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Singapore – Media Development Authority Of Singapore v Sculptor Finance (MD) Ireland Ltd [2013] SGCA 58.

12 February, 2014

An unsecured creditor is not the proper party to apply, under section 131(1) of the Companies Act, to have an unregistered charge declared void against it, and hence, is also unable to challenge an application to extend time to register a charge on the grounds that the charge is void; the statutory trust that arises over the company’s assets upon the making of a winding up order does not confer beneficial or proprietary interests on unsecured creditors:


Media Development Authority of Singapore v Sculptor Finance (MD) Ireland Ltd [2013] SGCA 58 (Singapore, Court of Appeal, 7 November 2013)


Facts


This case involved an application by a chargee (“Applicant”) for certain charges (“Charges”) to be registered with the Registry of Companies out of time. A creditor (“Creditor”) of one of the chargors, which already had proceedings pending against that chargor, opposed the application.


The Charges had been granted by RGM Group Pte Ltd and RGM Media (Singapore) Pte Ltd (collectively, the “Chargors”). They were to secure all the monies borrowed by their parent company by way of convertible bonds that it had issued. The Applicant was one of the subscribers to the bond issue.


The Charges were registrable under section 131 of the Companies Act. Section 131(1) provides that failure to register such charges within 30 days would render them void against the liquidator and any creditor of the company. As the Charges were created on 3 August 2011, they should have been registered by 2 September 2011. While industry practice is for a chargee to ensure that charges granted in its favour are registered with the Registry of Companies, in this case, the Applicant did not do so as it was not aware of the need to register the Charges under Singapore law.


Two months after the deadline, when the Applicant found out about the legal requirement to register the Charges, it filed an application to do so out of time. The application was made pursuant to section 137 of the Companies Act. This section provides that an extension of time may be given to register a charge if the court is satisfied that the omission to do so within the time required is:


  • Accidental;
  • Due to inadvertence;
  • Due to some other sufficient cause;
  • Not of a nature to prejudice the position of creditors or shareholders; or
  • That on other grounds it is just and equitable to grant relief.

Notice was served on the Creditor who, as noted, had proceedings pending against one of the Chargors, RGM Group Pte Ltd. The Creditor opposed the application and filed a winding up application against that Chargor. The High Court allowed the application for the extension of time. The Creditor appealed.


Decision


The Court of Appeal upheld the decision of the High Court. It did so on two grounds:


  • That the Creditor was not a proper party under section 131 of the Companies Act and hence could not challenge the application to extend time under section 137; and
  • That the Creditor had not shown that the High Court judge had exercised his discretion wrongly.

This note will only deal with the first of these grounds.


Section 131(1) of the Companies Act states:


“Subject to this Division, where a charge to which this section applies is created by a company there shall be lodged with the Registrar for registration, within 30 days after the creation of the charge, a statement containing the prescribed particulars of the charge, and if this section is not complied with in relation to the charge the charge shall, so far as any security on the company’s property or undertaking is thereby conferred, be void against the liquidator and any creditor of the company.”


The Court noted that the term “creditor” in section 131(1) had been interpreted to mean a creditor who has acquired a proprietary right to or an interest in the subject matter of the unregistered charge. However, the Creditor was an unsecured creditor, and accordingly, was not covered by the section.


The Creditor sought to argue that it had a proprietary right or an interest in the subject matter of the unregistered charge on the authority of the Court of Appeal decision in Ng Wei Teck Michael & Anor v Oversea-Chinese Banking Corp Ltd (1997). This case had held that on the presentation of a winding up petition or application, a statutory trust comes into place to preserve the assets in favour of the unsecured creditors, and an unsecured creditor acquires sufficient interest in the subject matter of the unregistered charge to qualify as “creditor” for the purposes of section 131(1) of the Companies Act. The Court, however, noted that this decision was not consistent with the orthodox position that it is only upon the making of the winding up order (in a compulsory winding up) that the assets of the company are impressed with a statutory trust for the purpose of discharging the company’s liabilities, and declined to follow it.


Instead, the Court noted that, in the context of a compulsory winding up, it is only on the making of the winding up order that a statutory scheme is imposed to be administered by the liquidator for the benefit of unsecured creditors. To treat the presentation of a winding up application as having the same effect as the passing of a winding up resolution, with a statutory trust being impressed on the company’s assets as at that date, could give rise to intolerable uncertainty and arbitrariness to those who are irreversibly affected by the consequences of a winding up application that is eventually dismissed. The Court added that the statutory trust does not confer beneficial or proprietary interests on the unsecured creditors. Instead, notwithstanding that the making of a winding up order brings into existence a statutory trust, unsecured creditors have no proprietary interests in a company’s property.


The Court therefore held that an unsecured creditor cannot claim the standing to avoid an unregistered charge by virtue of the statutory trust. On the liquidation of a chargor, the proper plaintiff to bring proceedings to avoid a charge for non-registration is the liquidator, as this is consistent with the liquidator’s role as the officer responsible for the ascertainment of liabilities and realisation of assets in the winding up of the company. While courts may, as a matter of practice, allow unsecured creditors to be heard at a hearing for an application to extend time for the registration of a charge, this is pursuant to the court’s powers to have all relevant evidence put before it and does not amount to recognising that the unsecured creditors enjoy proprietary interests in the assets of the company.


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Susan Wong, Partner, WongPartnership

susan.wong@wongpartnership.com


Alvin Chia, Partner, WongPartnership

alvin.chia@wongpartnership.com


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