Guidance on the dismissal of allegedly misconducted liquidators: a commentary on Liquidators of Ace Class Precision Engineering Pte Ltd (in voluntary liquidation of members) v Tan Boon Hwa  SGHC 134 | Dentons
In Singapore, requests for the dismissal of liquidators are relatively rare and successful cases are even rarer. Applicants must generally prove that the removal of liquidators is “in the real, substantial and honest interest of the liquidation” and “will further the purposes for which the liquidator has been appointed”: see Petroships Investment Pte Ltd v Wealthplus Pte Ltd  3 SLR 687 (Petroships); Article 174 of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA). In this case update, we take the opportunity to discuss a recent application of this principle in Ace Class Precision Engineering Pte Ltd (in voluntary liquidation of members) v Tan Boon Hwa et al and other issues  SGHC 134 (ACP).
The companies in question (the companies) were incorporated to undertake subcontracting work exclusively for a single Yangbum Engineering Pte Ltd (Yangbum). A certain Mr. Loong Soo Min (Mr. Loong) was shareholder-director of Yangbum. He also claimed to be a beneficial owner of the companies, which was the subject of a separate proceeding in HC / S 345/2020 (S 345).
The companies were then placed in voluntary liquidation of partners (MVL) and liquidators were appointed (the liquidators). Yangbum was the largest creditor of each of the companies and submitted proof of debt totaling approximately SGD 10.8 million. At the time of the hearing, the liquidators had not ruled on this proof of debt.
Yangbum and Mr. Loong (the applicants) requested the dismissal of the liquidators in accordance with section 302 of the Companies Act (now section 174 of IRDA). They made several allegations, all of which question the impartiality of the liquidators. The liquidators argued that Yangbum and Mr. Loong did not have standing to make such a request and that there was no real or perceived bias.
Before proceeding to justify the dismissal of the liquidators, the applicants had to demonstrate that they were qualified to present the request. In this regard:
- The High Court of Singapore (SGHC) affirmed the principle that the only person having a sufficient or legitimate interest in the removal of a liquidator has standing to bring the request, in accordance with the decision in Deloitte & Touche AG v Johnson and anor  1 WLR 1605 (Deloitte). These persons may include persons “entitled to participate in the ultimate distribution of the assets of the company”, ie creditors or contributors. In the context of a solvent liquidation, there is also no rule according to which only the shareholders of a company can have such a legitimate interest.
- The SGHC therefore concluded that Yangbum had standing to bring the complaint. He was a major creditor of the Companies. Importantly, there was an exclusive outsourcing relationship between Yangbum and the companies. As such, it had a legitimate interest in the distribution of the assets of the Companies to ensure the full payment of its debts.
- On the other hand, the SGHC considered that Mr. Loong did not have standing:
- Whether or not Mr. Loong was the beneficial owner of the companies had not yet been decided by the court in S 345.
- Furthermore, Mr. Loong was not a “presumed contributor” within the meaning of Article 2 (1) of the IRDA. The SGHC found that neither the records nor the records of the companies reflected Mr. Loong as a shareholder, director or beneficial owner. In other words, the phrase “person presumed to be a contributor” could not include a self-proclaimed contributor where there was no supporting evidence as such. Instead, this expression would refer to persons who are placed on the provisional list of contributors by the liquidator or by the court, but whose status is contested.
- In any event, it is the trustee and not the beneficial owner who falls within the definition of “contributory”. As such, even if Mr. Loong had evidence to prove that he was the beneficial owner, he would not be a “contributor” within the meaning of the definition in Article 2 (1) of the IRDA.
The SGHC concluded that Yangbum had failed to demonstrate that the removal of the liquidators was “in the real, substantial and honest interest of the liquidation” and “would further the purposes for which the liquidator was appointed”:
- First, a court usually takes into consideration the views of members in determining the interest of a solvent liquidation. The creditors of a solvent company have no real interest in the liquidation; it is because a solvent liquidation is started on the basis that the creditors will be paid in full and within one year: article 163 (1) of the IRDA. This contrasts with the interest of an insolvent liquidation, in which the views of creditors will instead be taken into account.
- Second, a court must assess the allegations made against the liquidator in light of the purpose of the liquidation. In the context of a solvent liquidation, the liquidators have only a limited duty to investigate the affairs of the company with two objectives: (i) to maximize the return of those interested in the liquidation; and (ii) uphold the standards of commercial morality by identifying inappropriate or dishonest behavior by company officers in which civil lawsuits or actions should be brought.
- Third, in both solvent and insolvent liquidations, a liquidator has a duty to act impartially in the execution of the liquidation. The applicants relied on this ground to justify their reasons and made several allegations of wide-ranging bias against the liquidators. These included (among other things) how there was a prior relationship between the liquidators and Ms. Liang (the sole registered shareholder and director of the companies); that the liquidators had taken an irrationally targeted approach in “stalking” Mr. Loong for documents; and that the liquidators made no discernible effort to adjudicate on Yangbum’s evidence of debt.
- Based on the evidence, the SGHC found that the plaintiffs had failed to demonstrate that the actions of the liquidators demonstrated actual bias or created a reasonable perception of bias. Each of the allegations either lacked supporting evidence or resulted from the applicants’ own actions. Just because Ms. Liang had a previous relationship with the liquidators was not enough. The SGHC cited with conspicuous approval the Australian authority that:
“It was not the law that a liquidator could not have had any prior contact with the company or its directors or officers. It was common for a business to seek professional advice in the event of actual or apprehended insolvency, often from someone who subsequently agreed to be appointed liquidator of the business. Therefore, there would be “an air of commercial unreality about any suggestion that this course of events is necessarily inappropriate” (Irving at 177). Indeed, creditors were often well served by the appointment of a liquidator with a certain knowledge of the business of the company, provided that the reasons which led to this knowledge do not give rise to an apprehension of lack of impartiality or reflect a lack of impartiality. real or perceived conflict. “
Ultimately, this is a fact-sensitive investigation, and “‘a mere professional acquaintance’ and ‘a professional relationship of a transient nature’ would not create an actual bias or a reasonable perception of bias” but “[i]long-standing intimate relationships ”probably would (Irving at 176).
The SGHC also found that the removal of liquidators would result in additional costs, delays and disruption in the process of liquidating companies. Such a dismissal would also cast an unjustified shadow on the professional reputation and reputation of the liquidators, especially since the allegations questioned the impartiality of the liquidators.
Commentary on the case
Even though this case involved an MVL, it illustrates well some of the evidentiary difficulties associated with justifying the dismissal of the liquidators and highlights some of the relevant factors. Claims of bias (regardless of the context) are generally difficult to prove and solid evidence must be obtained before making such claims. For example, in accordance with the decision of Petroships, the plaintiff may attempt to obtain evidence demonstrating that the liquidator’s decision not to investigate the affairs of the company is arbitrary or without merit, or that it was taken to serve his personal interest or to protect the interests of the company. a fraction of the members or creditors in preference to those of another.
If creditors or anyone of sufficient standing are not satisfied with the liquidators in any way, it is always safer to try to work with the liquidators first before considering any revocation request which will invariably have affect the reputation of the liquidator.
- [125(a)] judgment↩
- [125(b)] judgment↩