Judgment

[Please note that this case has not been edited in accordance with the current Singapore Law Reports house style.]

GP Selvam J:

1         This was the petition of Genesis Technologies International (S) Pte Ltd, formerly known as Genesis Technology Pte Ltd, for an order for judicial management under s 227B of the Companies Act (Cap 50, 1994 Ed).

2         The company was incorporated on 17 August 1990. The nominal capital of the company was $12,766,000 divided into 12,766,000 shares of $1 each. The amount of the capital paid-up or credited as paid up was $12,766,000.

3         The first and principal object for which the company was established was as follows:

To carry on all or any of the business of manufacturers, producers, distributors, installers, maintainers, repairers of, general merchants, importers, exporters and dealers in electrical and electronic systems, electronic components, goods, appliances and apparatus of every description; to act as principals or agents and deal in any articles belonging to any such businesses and things used in connection therewith and to carry on the business of providing electrical and electronic know-how and training in the use and service of electrical and electronic systems, electronic components, goods, appliances and apparatus of every description.

4         In late 1993, the company had received various notices of demand from its creditors. Some creditors had commenced legal proceedings and obtained judgment. Two creditors, namely, Neotechnics Pty and PNE Electric Pte Ltd, who were owed A$18,437.87 and $15,404.25 respectively, had served statutory notices of demand under s 254(2) of the Act. Both notices were dated 13 December 1993. The 21-day period had expired and the company was unable to pay the debts or to secure or compound them to the reasonable satisfaction of the creditors. According to the petition, the company had three secured creditors, that is, Overseas Union Bank, Tat Lee Bank and United Overseas Bank Ltd. Charges had been created over the company’s assets in favour of the banks and the outstanding secured debts amounted to approximately $3.4m. The unsecured debts, according to the company, amounted to $7.8m.

5         Thus the company was hopelessly insolvent. It had suffered accumulated losses in the region of $16m. The company, however, said that there was a reasonable probability of rehabilitating itself or preserving all or part of its business as a going concern or that otherwise the interests of creditors would be better served by a judicial management order than by resorting to a winding up. The company further said that a judicial management order would be likely to achieve the following:

(i)     the survival of the company, or the whole or part of its undertaking as a going concern;

(ii)    the approval under s 210 of the Companies Act (Cap 50) of a compromise or arrangement between the company and any such persons as are mentioned in that section; and

(iii)  a more advantageous realization of the company’s assets would be effected than on a winding-up.

The law

6         Judicial management is an alternative to winding up because, as long as a judicial management order is in force, no resolution may be passed or order made for the winding up of a company. Its primary objective is to give the company a new lease of life as a going concern. It is, therefore, a device to save the company from creditors who may wish to destroy the company when it can be rehabilitated for the benefit not only of the shareholders but the unsecured creditors as well. Hence the Act provides that an order for judicial management can be made only in the following specific circumstances. They are:

(a)       the court is satisfied that the company is or will be unable to pay its debts; and

(b)      the court considers that the making of the order would be likely to achieve one or more of the following purposes, namely:

(i)         the survival of the company, or the whole or part of its undertaking as a going concern;

(ii)         the approval under s 210 of a compromise or arrangement between the company and any such persons as are mentioned in that section;

(iii)   a more advantageous realization of the company’s assets would be effected than on a winding up.

7         Further, s 227B(2) of the Act makes it incumbent upon the court to specify the purpose or purposes for whose achievement the order is made.

8         Although the primary purpose of judicial management is the protection of the company from its creditors, the court should be vigilant to ensure that it is not directly or indirectly used by the directors and shareholders to the detriment of creditors and unsecured creditors in particular. The motives of the application should therefore be clearly honourable. Further, a company whose debts far exceed its assets in effect belongs to its creditors. The court must show great heed to the wishes and views of such creditors.

The grounds of application

9         The company relied on all the three statutory grounds to found the application. But the petition failed to identify which of the purpose or purposes of a judicial management would be achieved by the order if the court decided to make it.

10       The petition merely alleged, inter alia, the company believed that being placed under judicial management would greatly enhance the possibility of its survival as a going concern. Administration would also minimize disruption to the company’s business and maximize asset realization. The company was actively and aggressively seeking new business opportunities through its marketing strategy. The company’s products had attracted strong interest from various clients worldwide and, subject to the finalization and formalities and approval from the respective telecommunication authorities, the company had received firm indications from clients of their intentions to place orders for the company’s products. The approvals were likely to be positive and imminent. By the end of 1994, the company hoped to gross at least $24,446,000 in sales. This turnover would enable the company to meet its liabilities which it had targeted to clear within the next three years.

11       It was stressed that its motive for the petition was not to stave off irate creditors, nor was it a ruse to buy time. The company was sincere about paying its liabilities, both secured and unsecured, through a scheme of compromise or arrangement. The company, however, failed to credibly demonstrate how it had got into the quagmire it was in and how the situation was to be improved.

The opposition to the petition

12       The secured creditors showed no interest in the application. The main objection came from William Johan Henri Van Yzeren, also known as Hans van Yzeren of Luxembourg, and one Mr Hendrikus Schmitz. The former made an affidavit on behalf of both.

13       The thrust of their opposition was that the petition of the company was a ruse to buy time to enable the company to divest and sell off its assets to friendly forces.

14       It was said in the affidavit that Mr Van Yzeren and Mr Schmitz were both creditors of the company in the sum of US$305,116 and S$1,333,335. They had caused a writ of summons to be issued against the company in the High Court in Suit No 262 of 1994 on 22 February 1994.

15       The writ was served on the company on 22 February 1994. On 25 February 1994, the company entered appearance by their solicitors, Seah Yap Leong & Partners, the same solicitors who act for the company in this petition. The defence of the company fell due to be filed and served on 16 March 1994. This was not filed. Instead, on 17 March 1994, the solicitors for the company advised that the present petition had been filed, which in effect pre-empted any further action by three creditors against the company. This petition was filed on 15 March 1994, that is, one day before the defence was due.

16       Mr Van Yzeren pointed out that although the petition alleged that there were unsecured creditors to the tune of S$7.8m and a very long list of them was revealed to the court, there was no reference to the claims of these two gentlemen which exceeded S$1.8m, which is a very substantial amount. He pointed out that there was nothing firm or concrete about the proposal by the company to pay off its creditors.

17       Mr Van Yzeren set out various business deals he and his companies had with the company but which the company had utterly failed to reveal in the petition.

The conclusion

18       At the hearing of the petition, it was abundantly clear that the company was indebted to Mr Van Yzeren and Mr Schmitz and there was no satisfactory explanation why the company had failed to reveal this fact to the court. I also formed the view that the company had failed to make out the grounds on which the petition was founded. Accordingly, I dismissed the petition. But the company filed an appeal against my decision.

The sequel

19       On 28 May 1994, a petition was filed praying for the winding up of the company: Companies Winding Up Petition No 128 of 1994. The petitioner was Actual Concept Enterprise, a firm. The ground was that the company was unable to pay its debts. Both Mr Yzeren and Mr Schmitz, among several others, filed notices of intention to appear at the hearing of the petition to support the petition. The winding up petition was heard by me on 8 July 1994. The company appeared at the hearing by counsel but raised no objection to a winding up order being made. It was abundantly clear that the company was hopelessly insolvent. Accordingly, I made an order to wind up the company.

Petition dismissed.

Reported by S Surenthiraraj