Superpark Oy v. Superpark Asia Group Pte Ltd and others  SGCA 8
Under Section 290 of the Companies Act (“CA”), a company may be wound up voluntarily either (a) on a general resolution of the members, if certain constitutional requirements are met; or (b) on a special resolution of the members. This has now been re-enacted in Section 160 of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”).
In this decision, the Court of Appeal affirmed the longstanding understanding of insolvency lawyers and practitioners that (a) the two methods in Section 290 CA are exhaustive conditions for commencing a voluntary winding up; (b) voluntary winding up rests on the consent of the members of a company; and (c) a voluntary winding up does not commence on the appointment of provisional liquidators unless and until the members' special resolution for voluntary winding up is passed.
In the process, the Court of Appeal roundly rejected the Respondents' novel position that voluntary winding up could be commenced without members' consent – in this case, by (a) passing a directors' resolution to place the company into provisional liquidation, and lodging the same with the relevant register, followed by (b) a creditors' vote to place the company into voluntary winding up.
Shook Lin & Bok Partners David Chan and Lee Ping, and Senior Associates Shirin Swah and Lin Ruizi, acted for the Appellant in its successful appeal.
Background to provisional liquidation
The Appellant holds a 78% shareholding in the First Respondent, SuperPark Asia Group Pte. Ltd. (“SPAG”). SPAG is the holding company for the Asia arm of the SuperPark Group, which operates indoor activity parks worldwide. The dispute arose out of conflicts between the Appellant and Mr Mark Kumarasinhe (“Kumarasinhe”), a former director of SPAG and one of the minority shareholders. Significant disagreement arose between the two regarding inter alia (a) the Appellant's frustration with Mr Kumarasinhe for not complying with audit and disclosure requirements; and (b) Mr Kumarasinhe's frustration about the Appellant's slow pace of funding for a new park in Bangkok.
Mr Kumarasinhe subsequently tabled a board resolution over Zoom for the provisional liquidation of SPAG on 17 June 2020. No prior notice was provided to the Appellant or its representative, Mr Juha Tanksanen. Mr Kumarasinhe also ignored requests by Mr Tanskanen to adjourn the meeting. The resolution was passed despite Mr Tanskanen's protests, and Mr Kumarasinhe procured the lodgment of the required statutory declaration under Section 291 CA.
Subsequently, the Second and Third Respondents, the provisional liquidators of SPAG (“PLs”), in communications with the Appellant's solicitors and/or the Appellant, intimated their intent to sell all of the assets of SPAG (being all of SPAG's subsidiaries). This was despite the Appellant putting the PLs on notice that it would not vote to place SPAG into voluntary winding-up.
The Appellant thereafter called for an Extraordinary General Meeting of the members (“EGM”) on 2 July 2020, at which resolutions were passed inter alia for Mr Kumarasinhe and another director to be replaced, and to terminate SPAG's provisional liquidation. In the meantime, the PLs however continued with their efforts to sell all the assets of SPAG, including but not limited to circulating an Invitation to Offer to third parties, to the exclusion of the Appellant. In the latter Invitation to Offer, they also represented that they would be confirmed as liquidators of SPAG.
Background to appeal
The PLs then filed HC/OS 656/2020 (“OS 656”), seeking a declaration that the resolutions passed at the EGM on 2 July 2020 purporting to terminate the voluntary winding up of SPAG and remove the Second and Third Respondents as provisional liquidators were invalid. The PLs concurrently applied for an ex parte injunction to prevent the Appellant from taking any acts inconsistent with SPAG being in a state of provisional liquidation. The ex parte injunction was granted.
In response, the Appellant filed HC/OS 671/2020 (“OS 671”), seeking a declaration that the provisional liquidation and voluntary winding up of SPAG be declared to be terminated pursuant to a further EGM of SPAG to be convened on 16 July 2020, as well as an ex parte injunction to restrain the Respondents from taking further steps in the provisional liquidation.
While the litigation was pending, the PLs convened the required EGM and creditors' meeting under Section 296 of the Companies Act on 16 July 2020 for the shareholders and creditors to vote on inter alia the voluntary winding up of SPAG. The members' resolution did not pass, but the PLs nevertheless went ahead with the creditors' meeting. They appeared to have obtained the support of the majority of the creditors although this was disputed.
Thereafter, the PLs held themselves out as joint and several liquidators of SPAG, and represented SPAG to be in creditors' voluntary winding up.
The High Court eventually heard full arguments on the injunction applications of both the Appellant and the PLs. It ordered that unless the Appellant placed SPAG into judicial management, the PLs would be allowed to continue with their efforts to dispose of the assets of SPAG and its subsidiaries. The Appellant successfully placed SPAG into interim judicial management in August 2020.
In the interim, the Appellant commenced an appeal against the High Court's order. Parties eventually agreed to refer the following issues of law to the Court of Appeal:
- In the event that a voluntary winding up is commenced pursuant to section 291(6)(a) of the CA, when and how can it be terminated (“Question 1”);
- Does section 291(6)(a) of the CA mean that voluntary winding up commences upon the directors passing a resolution to appoint provisional liquidators under section 291(1) of the CA, regardless of whether a members' resolution for voluntary winding up is passed pursuant to section 290 of the CA (“Question 2”); and
- Can the creditors of a company voluntarily wind-up a company (assuming the voluntary winding up has not already commenced pursuant to section 291(6)(a) of the CA) and/or appoint liquidators in a voluntary winding-up, if the members have not passed any resolutions to that effect pursuant to Section 290(b) of the CA (“Question 3”).
Question 3 was logically anterior to the other questions and was answered first. The Court of Appeal held that a voluntary winding up could only be commenced by the members through the passing of the requisite resolution under Section 290(b) of the CA. Creditors of a company had no power to cause a company to be voluntarily wound up if a members' resolution for the same was not obtained beforehand. The Court set out three key reasons why this was so:
- The plain and unambiguous language of Section 290 of the CA provides that there are only two circumstances in which a company may be wound up voluntarily. The statutory architecture is important – the placement of Section 290 CA at the start of Division III of Part X fortified this conclusion. The PLs' contention that there was a third way of causing a company to be voluntarily wound up was contrary to the language of Section 290 of the CA itself.
- Further, to suggest that a company could be “voluntarily” wound up by creditors without a members' special resolution would be at odds with the very notion of voluntariness which underpins the distinction between voluntary and compulsory winding up. In this regard, the Court of Appeal affirmed that there must be different pre-requisites to commencing either mode of winding up, since each mode was undergirded by differing policy considerations, and conferred different scopes of statutory power to liquidators and the court.
- Finally, if voluntary winding up could commence by the appointment of provisional liquidators and a determination by them that the company was insolvent, there would be no real need for the company's members to pass a special resolution. Section 290(1)(b) of the CA would be otiose. Circumventing the statutory framework in this manner was unwarranted, even if the interests of creditors are paramount in the company's insolvency.
It followed from the above that voluntary winding up cannot be said to commence when the directors passed a resolution to appoint provisional liquidators.
The Court of Appeal further addressed Question 2 on when a winding up can be said to have commenced. The PLs in this case contended that Section 291(6)(a) of the CA meant that voluntary winding up commenced once the relevant declaration was lodged. Section 291(6)(a) provides that a voluntary winding up commences “where a provisional liquidator has been appointed before the resolution for voluntary winding up was passed, at the time when the [directors' statutory declaration that the company cannot meet its liabilities] was lodged with the Registrar”.
These contentions were roundly rejected by the Court of Appeal, which held that a voluntary winding up does not immediately commence upon the appointment of provisional liquidator/s and the lodgement of the requisite statutory declaration. Instead, if the members later pass a special resolution for voluntary winding up, Section 291(6)(a) of the CA merely back-dates the commencement of winding up to the time of lodgement of the declaration.
In coming to their conclusion, the Court of Appeal rejected several contentions by the PLs as speculative or clutching at legal straws. Notably, they declined to follow Eversendai Engineering Pte Ltd v. Synergy Construction Pte Ltd  SGHC 129 (“Eversendai”), a High Court decision which held that a voluntary winding up commenced upon appointment of provisional liquidators and the lodgement of the requisite statutory declaration by the directors. In this regard, the Court of Appeal accepted the criticisms of Eversendai expressed by Mr Lee Eng Beng SC in the 2004 SAL Annual Review on Insolvency Law, which were inter alia that dramatic practical consequences would follow if a company could be put into voluntary winding up in this manner for a brief period of time.
In light of the above, the Court of Appeal confirmed that no voluntary winding up commenced at any point in the present case. Question 1 on when a voluntary winding up may terminate was moot as such. The Court reserved its views on the latter issue for a more appropriate juncture.
The appeal was thus allowed and the Court of Appeal found that SPAG was not in voluntary winding up at any point. The Appellant was consequently granted all reliefs sought. The PLs were ordered not to hold themselves out as insolvency professionals of SPAG, and to make any necessary corrections.
Finally, the Court of Appeal also observed that the actions of Mr Kumarasinhe and the Second and Third Respondents were perturbing. It appeared to them that the Second and Third Respondents were seeking to procure a hasty liquidation of SPAG by selling its assets at a reduced price to persons connected with Mr Kumarasinhe. This was fortified inter alia by the following factors: (a) how the sale was sought to be conducted in an accelerated fashion; (b) how it appeared that the Second and Third Respondents were not forthcoming on SPAG's full financial position; and (c) how the debts owed by SPAG ballooned rapidly with the effect of denying the Appellant their status of majority creditor.
This decision by the Court of Appeal confirms that Section 290 CA is exhaustive as to the conditions for voluntary winding up. It also provides salutary guidance on Section 291(6)(a) CA that no voluntary winding up can be commenced by the directors placing a company into provisional liquidation until and unless the members vote for the voluntary winding up at a shareholders' meeting. This confirms the longstanding understanding of insolvency lawyers and practitioners in Singapore as to the operation of the relevant provisions, which will continue to be of relevance as the relevant sections have been re-enacted in inter alia Sections 160 and 161(6)(a) of the IRDA.
Therefore, where the members are unwilling to proceed with voluntary liquidation, directors concerned about insolvent trading should instead apply under Section 124(1) of the IRDA for a compulsory winding up. So should disgruntled creditors. The Court of Appeal's decision otherwise provides a timely warning that the mechanism of provisional liquidation cannot be abused as a shortcut to wind up a company – without members' consent or the Court's supervision.
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