Re Lehman Brothers Finance Asia Pte Ltd (in creditors’ voluntary liquidation)

Quentin Loh J:

[1] This is an application by the Liquidators of Lehman Brothers Finance Asia Pte Ltd (“the Company”) pursuant to s 310(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“CA”) to determine the relevant date for the conversion of foreign currency debts to Singapore Dollars under Rule 181 of the Bankruptcy Rules (Cap 20, Rg 1, 2006 Rev Ed) (“Rule 181”) for a Creditor’s Voluntary Liquidation.

[2] The question in the Originating Summons is framed thus:

[3] There is no Singapore case which decides this issue. However I am told that confusion arises from the decision of the Court of Appeal of Sarawak, North Borneo and Brunei in Attorney General v Creditors of Tenganipah Estate [1956] SCR 90 (“Tenganipah”) which establishes a different date for conversion of foreign currency debts from the date for proof of debts in bankruptcy. If Tenganipah is binding, this would introduce an inconsistency between local and foreign creditors when calculating provable debts. This Application, inter alia, challenges the decision in Tenganipah as unsound in principle and inapplicable to the Singapore context in light of Rule 181.

[4] The Company was an investment holding company wholly owned by Lehman Brothers Investments Pte Ltd (In Creditors’ Voluntary Liquidation) and incorporated in Singapore on 24 August 2007.

[5] On 23 September 2008, the Board of Directors (“the Board”) of the Company decided to place the Company into Creditors’ Voluntary Liquidation and to appoint Messrs Peter Chay Fook Yuen, Bob Yap Cheng Ghee and Roger Tay Puay Cheng as provisional liquidators. The Board lodged a statutory declaration on the same day with the Accounting and Corporate Regulatory Authority of Singapore (“ACRA”) and the Official Receiver which stated, inter alia, that the Company could not continue its business due to its liabilities and that meetings of the Company and its creditors had been called.

[6] The resolution placing the Company in Creditors’ Voluntary Liquidation was passed on 17 October 2008, appointing the three provisional liquidators stated in the Statutory Declaration as the Liquidators of the Company (“the Liquidators”). Notice of Appointment of the Liquidators was lodged with ACRA and the Official Receiver.

[7] The Liquidators received claims from the unsecured creditors for the following sums in the respective foreign currencies:

(a) USD 164,177,290.40;

(b) JPY 455,941.00;

(c) AUD 1,948.65; and

(d) GBP 11.00.

[8] The Liquidators were subsequently able to realise a substantial part of the Company’s assets, bringing the total cash or cash equivalent to approximately SGD 213,000,000. As a result, the Liquidators decided to declare an interim dividend in respect of unsecured debts owed by the Company, and gave notice to all known unsecured creditors of this intention on 22 August 2011. The Liquidators examined the proof of debts submitted by the unsecured creditors and informed them of the admission or rejection, in whole or in part, of the proofs on 19 September 2011.

[9] The distribution of these interim dividends has been postponed beyond the prescribed limit of two months to permit determination of this question: whether the relevant date for the conversion of foreign currency debts to Singapore Dollars under Rule 181 should be 23 September 2008, the date of lodgement of the Statutory Declaration, or 17 October 2008, the date of the passing of the resolution for voluntary winding up (see [23] below).

[10] The rights of creditors and issues relating to debts provable in the liquidation of an insolvent company follow the same rules relating to the bankruptcy of individuals: s 327(2) CA. Section 327(2) CA imports the relevant provisions of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (“BA”) and the Bankruptcy Rules (Cap 20, Rg 1, 2006 Rev Ed) (“BR”) in the winding up of an insolvent company. The relevant rule for conversion of foreign currency debts is contained in Rule 181, which reads:

[11] As the term “date of the bankruptcy order” in Rule 181 is not apt in the case of a company, the question then arises: what is the “date of the bankruptcy order” in the context of insolvent companies? Under s 255 CA, the commencement date of the winding up is the date the application is filed or the date the resolution for voluntary winding up is passed:

[12] In a voluntary liquidation, the commencement date of the winding up is either the date the statutory declaration is lodged with the Registrar if a provisional liquidator has been appointed, or the date the resolution for voluntary winding up is passed. Section 291(6) CA provides:

[13] The real issue therefore boils down to this: what is the relevant date when applying Rule 181 in a creditors’ voluntary liquidation where provisional liquidators have been appointed? The CA, BA and BR offer no express indication as to what the equivalent of “the date of the bankruptcy order” in a creditors’ voluntary liquidation is and there is no decided case on this issue.

[14] Woo Bih Li J identified this problem in Panorama Development Pte Ltd v Fitzroy Investment Pte Ltd [2003] 1 SLR(R) 93 (“Panorama Development”) at [21]:

However, since it was not necessary for him to decide the point on the facts of the case before him, he declined to do so.

[15] The learned author in Walter Woon on Company Law (Sweet & Maxwell, 2009, Revised 3rd Ed), at [17.203] summarises this quandary as follows:

[16] This suggestion that Tenganipah is binding on the High Court in Singapore emanates from the fact that it is a Court of Appeal decision from the Supreme Court of Sarawak, North Borneo and Brunei and thus constitutes a binding precedent (under the doctrine of stare decisis) pursuant to s 88(3) of the Malaysia Act 1963 (Act 26 of 1963) (Malaya) and s 13 of the Republic of Singapore Independence Act 1965 (1985 Rev Ed) as interpreted by the High Court decision of Mah Kah Yew v Public Prosecutor [1968–1970] SLR(R) 851 (“Mah Kah Yew”).

[17] The court in Tenganipah was called upon to decide when to apply the rate of conversion from Japanese Yen into Sterling. The trial judge had applied the conversion rate on 31 December 1940, the date when the relevant company had ceased operations. In the Court of Appeal, Rogers J (with whom Bodley and Lascelles JJ concurred) disagreed and decided that the appropriate date for calculating the conversion rate was the date of presentation of the winding up petition which was 29 June 1953. The Tenganipah court applied Re Russian Commercial and Industrial Bank [1955] 1 All ER 76 (“RCIB”) where Wynn-Parry J considered that the date for the conversion into sterling of a foreign currency debt should be the date when the debt became due.

[18] In RCIB, a Russian bank with a branch in England had been dissolved under Russian law in December 1917. However, its English branch continued to operate until 3 February 1922, when the winding up petition was presented for compulsory winding up of the English branch. A creditor had a current account with the bank’s English branch, and proved a debt of 36,430 roubles due to him as at 1 July 1921. The question arose as to what date the conversion should be effected. Wynn-Parry J clarified that the general principle which should be applied was to first ask when the debt became due. He found (at 80) that the bank continued to operate out of its English branch for a considerable time after its dissolution in Russia and transactions in the normal course of banking were entered into “as if the dissolution had not occurred”. In addition, there was authority to the effect that a dissolution should not be recognised for the purposes of winding up and the distribution of its assets amongst creditors. As a result, Wynn-Parry J ruled that there was “no other logical conclusion” but to ignore the dissolution of the bank. He opined (at 80–81; in a passage which was quoted in Tenganipah at 95):

[19] It is noteworthy that the comparison in RCIB was between the date of effective dissolution in Russia and the date of winding up of the English branch. Similarly, in Tenganipah, the comparison was between the date of cessation of operations and the date of winding up. Neither of these cases considered the situation as to when the winding up became effective for the purposes of proof of debt. Much of the decision in RCIB focused on the special position of proof of debt in a winding up situation and why it should be an exception to the rule that dissolution terminated the relationship between creditor and debtor such that the debt became immediately due. In other words, the Tenganipah court was restating the position in RCIB that the relationship between the parties must be treated as continuing where a debt had yet to be proved in a winding up. The principle in RCIB was used in Tenganipah to reject the claim that a debt became due once operations of a company had ceased. Once this had been decided, the court assumed that the date of the presentation of the petition was the date of winding up. In Tenganipah, Rogers J had concluded (at 95):

[20] The question that the Tenganipah court had been called upon to decide was therefore a related but tangential question. The court never considered, much less decided, what the date of the bankruptcy order was or whether the date of the order for winding up should apply. As the Applicant points out, the Tenganipah court never considered the impact of Rule 181. I find that this is not only because Rule 181 was not in existence in Borneo at that time, but more importantly because the question of when the equivalent date of a bankruptcy order was in the context of a company’s liquidation was never before that Court.

[21] Accordingly I find that the ratio in Tenganipah is inapplicable to the facts of this case. In the event that I am wrong and the ratio is read more broadly, Tenganipah is distinguishable on its facts.

[22] As a side note, I should add that I also entertain reservations whether the Singapore High Court should continue to be bound by the decisions of the previous Court of Appeal of Sarawak, North Borneo and Brunei. Professor Walter Woon, in his article “Review of Judicial and Legal Reforms in Singapore between 1990 and 1994” in The Doctrine of Binding Precedent: Cutting the Gordian Knot (Butterworths, 1996) (at p 170) opines that the rule of stare decisis is complicated by our political history because at one time or another we have been part of a Presidency in India, a separate Crown Colony (initially within the Straits Settlements and later on our own), a constituent of the state of Malaysia, and finally an independent republic. Consequently there are about a dozen other courts that have some claim to being predecessors of the present Court of Appeal. The learned author states at (pp 179–180):

I agree with those sentiments and have my reservations about the continued carriage of unnecessary baggage from our chequered political history, particularly when we have developed our own jurisprudence over almost half a century since our independence. I should also point out that strictly speaking, although the decision in Mah Kah Yew (see [16] above) was by a court of three Judges, it was a Magistrate’s Appeal which Wee Chong Jin CJ reserved to a court of three Judges pursuant to s 295(3) of the Criminal Procedure Code (cap 132, 1955 Rev. Ed). It therefore remained a decision of the High Court, a fact which was emphasized by Wee Chong Jin CJ at [1].

[23] There are two possible interpretations when applying “the date of the bankruptcy order” to a creditors’ voluntary liquidation where provisional liquidators have been appointed:

(a) the date on which the creditors’ voluntary liquidation commences, ie, the date of the Statutory Declaration, 23 September 2008 (“the Commencement Date”); or

(b) the date on which the Company passes the Resolution to put the Company in creditors’ voluntary liquidation, 17 October 2008 (“the Resolution Date”).

[24] The choice of the Commencement Date as the equivalent of the “date of the bankruptcy order” finds some support in the following:

(a) First, s 75 BA provides that the date on which “the bankruptcy order is made” is also the date on which the bankruptcy commences; and

(b) Second, s 291(6) CA provides that the creditors’ voluntary liquidation where a provisional liquidator is appointed commences on the date on which the statutory declaration is lodged under s 291(1) CA.

On this approach, since the date of the bankruptcy order is the date of commencement of bankruptcy, its equivalent in the context of a creditors’ voluntary liquidation where a provisional liquidator is appointed must also be the Commencement Date.

[25] By contrast, the use of the Resolution Date is based on an approach which considers the substantive effect on the legal status of a company under a creditors’ voluntary liquidation as a bankruptcy order does on the legal status of an individual. As the statutory declaration, which begins on the Commencement Date, merely appoints liquidators on a provisional and not a conclusive or more permanent basis, a company is not conclusively placed in creditors’ voluntary liquidation until a valid resolution to place itself in creditors’ voluntary liquidation is passed.

[26] In my view, the Resolution Date is the correct basis for the conversion for the reasons set out below, the chief of which must be the substantive effect on the legal status of the legal entity and the avoidance of anomalies.

[27] An examination of the language used in the BR and its equivalent provisions in the Companies (Winding Up) Rules (Cap 50, Rg 1, 2006 Rev Ed) (“CWR”), shows that the words “bankruptcy order” and “winding up order or resolution” are used in the same context to mean the same thing. For example, Rule 182 of the BR and Rule 86 of the CWR are substantively the same in the treatment of periodic payments. Rule 182 of the BR reads:

Rule 86 of the CWR reads:

The only difference between these rules is the substitution of “winding up order or resolution to wind up” for “bankruptcy order”.

[28] The position is similar in respect of proof of debts payable at a future time. Rule 186 of the BR reads:

Rule 88 of the CWR reads:

The only differences between the two rules are the percentage rebate of interest, a slight phraseology change, and the substitution of “date of the winding up order or resolution” for “date of the commencement of bankruptcy”. Both dates are treated as interchangeable and pointing to the same event: that of a debt becoming payable or due.

[29] Again, as to claims for interest, there is similar treatment although the juxtaposition is less obvious. Rule 184 of the BR reads:

Rule 87 of the CWR reads:

The time at which the interest is payable is calculated from the date of bankruptcy order or the date of the winding up order or resolution. In Rule 184 of the BR, a further distinction is made in Rule 184(b) between “the bankruptcy application” and the date of “the bankruptcy order”, making it clear that the calculation of interest on the debt happens subsequent to the bankruptcy application and only when an order is made. Interest may only be calculated on a debt when it becomes due, and not before. If interest only starts accruing at the point of the bankruptcy order or date of winding up order or resolution, this points to the fact that the debt only becomes due at the Resolution Date and not before. In fact, Rule 87 of the CWR suggests that a debt may become due at an even later date, viz, when a demand is made for that debt.

[30] This comparison shows a consistent intention for the bankruptcy order to correspond to the winding up order and the resolution for winding up in the BR and the CWR.

[31] In the context of filing proofs of debt in winding up proceedings, the Singapore courts have determined that the equivalent of a bankruptcy order is not the commencement of winding up but the winding up order. In Re City Securities Pte [1995] 2 SLR(R) 746 (“City Securities”), Chao Hick Tin J (as he then was) applied s 40(3) of the Bankruptcy Act (Cap 20, 1985 Rev Ed) (“the 1985 BA”) and held that the cut-off date up to which proofs of debt could be calculated was the date of the order and not the date of presentation of the winding up petition. Section 40(3) of the 1985 BA is materially similar to the current s 87(3) BA. This corresponds, in the present case, to the Resolution Date, and is perfectly consistent with the examination of the BR and CWR at [27]–[30] above.

[32] In England, no uncertainty arises because there is specific legislation which adopted the common law position. Rule 4.91 of the English Insolvency Rules 1986 expressly provides:

Section 247(2) of the English Insolvency Act 1986 defines “goes into liquidation” as:

[33] In In re Dynamics Corporation of America [1976] 2 All ER 669 (“Re Dynamics”), a creditor of a New York company which had carried on business in the USA and England presented a petition in England for the compulsory winding up of the company as an unregistered company. The rate of exchange of the US Dollar to Sterling differed between the date when the petition was presented and the date of the winding up order. The English liquidator applied to the English Court to determine which exchange rate to apply to convert the debts in US Dollar to Sterling. Oliver J held that the conversion of a US Dollar debt to Sterling was to be based on the exchange rate prevailing at the date of the making of the winding-up order. Oliver J explained (at 774G– 775E):

The reason given by Oliver J for deciding that the relevant date was the date of the winding up order can be found at 764E–F:

[34] Although Re Dynamics concerned compulsory winding up of a company, it was also approved by the English Court of Appeal in In re Lines Bros Ltd (In Liquidation) [1983] Ch 1 (“Re Lines Bros”) which concerned a creditors’ voluntary liquidation. In Re Lines Bros, the liquidators in a creditors voluntary liquidation converted foreign currency debts of the company into Sterling at the rate of exchange prevailing at the date of the resolution to wind up, ie, the Resolution Date in the present case. As a result of the depreciation of Sterling against the Swiss Franc, the creditor bank, on converting their Sterling dividends into Swiss Francs, received only 58.7% of the 18.5 million Swiss Francs owed to them by the company. The bank sought to recover the loss from the surplus after paying all the provable debts. The liquidators applied to the English court for directions. The Court of Appeal upheld the judge’s decision that the bank’s foreign currency debt was properly converted at the date the resolution was passed to wind up the company and they were not entitled to further participate in the assets of the company.

[35] Brightman LJ stated (at 1019A) that “there can be no reason for any distinction between a voluntary liquidation and a compulsory liquidation” and (at 1020C–E) that this was because there remained the need “to value foreign debt once and for all at an appropriate date, and to keep to that rate of conversion throughout the liquidation until all the debts have been paid in full” so that “all the creditors will be treated alike”. Brightman LJ also observed (at 1022G):

and (at1023H):

[36] Lawton LJ opined (at 1018D):

In so holding, the Court of Appeal approved the decision and reasoning of Re Dynamics (see 1024 of Re Lines Bros).

[37] Re Dynamics has been applied in Australia in Re Gresham Corporation Pty Ltd (in liq.) [1990] 1 Qd R 306. Dowsett J held (at 307–308):

[38] Re Lines Bros has been approved by the Singapore High Court in Re Mohamed Yunus Valibhoy, ex parte Bank of Credit and Commerce Hong Kong Ltd [1994] 3 SLR(R) 504 although that case was in the context of the 1985 BA and before the introduction of Rule 181. It is interesting to note that counsel for the banks, Mr V K Rajah (before his elevation to the Bench), submitted (at [35]):

This argument was supported by the Official Assignee (see [38]) and was not challenged by counsel for the bankrupt. This submission and the underlying reasoning of Re Lines Bros (which, as noted above, rules that the relevant date for conversion of foreign currency debts was the date of the resolution or date of winding up) was accepted by Lai Siu Chiu J (see [56]–[59]). The learned judge also quoted with approval (at [56]) the judgment of Lawton LJ in Re Lines Bros set out above at [36]. Lai Siu Chiu J concluded (at [59]):

[39] The reasons advanced by these decisions in England and Australia, viz, achieving equality of treatment of the creditors regardless of whether their claims are in local or foreign currency, and avoiding two different dates, one for claims in foreign currency and another for local currency, apply with equal force in Singapore. Ian F Fletcher, The Law of Insolvency (Sweet & Maxwell, 2009, 4th Ed) (“Fletcher”) explains (at [23-010]) that the rationale behind these rules is to “ensure equality of treatment between all creditors” by fixing liabilities on the same day.

[40] In Good Property Land Development Pte Ltd (in liquidation) v Societe-Generale [1996] 1 SLR(R) 884 (“Good Property”), the Court of Appeal held that insolvency set-off occurs at the date of commencement of the compulsory winding up of a company as opposed to the date of the winding up order. The Court of Appeal relied on s 255 CA and held (at [14]):

There is an apparent anomaly in that insolvency set-off occurs automatically on the commencement of the winding up (corresponding to the Commencement Date in the present case) but the date of conversion of the foreign currency debt is the date of the winding up order or resolution (the Resolution Date in the present case).

[41] Before I deal with the apparent anomaly, I should point out that Good Property has its detractors. In his article, Trust Funds, Ascertainability of Beneficial Interest and Insolvency Set-Off (1996) SAcLJ 489, Mr Lee Eng Beng offers the view that although Good Property is supported by some English cases, it is in disagreement with the more recent and authoritative English decisions as well as the Australian position, and that the Court of Appeal’s reliance on s 255 CA as rendering the local position different from that in England is not incontrovertible. While this is not the appropriate place to discuss consistency of the date of set-off with the dates of conversion and proof, I find Mr Lee Eng Beng’s criticism in (1996) SAcLJ 489 at p 494 to be quite compelling:

It does seem to be putting the cart before the horse to decide on the value of set-off before the debt could be proved in liquidation. Woo Bih Li J in Panorama Development (see [14] above) had his reservations on the Court of Appeal’s reliance (at [40]) on Arab Banking Corp v United Overseas Bank Ltd [1991] 1 SLR(R) 560 and cited Mr Lee Eng Beng’s article with approval (see [55]–[57]). The incongruity of the insolvency set-off date and the relevant date for the conversion of foreign currency was recognised by Oliver J in Re Dynamics but that did not change his view (see 775B-E).

[42] The apparent anomaly created by Good Property can be avoided for present purposes by treating it as a case which dealt with set-off and s 88 BA, unlike the present case which concerns proofs of debt under s 87 BA. As set out above, both case law and the statutory scheme relating to proofs of debt provide that the equivalent of the bankruptcy order in creditors’ voluntary liquidation is the passing of the resolution for winding up. Also, the established position prior to the introduction of Rule 181 was that the date for currency conversion should, by extension, be the date of the winding up resolution. There is no reason to suggest that the law relating to proofs of debts has changed because a different position has been taken in relation to the law on set-offs. I also see, as stated by Oliver J in Re Dynamics (at 775D), that “[t]here is nothing in the set-off cases which compels a quantification of the amount of the set off as at the commencement of the winding up”.

[43] Further, the retroactivity concept the Court of Appeal considered in reaching its decision in Good Property to favour the date of commencement has been abolished through s 75 BA which provides that the bankruptcy commences on the day when the bankruptcy order is made and continues until the bankrupt is discharged. Our s 75 BA is based on s 278 of the English Insolvency Act 1986, in respect of which Fletcher states (at [8-005]):

[44] Good Property also relied on the concept of “relation back” to distinguish MS Fashion Ltd & Ors v Bank of Credit and Commerce International SA (in liq) & Ors (No.2) [1993] 1 Ch 425 which held that in the context of a winding up, the relevant date for assessing the mutuality of credits and debts in insolvency set-off is the date of the winding up order.

[45] The position on proof of debts in Singapore is set out in s 87(3) BA:

In City Securities (see [31] above), Chao J (as he then was) interpreted the predecessor of s 87(3) BA (at [7] and [10]) as follows:

The learned judge also distinguished Amalgamated Investment & Property Co Ltd [1985] 1 Ch 349 as it ran counter to the provisions of s 327(2) CA, read with what is now s 87(3) BA. The approach in City Securities clearly accords with the provisions already referred to above and in particular, Rule 87 CWR.

[46] I find that the need to ensure consistency and equality between all creditors in the event of voluntary liquidation, and especially fixing liabilities on the same day, is a compelling one. I therefore answer the question in this application as follows: the debts of the Company in foreign currency which are admitted in proof by the Liquidators are, for the purposes of dividends in respect of such debts, to be converted into Singapore Dollars at the exchange rate prevailing as at the Resolution Date, viz, 17 October 2008.

[48] It remains for me to record with gratitude the very able assistance I have derived from the clear and cogent submissions of counsel for the Liquidators, Mr Patrick Ang Peng Koon, and counsel for a creditor, Fullerton (Private) Ltd, Mr Andrew Chan Chee Yin.