Re Fusionex Pte Ltd (Resorts World at Sentosa Pte Ltd, non-party) [2024] SGHC 51

Introduction

HC/CWU 265/2023 was an application under s 125(1)(a) of the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (the “IRDA”) to wind up Fusionex Pte. Ltd. (the “Company”). This provision is rarely invoked as a ground for winding up, and there are no reported cases in Singapore of a winding up being allowed on this ground. The present application raised the issue as to the applicable principles governing the court’s discretion under this ground. Taking guidance from persuasive foreign authorities, I decided to allow the application.

Background facts

The Company was a Singapore-incorporated company in the business of information technology consultancy and development of software and applications. It was wholly owned by a Malaysian-incorporated company, Fusionex Corp. Sdn. Bhd. (the “Sole Shareholder”). Both the Company and the Sole Shareholder were in turn indirect subsidiaries of FusioTech Holdings Sdn. Bhd. (the “Holding Company”). The Company, the Sole Shareholder and the Holding Company were all part of the Fusionex group of companies (the “Fusionex Group”).

The day-to-day operations of the Fusionex Group were managed by the management team of the Holding Company (the “Management”). The entire Management abruptly resigned between 4 December 2023 and 6 December 2023. Following the resignation, Mr Hiroyuki Kumazaki (“Mr Kumazaki”) was appointed as the Chief Executive Officer (“CEO”) of the Fusionex Group on 6 December 2023 to look after the affairs of the group.

Despite repeated requests by the current management of the Fusionex Group (including Mr Kumazaki), the Management refused to effect a proper handover. For instance:

(a) The Management removed the financial records and management accounts of the Fusionex Group (save for a balance sheet and consolidated statement of financial position as of 30 September 2023).

(b) There were no proper records of the Fusionex Group’s contracts, customers, suppliers or management accounts.

(c) The Management refused to disclose the list of employees of the Fusionex Group.

(d) The Management refused to grant the current management access to the Company’s IT server in the Holding Company’s office premises.

The Company relied almost entirely on the Holding Company and other members of the Fusionex Group on finances, accounting and IT matters. As such, any information relating to the Company remains sparse at best. Counsel for the Company submitted that Ms Lee Shwu Fang (“Ms Lee”), currently listed as the sole director of the Company, was not an executive director and also lacked knowledge on the Company’s state of affairs.

In light of the above, on 20 December 2023, the Sole Shareholder passed a special resolution for the Company to be wound up by this court.

Summary of the Company’s case

Mr Kumazaki, on behalf of the Company, averred that the Sole Shareholder had the requisite standing under the IRDA to pass a valid special resolution to have the Company wound up by the court. There was nothing impeding this court from making a winding-up order. In fact, because the mass resignation had “cripple[d] the entire Fusionex Group (including the Company)”, winding up was the most desirable option. Mr Kumazaki added that the Company was unable to pursue a members’ voluntary winding up because there was insufficient information to make a declaration of solvency. The Company was also unable to convene a creditors’ meeting for the purposes of a creditors’ voluntary winding up, as the current management had little or no information on the Company’s list of creditors. Hence, the Company had no choice but to seek the court’s assistance to be wound up.

Decision

Mr Kumazaki was authorised to make the supporting affidavit

As a preliminary point, an affidavit supporting a winding-up application made by a corporation must be deposed to by “a director, secretary or other principal officer of the corporation” (r 67(2)(a) of the Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring) Rules 2020). In ordinary circumstances, a director is the one who makes the supporting affidavit. However, as Ms Lee was a non-executive director without any knowledge of the Company’s affairs, Mr Kumazaki was the most suitable personnel to make the affidavit. In that regard, there was a valid written resolution, dated 6 December 2023, through which the Holding Company’s directors had appointed Mr Kumazaki as the CEO of the Holding Company and its subsidiaries (including the Company). I was satisfied that Mr Kumazaki had the requisite authority to make an affidavit in support of this winding-up application.

The Sole Shareholder had locus standi to bring the winding-up application

Another preliminary issue was the locus standi of the Sole Shareholder to bring the winding-up application. Under s 124(1)(d) of the IRDA, a contributory has a standing to bring such an application. It was a non-issue that the Sole Shareholder was a contributory. However, s 124(2)(b) of the IRDA sets out further requirements where a contributory brings a winding-up application based on s 125(1)(a) of the IRDA (as in the present case):

At the hearing on 19 January 2024, the Accounting and Corporate Regulatory Authority (“ACRA”) profile exhibited in Mr Kumazaki’s first affidavit was insufficient to establish s 124(2)(b) of the IRDA. The ACRA profile did not show whether the Sole Shareholder was the original shareholder of the Company or held its shares for at least six of the last 18 months prior to the making of this application. Consequently, I directed the Company to file a further affidavit to demonstrate that s 124(2)(b) of the IRDA was fulfilled.

In Mr Kumazaki’s second affidavit, the Company exhibited a copy of the Register of Members retrieved from ACRA. This showed that the Sole Shareholder had held all the shares in the Company since 3 February 2020. Since the application was made on 20 December 2023, I was satisfied that the Company’s shares “have been held by the [Sole Shareholder] … for at least 6 months during the 18 months before the making of the winding up application” (s 124(2)(b)(ii) IRDA).

The ground for winding up under s 125(1)(a) IRDA was satisfied

The legal principles

Under s 125(1)(a) of the IRDA, the court may order a company to be wound up if “the company has by special resolution resolved that it be wound up by the [High] Court”. As noted in Walter Woon, Woon’s Corporations Law (Walter Woon gen ed) (LexisNexis, 2022) at para 557, it is “unusual” to invoke this ground, as a special resolution is usually the basis for a members’ voluntary winding up. There is no reported local decision that sets out the legal principles governing the application of this provision.

In Chong Kok Ming and another v Richinn Technology Pte Ltd and others [2020] SGHC 224 (“Richinn”), a winding-up application was brought under s 254(1)(a) of the Companies Act (Cap 50, 2006 Rev Ed) which is the predecessor provision of s 125(1)(a) of the IRDA. However, the facts of Richinn did not require an in-depth analysis of this provision. The winding-up application was dismissed because, amongst others, what the company contemplated was a members’ voluntary winding up – there was “no special resolution by the members that the company would be wound up by the Court” [emphasis in original] (Richinn at [75]).

Given the lack of local case law and commentary on this provision, I turn to Australian authorities for guidance. Section 461(1)(a) of Australia’s Corporations Act 2001 (Cth) (the “Australian Corp Act”) is in pari materia with s 125(1)(a) of the IRDA, with the latter adopting the same phrasing as the former. Like the present application, s 461(1)(a) of the Australian Corp Act was most frequently invoked by a sole shareholder. An example is Hillig as Administrator of Darkinjung Local Aboriginal Land Council v Darkinjung Pty Ltd [2006] NSWSC 1371 (“Hillig”), which is the leading authority on this provision. After perusing the cases under s 461(1)(a) of the Australian Corp Act and its foreign equivalents, Barrett J laid down the following principles (Hillig at [35]–[36]):

Applying these principles, Barrett J held that the sole member had the standing to apply for a winding-up order, and in the absence of any unconscionable or inequitable element, the ground for winding up was established (Hillig at [36]). Further, there was no indication that winding up would be inconsistent with the creditors’ interests (Hillig at [37]). Following Hillig, Australian courts have generally ordered a winding up where the procedural requirements (eg, the validity of the special resolution) are met. For instance, a winding-up order was made in MFS Alternative Assets (in liquidation) v Angstrom Assets Pty Ltd [2012] NSWSC 447 (“MFS”), as the sole shareholder’s winding-up application satisfied the formalities (at [5]), and there were no inequitable circumstances suggesting that an order should not be made (at [4] citing Hillig).

An example of unconscionable circumstances can be found in Re Fernlake Pty Ltd (1994) 13 ACSR 600 (“Re Fernlake”) (cited in Hillig), where the court exercised its discretion to refuse a winding-up order. There, the shareholders contracted to sell some of their shares to another buyer, such that those shares were held on trust for the buyer. Subsequently, without the buyer’s knowledge or consent, the shareholders proceeded to pass a special resolution for the company to be wound up by the court. The Supreme Court of Queensland noted that there were no technical irregularities surrounding the passing of the special resolution (Re Fernlake at 607). Nevertheless, it was “clearly inequitable … to give effect to a resolution passed wholly [and knowingly] in breach of the trusts by which each shareholder was bound” (Re Fernlake at 607).

Australian authorities have also identified factors in favour of the court making a winding-up order under s 461(1)(a) of the Australian Corp Act. One such factor is the lack of objection by the affected parties, such as the company itself and its creditors (see MFS at [4] and Griffin Energy Group Pty Ltd v Griffin Windfarm Holdings Pty Ltd, Re Griffin Energy Group Pty Ltd (subject to Deed of Co Arrangement) [2012] FCA 197 (“Griffin”) at [18]).

Another relevant factor is the lack of a functional board. In Griffin, all the directors were purportedly removed, making it appropriate for the company’s affairs to be placed in the hands of a provisional liquidator (at [20]). Of particular relevance to the present case is Kala Capital Pty Limited [2011] NSWSC 1253 (“Kala”). In making the winding-up order, Barrett J considered that the sole shareholder-director could not discharge her duties as a company’s director satisfactorily, as the ex-director had refused to hand over any books or financial records in his possession or control (Kala at [12]–[13]). This rendered her unable to ascertain the company’s condition, including its tax responsibilities and financial state (Kala at [12]). Barrett J also considered that the sole shareholder-director was predominantly based overseas, which ran afoul of the statutory requirement for a sole director to be ordinarily resident in Australia, further indicating instability in the company’s administration (Kala at [14]). Finally, in CIC Insurance Ltd v Hannan & Co Pty Ltd (2001) 38 ACSR 245, the directors had resigned, and its sole shareholder was unable to find individuals willing to act as new directors (at [9]). As observed in Hillig, the absence of all internal machinery militated against the possibility of convening a creditors’ meeting for voluntary winding up (at [33]). This made it necessary to rely on the court’s power to wind up the company.

The case to allow the winding up has been made out

I agree with the principles set out in Hillig. There is a limited discretion to withhold winding up under s 125(1)(a) of the IRDA. Unlike in a members’ voluntary winding up, other than as set out in this paragraph below, it is not for the court to question the shareholder(s)’s decision to pursue a compulsory winding up by the court over a voluntary winding up. If a special resolution has been validly passed, then the court should generally allow the winding-up application, subject to two considerations – the interests of the creditors and the presence of bad faith or other untoward circumstances (as per Hillig). With respect to creditors, relevant issues to consider would include any explicit objections from them, the list and scope of creditors (if available), and whether the winding up was aimed at undermining the creditors’ rights and would put the creditors in a worse position than if the company continued as a going concern. With respect to untoward circumstances, a company seeking to be wound up should be transparent and explain the circumstances behind the winding-up application. This would allow the court to properly understand the basis on which it is asked to exercise its discretion. Whilst the lack of transparency on its own should not be fatal to any application, in most circumstances, a proper explanation will help to dispel any concerns of such untoward circumstances.

On the facts, there is no issue that a valid special resolution was passed by the Sole Shareholder for the Company to be wound up by this court. As to the creditors, I note that the Company was unable to list its creditors in Mr Kumazaki’s affidavits because the current management had no access to any accounting and financial records. However, I considered that none of the creditors had raised any objections since the advertisement of the winding-up application on 2 January 2024. The only party which attended the hearings (after having read the advertisement) was Resorts World at Sentosa Pte. Ltd., a contractual counterparty and potential claimant of the Company. It took no position on the winding up.

Further, nothing on the facts suggested any unconscionable or inequitable circumstances which justified withholding a winding-up order. During the hearing on 19 January 2024, I expressed my concern that Mr Kumazaki’s first affidavit failed to disclose sufficient background information relating to the making of this winding-up application. The full and frank disclosure of the circumstances set out in Mr Kumazaki’s second affidavit (see [3]–[6] above) armed me with sufficient information to grant the application.

In fact, I found that it was desirable to order a winding up. Similar to Kala, the mass resignation of the Company has made it difficult for the current management to conduct the Company’s affairs properly. Considering the lack of information on the Company, I agreed with Mr Kumazaki that there was a risk of insolvent trading, which would not be in the creditors’ best interests. As in Griffin, the Company should be wound up, so that its affairs can be administered by the liquidators and under the court’s supervision.

Conclusion

For the above reasons, I ordered the Company to be wound up by the court under s 125(1)(a) of the IRDA.