Jurisdiction - Singapore
Reports and Analysis
Singapore – Recent Decision On Section 285 Of The Companies Act.

6 March, 2014

 

Legal News & Analysis – Asia Pacific – Singapore – Corporate/M&A

 

Introduction

 

Recently, the Supreme Court of Singapore had to examine the ambit and scope of Section 285 of the Companies Act in relation to the production of documents and/or examination of witnesses of an overseas branch of a foreign bank registered in Singapore. The Liquidator of Celestial Nutrifoods Limited (In Compulsory Liquidation) (the “Company”) filed an application in the Singapore High Court for an order that China Construction Bank Corporation Limited (the “Bank”) and/or its responsible representatives produce, inter alia, certain documents and/or be orally examined in relation to the trade dealings, affairs and/or property of the Company. In particular, the Liquidator sought disclosure of certain banking documents relating to transactions which were carried out by or on behalf of the Company’s subsidiaries which are incorporated under the laws of the People’s Republic of China and with their addresses in the Province of Daqing (“Daqing Subsidiaries”).

 

The Liquidator’s application was filed pursuant to section 285 of the Companies Act (Cap. 50) and, alternatively, under section 175 of the Evidence Act (Cap. 97), and the application was served on the Singapore branch of the Bank.

 

There are a few distinctive features surrounding the Liquidator’s application:

 

(a) The relevant branch of the Bank which maintained any banking relationship with the Daqing Subsidiaries was the Daqing branch;

(b) The Singapore branch did not have any banking relationship with the Daqing Subsidiaries or the Company and neither it nor any of its officers had possession of the information and/or documents sought by the Liquidator;

(c) The Singapore branch had been informed by the Daqing branch that the latter could not lawfully disclose any information or documents without customers’ consent, even if it is disclosure pursuant to a Singapore court order.

(d) The Liquidator and the Singapore branch of the Bank obtained separate legal opinions from Chinese lawyers on whether the information and documents sought by the Liquidator constituted “commercial secrets” under Article 53 of the Laws of the People’s Republic of China Law on Commercial Banks which provides that “no employee of commercial banks may disclose any State or commercial secrets that they come to know during their employment”. The Singapore branch of the Bank was advised that disclosure by the Daqing branch in the present circumstances would be a breach of Chinese laws.

 

Parties’ Submissions

 

Counsel for the Liquidator submitted that the Court should make an order under section 285 of the Companies Act for examination and/or production of documents where a liquidator has some “reasonable basis for his belief that a particular source can assist him in his pursuit of documents or information or any other relevant knowledge” or that he “reasonably requires” to see documents to carry out his functions. In particular, there is no need for the Liquidator to prove “exceptional circumstances”; it suffices for the Liquidator to show that he reasonably requires the documents to carry out his statutory duties.

 

In this case, the Liquidator relied on the alleged “surreptitious circumstances” surrounding the disposal of the shares in the Daqing Subsidiaries which had been previously pledged to the Daqing branch of the Bank as security for certain loan transactions. The shares were allegedly sold shortly before the Company was placed in provisional liquidation, thus reducing the pool of assets available for distribution to the Company’s creditors.

 

On the other hand, Counsel for the Singapore branch of the Bank submitted that different branches of a bank are generally considered as separate legal entities, with each branch being subject to its own banking secrecy laws. The Court should not, save in “exceptional circumstances”, order the production of documents or issue a witness summons upon a foreign bank, having regard to the principles of international comity and sovereignty of the foreign jurisdiction. Counsel argued that the High Court does have the power to order any party to produce documents and/or be subjected to examination under section 285 of the Companies Act but in this case, the High Court should not exercise its discretion in favour of the Liquidator having regard to the circumstances stated above.

 

Decision Of The Court

 

The High Court dismissed the Liquidator’s application.

 

While the High Court did not provide written grounds for its decision, its decision is consistent with the Bank’s counsel’s submission that under the facts of this case, the High Court should not order production. It emphasizes the importance of protecting the banking secrecy regimes in other jurisdictions and the reluctance to impose any obligations on banks to disclose customer information in the possession of the foreign branches where there are risks of breach of the laws governing the foreign branch.

 

As an alternative option, liquidators who wish to obtain information from banks in relation to banking transactions effected in foreign jurisdictions and where the relevant banking documents are outside the jurisdiction may consider the possibility of utilising any bilateral treaties which Singapore has with the foreign jurisdiction in question e.g. the Judicial Assistance in Civil and Commercial Matters Treaty between the People’s Republic of China and the Republic of Singapore. In the absence of such treaties, the solution may be to file the necessary application at the Court of the foreign jurisdiction.

 

Rajah & Tann

 

For further information, please contact;

 

Rebecca Chew, Partner, Rajah & Tann

rebecca.chew@rajahtann.com

 

Chong Kah Kheng, Rajah & Tann

kah.kheng.chong@rajahtann.com

 

Rajah & Tann Corporate/M&A Profile in Singapore

 

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