Re Lim Lye Hiang, ex parte the Official Assignee

Chan Seng Onn J:

[1] This is an appeal against the decision of Assistant Registrar Leong Kwang Ian (“assistant registrar”) ordering that a sum of money from the Central Provident Fund (“CPF”) which was paid to the Official Assignee as the trustee in bankruptcy of the appellant, Mdm Lim Lye Hiang (“LLH”), be divisible among and payable to her creditors.

[2] On 9 January 1998, a bankruptcy order was made against LLH. On 18 September 2008, the CPF Board sent a letter to LLH to inform her that she had been nominated to receive the CPF monies and the Singtel discounted shares of her late sister, Mdm Lim Lye Keow (“LLH’s nominated CPF monies”). Mdm Lim Lye Keow had passed away on 14 March 2008. This letter was copied to the Official Assignee, who has no record of having received this letter at that time. It is unclear from the record when Mdm Lim Lye Keow made the nomination. Almost a year later, on 26 June 2009, the CPF Board sent an email to the Official Assignee’s officers, requesting for the Official Assignee’s instruction on the transfer of LLH’s nominated CPF monies. The Official Assignee similarly has no record of having received this email.

[3] On 13 November 2009, LLH was discharged by an order of court made pursuant to s 124 of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (“Bankruptcy Act”). At the time of the application for discharge, because the Official Assignee remained unaware that LLH had become entitled to LLH’s nominated CPF monies, it failed to alert the court to the same. However, due to the objection of a creditor, for reasons which are not relevant to the present appeal, the Official Assignee delayed the distribution of her assets to her creditors and the sending of a notification to LLH of the fact that she had been discharged by the court.

[4] Thereafter, on 14 January 2010, the CPF Board again emailed the Official Assignee referring to its previous letter dated 18 September 2008 and email dated 26 June 2009, and requested for instructions to transfer LLH’s nominated CPF monies to the Official Assignee. The monies amounting to $102,614.84, which included money standing to Mdm Lim Lye Keow’s credit during her lifetime, and the proceeds from the sale of her Singtel discounted shares, were eventually transferred to the Official Assignee on 2 March 2010.

[5] On 12 May 2010, the Official Assignee filed a summons seeking an order, inter alia, in the following terms:

At the hearing before the assistant registrar on 25 June 2010, the Official Assignee contended and the assistant registrar accepted that, pursuant to s 15(5) of the Central Provident Fund Act (Cap 36, 2001 Rev Ed) (“CPF Act”), LLH had become entitled to withdraw LLH’s nominated CPF monies upon Mdm Lim Lye Keow’s death on 14 March 2008, which was before LLH’s discharge. Having regard to:

the assistant registrar held that the right to withdraw LLH’s nominated CPF monies constituted “property” which devolved on LLH before her discharge and therefore vested in the Official Assignee and became divisible among her creditors.

[6] By way of background, it is useful to first set out the relevant provisions of the Bankruptcy Act. Section 75(a) of the Bankruptcy Act provides that the bankruptcy of a person who has been adjudged bankrupt by a bankruptcy order commences on the day on which the bankruptcy order is made. Section 75(b) provides that bankruptcy terminates upon a bankrupt’s discharge. Sub-sections 76(1)(a) and (b) of the Bankruptcy Act are of particular relevance to the present appeal, and they provide that:

[7] In s 2 of the Bankruptcy Act, “property” is defined non-exhaustively to include things in action, and also every description of interest, whether present or future or vested or contingent, arising out of or incidental to property. Reading the definition of “property” in s 2 with s 76(1)(a) of the Bankruptcy Act, anything which falls within the definition of “property” in s 2 belonging to a bankrupt on the date of the making of a bankruptcy order will vest in the Official Assignee and become available for distribution among his creditors.

[8] Sub-sections 76(1)(a) and (b) should also be read together with s 78(1) of the Bankruptcy Act, which describes the property which is divisible among a bankrupt’s creditors, subject to certain exceptions listed in s 78(2) of the Bankruptcy Act (which are irrelevant to the present appeal). Section 78 of the Bankruptcy Act provides as follows:

The effect of ss 76(1)(a) and 78(1)(a) is that property which (a) belongs to the bankrupt at the commencement of bankruptcy (which, according to s 75(a) of the Bankruptcy Act, is the date of the bankruptcy order) and which vests in the Official Assignee upon the court making a bankruptcy order as a result of the operation of s 76(1)(a)(i); or (b) is acquired by or devolves upon the bankrupt before his or her discharge will be divisible among the bankrupt’s creditors. Section 78(1)(b) clarifies that things in action form part of the property of the bankrupt which are divisible in bankruptcy among creditors.

[9] Subject to certain exceptions (which are not applicable here), a discharge from bankruptcy has the effect of releasing the bankrupt from all debts provable in bankruptcy, but does not have the effect of rendering the Official Assignee’s functions spent. Section 127(1) of the Bankruptcy Act provides that:

Thus, even after the bankrupt’s discharge, the Official Assignee remains duty-bound to continue to collect all the assets of the bankrupt which are divisible among creditors (as set out in ss 76(1)(a) and 78(1)(a) and (b)) and to distribute the proceeds from the realisation of such property to creditors who have proved their debts. The law imposes a legal obligation on the bankrupt to assist in the fulfilment of the Official Assignee’s functions even after his discharge on pain of a fine or revocation of his discharge. The discharged bankrupt’s obligation is provided for in s 128 of the Bankruptcy Act, which provides that:

[10] LLH’s main argument in this appeal is that LLH’s nominated CPF monies did not devolve upon LLH immediately upon the death of Mdm Lim Lye Keow. Counsel for LLH submits that in the absence of authorisation from the CPF Board for the withdrawal of the monies prior to LLH’s discharge, LLH’s nominated CPF monies were not payable to LLH, and therefore did not amount to property within the meaning of s 78(1) of the Bankruptcy Act. Counsel for LLH contends that since LLH’s nominated CPF monies only devolved upon LLH after the date of her discharge, they did not vest in the Official Assignee and were not divisible among LLH’s creditors. Alternatively, even if LLH had become entitled to LLH’s nominated CPF monies prior to her discharge from bankruptcy, counsel for LLH submits that s 24(4) of the CPF Act, which provides that a bankrupt’s CPF contributions shall not be subject to his debts in bankruptcy, applies to LLH’s nominated CPF monies. Therefore, LLH’s nominated CPF monies did not pass to the Official Assignee. Finally, counsel for LLH submits that since the Official Assignee had given LLH an unconditional discharge, the Official Assignee had lost its right to claim that LLH’s nominated CPF monies was divisible among creditors, being property which was acquired by or devolved upon LLH during her bankruptcy.

[11] In contrast, the Official Assignee essentially argues that the assistant registrar’s decision was correct. The Official Assignee urges this court to take the view that LLH’s entitlement to withdraw LLH’s nominated CPF monies was a type of property which had accrued on 14 March 2008, the date on which Mdm Lim Lye Keow passed away, and that the date on which the relevant monies were paid out by the CPF Board to the Official Assignee was irrelevant to the question of whether the monies had vested in the Official Assignee before LLH’s discharge.

[12] To my mind, the parties’ submissions are at cross purposes because their submissions are not in relation to the same kind of property. It appears to me that the arguments made by counsel for LLH assume that the Official Assignee was only claiming the right to distribute to creditors the actual monies paid out to the Official Assignee on 2 March 2010, which was subsequent to her discharge on 13 November 2009. However, that assumption seems mistaken given that the thrust of the Official Assignee’s submission is that it is asserting that as LLH’s trustee in bankruptcy, it had the right to exercise LLH’s entitlement to withdraw LLH’s nominated CPF monies, which LLH had acquired during her bankruptcy on 14 March 2008, twenty months prior to the date of her discharge.

[13] As mentioned earlier, the definition of property in s 2 of the Bankruptcy Act is framed widely, to include “money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of or incidental to, property”. By virtue of s 78(1)(a) of the Bankruptcy Act, anything falling within the definition of “property” in s 2 is divisible among creditors if it belongs to the bankrupt at the commencement of bankruptcy or is acquired by or devolves upon the bankrupt before her discharge (see above, at [8]). Thus, the first issue arising in this appeal should be framed as: whether LLH’s entitlement to withdraw LLH’s nominated CPF monies, which arose during the period of her bankruptcy, was property divisible among creditors within the meaning of s 78(1), read with the definition of “property” in s 2 of the Bankruptcy Act. The fact that LLH’s entitlement to withdraw was exercised by the Official Assignee on LLH’s behalf after her discharge had no impact on the question of whether such entitlement to withdraw amounted to property divisible among the creditors. Nothing in the Bankruptcy Act provides that where the proceeds from divisible property (within the meaning of s 78(1) of the Bankruptcy Act) are realised after a bankrupt’s discharge, such proceeds are no longer divisible among the creditors even though the property in question may have been acquired by or devolved upon the bankrupt during the bankruptcy.

[14] If the first issue is answered in the affirmative, ie, that LLH’s entitlement to withdraw LLH’s nominated CPF monies constituted property divisible amongst creditors of the bankrupt for the purposes of s 78(1) of the Bankruptcy Act, a second issue arises, viz, whether s 24(4) of the CPF Act prevents LLH’s entitlement to withdraw LLH’s nominated CPF monies from vesting in the Official Assignee during LLH’s bankruptcy. Finally, this appeal raises the issue of whether the Official Assignee’s decision to grant LLH an unconditional discharge barred it from thereafter seeking to claim the property in the form of LLH’s entitlement to withdraw LLH’s nominated CPF monies, which was acquired by or had devolved upon LLH during her bankruptcy and prior to her discharge.

Whether LLH’s entitlement to withdraw LLH’s nominated CPF monies constitutes property within the meaning of s 78(1) of the Bankruptcy Act

[15] It is necessary to examine the relevant sections in the CPF Act to determine whether LLH’s entitlement to withdraw LLH’s nominated CPF monies had the character of property for the purposes of s 78(1) of the Bankruptcy Act. Section 25(1) of the CPF Act provides that:

[16] Section 15(5) of the CPF Act, which provides that after the death of a member of the CPF, the nominee nominated in accordance with s 25(1) of the CPF Act shall be entitled to withdraw from the balance standing to the credit of that nominating member after deducting certain sums (which are not relevant to the present appeal) (“nominated CPF monies”), reads as follows:

A nomination made under s 25(1) of the CPF Act (previously s 26(1) of the Central Provident Fund Act (Cap 36, 1991 Rev Ed)) becomes effective upon the death of the nominating member, and s 15(5) thereafter comes into operation: The Central Provident Fund Board v Lau Eng Mui [1995] 2 SLR(R) 826 at [14].

[17] The entitlement of the nominee to make a withdrawal upon the death of a nominating member arises out of the testamentary effect of a nomination, ie, a nomination is capable of passing property to the nominee upon the death of the nominating member. In How Yew Hock (Executor of the estate of Yee Sow Thoo, deceased) v Lembaga Kumpulan Wang Simpanan Pekerja [1996] 2 MLJ 474, the Malaysian Federal Court considered the issue of whether a nomination made under the Malaysian equivalent of the CPF Act was a testamentary document which had to satisfy the requirements of the Wills Act 1959 (Malaysia).While the issue which arose in that case is different from the present, the Federal Court cited with approval the following passage from Mellows, The Law of Succession (Butterworths, 4 ed, 1983) which helpfully elucidates the legal nature of nominations:

[18] In Re Barnes, Ashenden v Heathe [1940] Ch 267 at p 273, Farwell J stated that a document executed to effect the nomination of a recipient of monies deposited in a society registered under the Industrial and Provident Societies Act, 1893 (c 39) (UK) has the characteristics of a testamentary document:

[19] Clearly, a nomination made pursuant to s 25(1) the CPF Act operates differently from a will. Unlike other property belonging to a testator during his lifetime, nominated CPF monies do not form part of the deceased’s estate. Rather, the nominee immediately acquires the right to withdraw the nominated CPF monies: see s 25(1) of the CPF Act. If the monies had already been paid out to another party before a nominee has withdrawn the monies, s 24(3A) comes to the protection of the nominee by impressing upon the nominated CPF monies a statutory trust in the nominee’s favour. Section 24(3A) provides that:

Given the testamentary nature of a CPF nomination and the effect of ss 15(5), 25(1) and 24(3A) of the CPF Act, nominated CPF monies become immediately payable to the nominee upon the death of the nominating member.

[20] I turn now to consider s 20(1) of the CPF Act, which counsel for LLH relies heavily upon in support of the argument that the nominated CPF monies do not devolve upon a nominee until the CPF Board’s authorisation has been given for the withdrawal of those monies:

In reliance on s 20(1), counsel for LLH submits that the Official Assignee’s failure to make an application to the CPF Board for the withdrawal of the nominated CPF monies before LLH’s discharge meant that the monies were not payable to LLH, and therefore was not property which devolved upon or was acquired by LLH during her bankruptcy. This argument is unsustainable in the light of the preceding discussion. As stated above (at [15]-[19]) a nomination, having testamentary characteristics, operates upon the death of the nominating member. Section 25(1) of the CPF Act provides that upon the death of a nominating member, nominated CPF monies and designated shares subject to the nomination become payable or transferable out of the CPF to the nominee in his own right.

[21] LLH’s entitlement to withdraw LLH’s nominated CPF monies in my view constitutes property divisible among LLH’s creditors within the meaning of s 78(1)(a) read with s 2 of the Bankruptcy Act. An entitlement to withdraw nominated CPF monies also falls within the definition of “property” in s 2 of the Bankruptcy Act, which includes things in action, every description of property and also obligations and every description of interest, whether present or future or vested or contingent, arising out of or incidental to, property. In my view, LLH’s entitlement to withdraw LLH’s nominated CPF monies also readily falls within s 78(1)(b) of the Bankruptcy Act, because an entitlement to withdraw the nominated CPF monies is a type of “capacity to exercise and to take proceedings for exercising all such powers in or over or in respect of property” [emphasis added] (see above, at [8]).

[22] Thus, the fact that the actual payment out of nominated CPF monies is contingent upon the CPF Board’s authorisation of a nominee’s application for withdrawal did not detract from its character as property divisible among creditors in bankruptcy for the purposes of ss 78(1) of the Bankruptcy Act. In the present appeal, since LLH’s nominated CPF monies became payable to LLH upon Mdm Lim Lye Keow’s death on 14 March 2008, LLH’s entitlement to withdraw the nominated CPF monies in this case devolved upon LLH on the same date. It therefore fell within the ambit of ss 78(1)(a) and (b) of the Bankruptcy Act.

[23] Also, I am of the view that s 20(1) merely lays down a procedural requirement of a prior authorisation from the CPF Board before nominated CPF monies may be withdrawn by persons who have become legally entitled to withdraw from the CPF within the meaning of s 15 of the CPF Act. Section 20(1) does not stipulate any substantive criteria which must be satisfied, failing which an application for the withdrawal of monies which an applicant had become entitled to withdraw within the meaning of s 15 of the CPF Act would be rejected. A procedural requirement that prior authorisation be obtained cannot alter the nature of a nominee’s entitlement to withdraw nominated CPF monies as property divisible among creditors, by operation of ss 78(1)(a) and (b) of the Bankruptcy Act.

[24] If there were additional substantive criteria imposed by s 20(1) on the nominee’s rights to withdraw nominated CPF monies from the CPF, one would imagine that those criteria would apply with equal force to the transfer of the Singtel discounted shares purchased with CPF monies to nominated recipients. In the case of the Singtel discounted shares, s 26(2) of the CPF Act envisages an outright transfer by the CPF Board to the nominated recipient of the Singtel discounted shares purchased using the deceased’s CPF monies, and if that is not feasible, ss 26(3) and (4) envisage that the shares are to be sold and the proceeds therefrom transferred to the nominee, without additional substantive conditions:

[25] Also, in the light of what was discussed recently in Singapore Parliamentary Debates, Official Report (16 August 2010) vol 87 at col 0, there are ample reasons for taking the view that Parliament had intended s 20(1) of the CPF Act to perform no more than a procedural function. Minister for Manpower, Mr Gan Kim Yong stated at the second reading of the Central Provident Fund (Amendment) Bill that:

Mr Gan stated that the CPF Board was generally reluctant to hold nominated CPF monies, and aims to expeditiously pay out nominated CPF monies to nominees upon the death of the nominating member (ibid):

Admittedly, these proposed changes have not yet been brought into effect. However the above statements by Mr Gan suggest that CPF Board authorisations are usually given as a matter of course to nominees entitled to withdraw within the meaning of s 15(5), and that s 20(1) of the CPF Act does not impose further substantive criteria before a nominee may withdraw nominated CPF monies.

[26] Whatever the underlying rationale for statutorily requiring an application for CPF Board authorisation to be made, it seems abundantly clear that s 20(1) only provides for the process by which withdrawals are requested by persons qualified to do so pursuant to s 15 of the CPF Act. The Official Assignee’s omission to make an application pursuant to s 20(1) of the CPF Act prior to LLH’s discharge did not change the nature of LLH’s entitlement to withdraw LLH’s nominated CPF monies, or prevent it from becoming property divisible among a bankrupt’s creditors, since it had been acquired by or devolved upon LLH before LLH’s discharge.

[27] I turn now to address another argument relied upon by counsel for LLH in the alternative, in support of the argument that LLH’s nominated CPF monies shall not be subject to LLH’s debts on her bankruptcy, because under s 24(4) of the CPF Act, “no contribution to the Fund or interest thereon” shall pass to the Official Assignee on bankruptcy. Section 24(4) of CPF Act provides that:

Counsel for LLH argues that the phrase “standing to the credit of the member” was used in other provisions such as ss 27(1), 21(1), 22(1) and 32(5) of the CPF Act to distinguish monies standing to the credit of a particular member from monies in the fund generally. Since s 24(4) does not include the words “standing to the credit of a member”, counsel for LLH submits that it ought to be interpreted to include the nominated CPF monies passing to a nominee upon the death of nominating member.

[28] However, in my view, this argument should also be rejected. Section 24(4) is intended for the protection of CPF monies standing to the credit of the bankrupt, against his own creditors. Money standing to the credit of a member is accumulated over time, through contributions to his or her credit. Contributions by employers are mandated by s 7 of the CPF Act, as well as contributions from the employee’s wage if the employee’s remuneration exceeds $500 per month. Alternatively, they may be made voluntarily under s 13B of the CPF Act. Section 12(2)(a) of the CPF Act states that every contribution paid to the CPF for a member shall be credited to the member by the CPF Board:

Section 2(1) defines a “member” or “member of the fund” to mean:

I am of the view that nominated CPF monies which have passed after the death of a nominating member to a nominee do not fall within the meaning of the word “contribution” which is the subject-matter of the protection conferred by s 24(4). The purpose of the “immunity” conferred by s 24(4) of the CPF Act is to protect the savings of a member for his retirement from his creditors: see Singapore Parliamentary Debates, Official Report (18 March 1986) vol 47 at col 571, Mr Lee Yock Suan (Acting Minister for Labour). The nominated CPF monies in this case are the CPF contributions by the deceased (and not by LLH), which stood to the credit of the deceased, for the deceased’s retirement. Since the deceased had passed away before those monies were withdrawn by the deceased, the rationale underlying s 24(4) is inapplicable to those monies. There is to my mind no reason why Parliament would have intended the ambit of the protection provided by s 24(4) of the CPF Act to be extended to nominated CPF monies, which are in substance no different from other testamentary gifts which would become divisible among creditors of the nominee in the event of the nominee’s bankruptcy. Thus, I am of the view that LLH’s entitlement to withdraw LLH’s nominated CPF monies was property divisible among LLH’s creditors, since it was property which was acquired by or devolved upon LLH during her bankruptcy.

[29] Finally, counsel for LLH argues that the case of Chong Chee Keong v Official Assignee [2005] 3 SLR(R) 546 (“Chong Chee Keong”), in which Choo Han Teck J held that a dividend in bankruptcy which was paid to the bankrupt after his discharge from bankruptcy was not divisible among the bankrupt’s creditors, should be followed because it is on all fours with the present case. In particular, counsel for LLH relies strongly on the following passage in Choo J’s judgment (at [4]):

[30] The above paragraph ought to be read in the light of the facts of Chong Chee Keong. In that case, the plaintiff was the shareholder and managing director of a company, which was wound up on 13 August 1999 and the Official Receiver was appointed as liquidator. A few months later, on 10 December 1999, the plaintiff was adjudicated bankrupt. On 21 April 2001, the Official Assignee filed a proof of debt of $682,304.00 against the company in liquidation on the plaintiff’s behalf. Subsequently, on 30 June 2003, the plaintiff was discharged by a certificate of discharge issued by the Official Assignee. Thereafter, on 5 July 2004, the Official Receiver declared a dividend of 16.33% in the liquidation of the company. Thus, the plaintiff was entitled to 16.33% of $682,304.00, which amounted to $111,420.24. The Official Assignee argued before Choo J that the debt owing from the company to the plaintiff had been the plaintiff’s property prior to the commencement of her bankruptcy, and the monies therefore vested in the Official Assignee upon the making of a bankruptcy order. The plaintiff argued that since an unconditional discharge had been given to the plaintiff with the consent of creditors, the Official Assignee could not lay claim to the money after the discharge. Ultimately, Choo J held in favour of the plaintiff on the ground that the money had not been due and payable to the Official Assignee until after the discharge. Choo J appeared to have been particular influenced by the following in coming to his conclusion (at [4]):

[31] I am of the view that Chong Chee Keong was decided on the facts of that particular case, and that each case turns on its own facts. In this regard, I refer to the following passage in Ian Fletcher, The Law of Insolvency (Sweet & Maxwell, 4 ed, 2009) at para 8-001:

It is incumbent on this court to take into account the underlying rationale for the rule that only a bankrupt’s property which had been acquired before and during her bankruptcy fall to be divided among her creditors. Unlike Chong Chee Keong, the present case concerns monies which had become due and payable to the bankrupt before she was discharged. Furthermore, the reasoning in Chong Chee Keong, viz, that it was unfair to allow the Official Assignee to assert its entitlement to the monies after it had granted an unconditional discharge despite having full knowledge that a chose in action worth $682,304.00 had vested in it during the plaintiff’s bankruptcy, is not applicable to the present case. In the present case, the Official Assignee’s failure to make the recovery of LLH’s nominated CPF monies and division among creditors a condition for discharge stemmed from its ignorance (prior to the discharge) that LLH’s nominated CPF monies due to the bankrupt existed and had been vested in it. Apparently, the Official Assignee failed to receive the letter dated 18 September 2008 and the email dated 26 June 2009 from the CPF Board informing it of LLH’s nominated CPF monies. How that could have happened is not clear to me.

[32] I also note that counsel for LLH has overstated her case by citing Chong Chee Keong for the proposition that upon the grant of an unconditional discharge, all the assets which have vested in the Official Assignee during the bankruptcy would re-vest in the discharged bankrupt, for the following reasons. There is nothing in the Bankruptcy Act to the effect that property which has vested in the Official Assignee during the bankruptcy would re-vest in the bankrupt upon a discharge. In fact, ss 127 and 128 of the Bankruptcy Act contemplate a continuation of the role of the Official Assignee in collecting assets which have vested in it upon the making of a bankruptcy order and assets which have been acquired by or devolved upon the bankrupt during her bankruptcy for distribution to creditors who have proved their debts in the bankrupt’s bankruptcy (see above at [9]).