or sufficiently securing payment.
. Each member either consented to the stay, or was otherwise bound not to object to it, or there was secured to him the right to receive all that he would have received if the winding-up had proceeded to its conclusion.
The wording of s 279, however, provides for only a stay, albeit that the stay can be an indefinite one, and not a termination which would be an infinitely more satisfactory resolution of the winding-up order made in appropriate cases and circumstances.
There are unfortunately no local cases on the issue of
termination of a winding-up order that can assist the courts, solicitors,
liquidators, creditors and companies under liquidation to fill this lacuna in
the law. The closest case which deals with the issue is the Malaysian case of
Vijayalakshmi Devi d/o Nadchatiram v Jegadecan s/o Nadchatiram & Ors (1995)
1 MLJ 830. The Malaysian Companies Act 1965 provides for a stay of the
winding-up vide their s243 which is an exact replica of s 279 of the Act
(except for the penalty provision in ss (4) which is in Malaysian Ringgit).
Similar to
The Court of Appeal in Vijaylakshmi’s case held (quoting from Brinds Ltd v Offshore Oil NL (No 2) (1985) 10 ACLR232), in the grounds of NH Chan JCA, that:
Once a winding-up order has been made, … (the Company’s) descent into dissolution will be prevented only in the unusual event of the court ordering either an indefinite stay of the winding-up proceedings or termination of the winding-up. The court has inherent jurisdiction to grant a stay.
He went on to say that once a winding-up order has been made, it cannot be discharged or rescinded and the only remedy available would be to apply for a stay of the proceedings under the winding-up order. The effect of such a stay would be a total discontinuance or termination of the winding-up proceedings. The court, however, stopped short of actually saying that the stay is a termination of the winding-up or may be equated as one and the same. This, with Respect, seems anomalous if one reads the sentence highlighted above.
Clearly there are cases where a termination of the winding-up is very much sought for. The courts are, however, constrained in only being able to order a permanent stay as the only course of events for a company seeking a termination of a winding-up order. It seems puzzling, therefore, that if a stay is a total discontinuance or termination, why can we not have a specific provision for a termination. A stay connotes that there is something else to be done or some further step to be take, when in actual effect and unless it is specifically ascertained, the stay operates as if is a termination of the winding-up order.
This leaves any company seeking a termination (as in the above situation, the Company) and its creditors in an undesirable limbo. There are no reasons why legislature cannot take the additional step and allow or provide for a termination of the winding-up given that the effect of a stay altogether is arguably equated to a termination. By taking this extra step, it would ensure that all the parties involved in a winding-up of a company can breathe easy knowing that the winging-up has been terminated and there would be no future repercussions due to the indeterminate status of the company.
The relevant provision of the
The Australian Acts of 1981 and 1989 provide for the termination of a winding-up. This is set out in s 383 of the Australian Companies Act 1981and s 482 of the Australian Companies Act 1989 (the wording is the same for both):
(1)At any time during the winging-up of a company, the Court may, on the application of the liquidators or of a creditor or contributory, make an order staying the winding-up either indefinitely or for a limited time or terminating the winding-up on a date specified in the order.
In the
It is evident
that
Whilst the
Singapore Courts would in all likelihood seek to adopt a robust approach
towards our s 279, ultimately legislature’s amendment to the section,as in
Given the dearth of local authority on the issue of termination and/or deciding on the point of a discharge, rescission or withdrawal of a winding-up order, some guidance ought to be made available to insolvency practitioners here.
Alternatively, legislation ought to provide for this specifically. There are otherwise real practical difficulties with a ‘stay order’ made. The status of the company,in any searches conducted on it, is reflected as being wound-up or wound-up but stayed as opposed to a conclusive wording of the winding-up order terminated. This may affect creditors in their due diligence of, and in dealings with, the company in issue, which has since been restored to its position as a going concern. It also requires parties dealing with the company in issue to take the additional step of finding out the effect of such a ‘stay order’, which is not always an easy thing to do. The Accounting and Corporate Regulatory Authority of Singapore (‘ACRA’) does not have any specific from for the ‘stay order’ made for the purposes of lodgment either, although notice would have to be given to ACRA as to the order obtained from the court. ACRA may have to set and prescribe clear guidelines as to what is the status of a company faced with such a predicament in terms of its now continued compliance issues which become open and live issues. The Official Receiver is also in a dilemma ie in the event that the order made is for a stay, the records of the company remain to be retained and the file is then kept open by the Official Receiver as opposed to allowing the file to be closed and the records destroyed. This was resolved in the above case by an order specifically obtained from the court that the official Receiver be at liberty to close its file on the Company.
The learned judge in the case of the Company above went on to say that the state of the law was ‘somewhatunsatisfactory’. The court felt it was, however, constrained in making an order terminating the winding-up and could only grant a permanent stay and an order sealing the court records of the Company. The court went on to suggest to the learned Official Receiver present at the hearing that the Insolvency and Public Trustee’s office were in the best position and ought to, raise this issue with the relevant authorities to ensure that courts are given such powers directly by legislation to make orders for, inter alia, the termination of a winding-up order. It is hoped that the law will develop and evolve here especially in present times.
Madhavan Partnership
E-mail: zaheer@madhavanlaw.com
|
Endnote: * I am deeply grateful to my colleague Ms Goh Aik Song for her invaluable contribution in this article and in the matter, and assistance we received from Ms Josephine Kang (NUS, 4th year) accordingly. |