(a) What is the underlying philosophy of the insolvency law of this economy? (For example is it distributive, rehabilitative or penal?)

 

Like English law and the systems derived therefrom, Singapore's insolvency law shows no single underlying policy or philosophy. The four overriding objectives of Singapore's insolvency law can be summarised as: (a) restoring the debtor to profitable trading where this is practicable; (b) maximising the return to creditors as a whole where the company itself cannot be restored to profitable trading; (c) establishing a fair and equitable system for the ranking of claims and the distribution of assets among creditors; and (d) providing a mechanism by which the causes of failure can be identified and those guilty of mismanagement or misconduct held responsible for their acts.

There is no debate in Singapore comparable to that in the United States as to whether Singapore's insolvency law should play a redistributive role. Thus pre-insolvency rights are rigorously observed in insolvency with few exceptions.

(b) Are there elements of more than one philosophy present in the insolvency law of this economy?

 

Yes. The four overriding objectives outlined above show elements of all three philosophies set out above: distributive, rehabilitative and penal.

(c) Briefly describe the relevant elements, and if applicable, any penal sanctions available.

 

See above.

(a) In which judicial category is insolvency law classified in the legal system of this economy? (For example civil, commercial or administrative.)

 

Civil.

(b) Which Courts, tribunals or administrative bodies in this economy are competent to exercise jurisdiction in insolvency matters?

 

The High Court has original jurisdiction, and the Court of Appeal has appellate jurisdiction, in insolvency matters.

(c) Are any limitations placed on the jurisdiction of any of these bodies?

 

There are no limitations on the jurisdiction of the High Court.

(a) What types of insolvency procedure are available in the legal system of this economy for the administration of corporate debtors in financial difficulty? (For example bankruptcy, liquidation (winding up), receivership, restructuring or other forms of administration.)

 

There are four types of insolvency procedures under Singapore law. They are: (a) a scheme of arrangement under section 210 of the Companies Act; (b) the appointment of a receiver or a receiver and manager out of court under the provisions of debenture and regulated by Part VIII of the Act; (c) a petition for the liquidation of the company under Part X of the Act; and (d) a petition for judicial management under Part VIIIA of the Act.

(b) Briefly describe the main features of each type of insolvency procedure for corporate debtors: including, for example the manner in which each procedure is initiated and administered, and the aims of each procedure.

 

(i) Winding up :-

In a winding up, the company's business is closed down, its assets sold off, the creditors paid, and the balance of the assets distributed to the members. At the end of the entire process, the company is dissolved and ceases to exist.

There are two types of winding up. They are:

1. winding up by the court; and

2. voluntary winding up.

1. Winding up by the court

A winding up by the court is initiated by the presentation of a petition by one of the following persons entitled to do so: (a) the company itself; (b) a creditor; (c) a contributory; (d) the personal representative of a deceased contributory; (e) the trustee in bankruptcy or the official assignee of the estate of a bankrupt contributory; (f) the liquidator of the company; (g) the judicial manager of the company; and (h) the Minister for Finance.

The petition must be based on one of the following grounds:

i the company has by a special resolution resolved that it be wound up by the court;

ii default is made by the company in lodging the statutory report or in holding the statutory meeting;

iii the company does not commence business within a year from its incorporation or suspends its business for a whole year;

iv the number of members is reduced below two;

v the company is unable to pay its debts;

vi the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatever which appears to be unfair or unjust to other members;

vii an inspector has recommended the winding up of the company;

viii the time fixed for the company's existence has expired or some other event happens on the occurrence of which the memorandum or articles of association provide that the company should be dissolved;

ix the court is of the opinion that it is just and equitable that the company be wound up;

x a banking company has had its licence revoked or has carried on business in contravention of any written law relating to banking;

xi the company has carried on multi-level marketing or pyramid selling; and

xii the company is being used for an unlawful purpose or for purposes prejudicial to public peace, welfare or good order of Singapore, or against national security to the national interest.

Two things must be shown before a court will make a winding up order on a petition. The first is that the petitioner has the right to present a petition, and the second is that one of the grounds set out in the Companies Act as justifying a winding up has been made out. It will be noted that only one of the statutory grounds is to do with insolvency.

Establishing this ground requires showing that the company is unable to pay its debts. This can be satisfied on either the cash flow test (inability to pay debts as they fall due) or the balance sheet test (excess of liabilities over assets). A company is presumed to be unable to pay its debts if it fails to pay a sum demanded in the prescribed form within 21 days after the demand. Alternatively, the petitioner may take on the burden of proving from other evidence, for example an admission by the officers of the company, that it is unable to pay its debts.

2. Voluntary winding up

A voluntary winding up is commenced by a resolution of the members of the company. If the directors are able to make a statutory declaration that they are of the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up, the winding up proceeds as a members' voluntary liquidation. If the directors are unable to make this declaration, the winding up proceeds as a creditors' voluntary winding up.

In addition, there is a summary procedure not derived from the English or Australian insolvency legislation which allows the directors to commence a liquidation immediately (without a meeting of the members) simply by making a statutory declaration that: (a) the company cannot carry on its business by reason of its liabilities; (b) that a meeting of creditors and members has been summoned; and (c) appointing a provisional liquidator and lodging the documents with the Registrar of Companies.

3. Events occurring after the commencement of winding up

Once a winding up commences, whether voluntary or involuntary, every invoice, order for goods or business letter issued by the company must indicate that it is in liquidation and the type of liquidation. In both types of winding up, the business of the company ceases from the commencement of the winding up, except so far as the liquidator thinks it necessary for the beneficial winding up of the company.

The liquidator has no power to carry on the business with a view to resuscitating the company or making profits. His power to carry on the company's business is principally to enable the business to be sold off as a going concern.

Once a winding up has commenced, the liquidator will call on each of the company's creditors to lodge a proof of debt. All debts, whether presently payable or payable in the future and whether certain or contingent, may be proved in the winding up of a solvent company. In the case of a insolvent company, the rules regarding proof of debt are those that apply in the case of bankruptcy.

It is the liquidator's function to adjudicate on the proofs of debt lodged with him. He must admit real claims to proof. A creditor who is dissatisfied with the decision of the liquidator in respect of a proof of debt may appeal to the court.

On a winding up, a company's property is to be applied as follows: (a) in payment of the costs and expenses of the winding up; (b) in payment of wages or salary; (c) in payment of retrenchment benefits; (d) in payment of workmen's compensation; (e) in payment of contributions to the national superannuation scheme; (f) in payment of remuneration payable in respect of vacation leave; (g) payment of income tax and goods and services tax. The unsecured creditors' share pari passu in the remaining assets; and any surplus remaining is distributed amongst the members according tot heir rights and interest in the company.

(ii) Judicial management

Previously, a company that could not pay its debts when they fell due could not prevent its creditors commencing legal proceedings or petitioning for its liquidation. Often, such an event caused the demise of a company which could otherwise have been nursed back to health. In order to allow a fundamentally viable company some breathing space in which to reorganise or restructure, the Companies Act was amended in 1987 by incorporating a new Part VIIIA based on the administration provisions of the English Insolvency Act 1986.

Part VIIIA of the Companies Act provides for the appointment of a judicial manager by the court upon a petition presented by the company, its directors, or a creditor if the Court is satisfied that the company is unable to pay its debts and that the appointment would be likely to achieve: (a) the survival of the company or the whole or part of its undertaking as a going concern; (b) the approval of a compromsie or arrangement between the company and its creditors; or (c) a more advantageous realization of the company's assets than could be effected on a winding up. There is no provision for a petitioner to annex an independent report assessing the petitioner's proposals as in England; and this is normally not done.

After the presentation of a petition for the appointment of a judicial manager, the court has the power under section 227B(10)(b) to appoint an interim judicial manager pending the making of a final judicial management order. This is to be contrasted with the position under the English provisions where the Court has no such express power and it has been held that the Court has no such implied power.

In the interval between the presentation of a petition and its final determination, the company may not resolve to wind up voluntarily, nor may a winding up order be made on a winding up petition already presented. During the same period, a creditor may not enforce any security over the company's assets. Where the company has goods on hire purchase or under a chattels leasing agreement or subject to a retention of title agreement, the goods may not be repossessed. Execution of a judgment already obtained may not be commenced or continued nor may distress be levied against the company's property. No legal proceedings may be commenced or continued against the company during this period. A person who wishes to enforce his security, or repossess his goods, or execute judgment, or levy distress, or commence or continue proceedings against the company must obtain the leave of court before so doing.

The presentation of a petition for the appointment of a judicial manager gives the company a respite from the attentions of its creditors. While such a petition is pending, the company has extensive immunity from liquidation and legal proceedings. A petition for judicial management may therefore be used to stave off a compulsory winding up or to prevent execution being levied against the company's property. This device is open to abuse. However, such potential abuse may be controlled by the court. If the court dismisses the petition and considers that it was presented frivolously and vexatiously, it may make such orders as it thinks just and equitable to redress any injustice that may have been caused.

At the hearing of the petition, the court has full discretion to grant or dismiss the petition or adjourn the hearing and make such interim orders as may be necessary.

The petitioner nominates the judicial manager who must be an approved company auditor who is not the auditor of the company. The court has the power to reject the nomination of the applicant and appoint another person in his stead.

The creditors may oppose the nomination of a person proposed as judicial manager by the petitioner. This may be done by the majority in number and value of the creditors (including contingent or prospective creditors).

Upon the making of a judicial management order, the board of directors becomes functus officio. Their functions and powers are transferred to the judicial manager.

When a judicial manager is appointed, he has 60 days (or such longer period as the court may allow) to formulate and lay before the creditors of the company at a meeting called for that purpose a statement of his proposals for the achievement of the purposes for which the order was made. A creditor is not entitled to vote at the meeting unless he has first lodged a proof of debt. A creditor may not vote in respect of any unliquidated or contingent debt or any debt the value of which is unascertained. A secured creditor is not allowed to vote if his security covers the debts owed to him; he may vote if he surrenders the security or if part of the debt owed to him is unsecured. The proposals may be approved by the majority of the creditors in number and value. The meeting may propose modifications to the judicial manager's proposals, but they will be effective only if he consents.

If the creditors decline to approve the proposals, the court may order that the judicial management order be discharged. This is not inevitably the case, as the court has wide powers to adjourn the creditors' meeting and make such interim orders as it thinks fit.

Where the judicial manager's proposals have been approved, he must manage the company in accordance with those proposals. He may revise the proposals from time to time, but only if those revisions are approved at a creditors' meeting. The creditors may appoint a committee to supervise the judicial manager. This committee cannot interfere with the management of the company, but may require the judicial manager to furnish it with such information as it may reasonably require. The judicial manager takes the place of the board of directors and may exercise all the powers conferred upon the directors by the Act or by the memorandum and articles.

In order to enable the judicial manager to carry out his duties, the directors of the company and the secretary must submit a statement of affairs to him within 21 days of receiving notice that the judicial management order has been made.

In exercising his powers of management, the judicial manager must ensure that members and creditors are treated fairly. A member who feels that the affairs of the company have been conducted in a manner which is "unfairly prejudicial" to the members generally or to some part of them may apply to the court for relief.

Unless discharged earlier or extended by the court, a judicial management order remains in force for 180 days. A judicial management order may be prematurely discharged if the creditors decline to approve the judicial manager's proposals, or if the court so orders by reason of the judicial manager acting in a manner unfairly prejudicial to the creditors or members, or if it appears on the application of the judicial manager that the purposes of the judicial management order cannot be discharged. When the judicial management order is discharged, the judicial manager automatically vacates office.

(iii) Scheme of arrangement

A scheme of arrangement may be proposed between the company and its creditors or any class of them or between the company or its members or any class of them. This is usually done where it is desired to adjust members' or creditors' rights inter se, or to reorganise the share capital of the company, or in the case of a group its reconstruction or merger. The Companies Act provides for schemes of arrangement to be binding on creditors and members after approval by the requisite majority of creditors present and voting, and upon approval by the court. This obviates the need for a unwieldy and complicated series of negotiations with a view to obtaining the unanimous approval of the members or creditors to a novation or assignment or other variation of their rights.

"Arrangement" is a word of wide import that judges have been reluctant to subject to the constraints of exhaustive definition. Basically, it implies some scheme under which members' or creditors' right are to be varied for the good of the class or of the company as a whole. The arrangement is usually proposed by the company; where it is not, it must be at least approved by the company (which for this purpose means the board of directors, or, where appropriate, a simple majority of the members in general meeting).

There is no automatic moratorium on action against the company while a scheme of arrangement is being proposed. However, section 210(10) provides that an application may be made to court for an order that proceedings pending against the company be stayed.

At the meetings convened upon the order of court, the approval of the members and creditors to the scheme of arrangement must be obtained. A majority in numbers representing three-fourths in value of the members or creditors is required to approve the scheme. Voting may be in person or by proxy. The company would normally send our explanatory circulars to the members and creditors explaining to them the import of the proposed scheme. If the case is not put fairly to either members or creditors, the court may decline to sanction the scheme. In voting for the scheme, members and creditors must exercise their votes bona fide in what they honestly consider will benefit the class or the company as a whole.

The scheme will not bind the company and its members and creditors until the court approves it. The function of the court is two-fold : firstly, it must ensure that the statutory procedure has been complied with and that the resolutions are passed by the requisite majority in value and in number at meetings duly convened and held; secondly, the court must determine that the scheme is fair and reasonable.

In deciding whether the scheme has been properly approved by the requisite majorities, the court may consider whether the members and creditors have been provided with sufficient information in order for them to make an informed decision. Where the company and its creditors have passed the necessary resolutions, the court will be slow to differ from them as the members and creditors are better judges of what is in the company's commercial interests than the court would be. However, if the court is not satisfied as to the bona fides of the resolutions, it may decline to approve the scheme of arrangement.

Assuming that the requisite resolutions are obtained, the onus is on those who say that the scheme is unfair to establish this. The votes of those who have collateral motives in voting or divergent interests are of little value in determining whether the scheme is fair and reasonable. The court's function is to determine whether the scheme is one that a reasonable creditor or member could vote for as being in his interest. In determining this question, the court should bear in mind the fact that the Act is not meant to allow a majority to expropriate a minority, but is designed to allow a compromise under which all parties may benefit. A scheme under which some persons give up everything and gets nothing in return cannot be said to be reasonable. Needless to say, a scheme of arrangement which is oppressive to some members or creditors or in disregard of their interests will not be approved.

When the court makes an order approving the scheme of arrangement, an office copy of the order must be lodged with the Registrar of Companies; the order will be effective as from the date of lodgment or such earlier date as the court may specify.

(iv) Receivership

This is technically not an insolvency procedure since: (a) it is not dependent on proof of insolvency but arises from private agreement between the debtor and the creditor; (b) it is not a proceeding for the collective benefit of the creditors but for the benefit of a single secured creditor; and (c) the receiver's function is not to rehabilitate the company but to realise the secured creditors' security;

However, receivership is regulated by Part VIII of the Comapnies Act which: (a) imposes on receivers some of the obligations of other insolvency administrators; (b) applies the priority rules for preferential creditors applicable in a liquidation to a receivership under a floating charge. Furthermore, a receiver is in fact appointed when a company is insolvent or near insolvency and he is usually given extremely wide powers of management by the debenture under which he is appointed. As such, a receiver usually takes control over the whole or substantially the whole of a company undertaking. Therefore, receivership has aspects of an insolvency proceeding.

 

(c) Identify the relevant legislation governing each type of insolvency procedure available for corporate debtors.

 

(a) A scheme of arrangement is governed by Part VII of the Companies Act;

(b) the appointment of a receiver or a receiver and manager out of court under the provisions of a debenture is regulated by Part VIII of the Act; (c) the liquidation of a company is governed by Part X of the Act; and (d) the judicial management of a company is governed by Part VIIIA of the Act.

(a) Is it usual or customary in respect of a corporate debtor which is insolvent to attempt to negotiate an informal administration before formal insolvency procedures are commenced?

 

It is usual for relatively large corporate debtors who are insolvent and who feel that a reorganisation will succeed to attempt to negotiate a standstill agreement with its lenders while a consensual workout is negotiated. If this cannot be agreed, a judicial management petition usually follows to take advantage of the statutory moratorium. Alternatively, the debtor may propose a scheme and seek orders under section 210(10) of the Companies Act.

(b) In relation to each type of insolvency procedure available in the legal system of this economy, who may commence the procedure? (For example the corporate debtor, secured creditors, unsecured creditors, directors, shareholders, the State.)

 

(i) Proceedings for a scheme of arrangement may be initiated by the company, a creditor or a contributory.

(ii) The appointment of a receiver or a receiver and manager is made by a secured creditor.

iii) Proceedings to wind up a company may be commenced by the company itself; a creditor; a contributory; the personal representative of a deceased contributory; the trustee in bankruptcy or the official assignee of the estate of a bankrupt contributory; the liquidator of the company; the judicial manager; and the Minister for Finance.

(iv) Proceedings to place a company under judicial management may be commenced by the company itself acting by its members in general meeting; its directors acting as a collective body; or a creditor or creditors including contingent or prospective creditors.

(c) On what basis may each type of insolvency procedure be commenced, or what requirements must be satisfied before the procedure may be commenced? (For example non-payment of debts; balance sheet/cash flow insolvency; trading losses; resolution by directors to enter insolvency procedure.)

 

(i) Proceedings for a scheme of arrangement may be commenced at any time.

(ii) The entitlement to appoint a receiver or a receiver and manager arises in accordance with the terms of the debenture.

(iii) The only insolvency ground on which a company may be wound up is that it is unable to pay its debts. This may be established by taking advantage of the presumption of inability to pay debts raised by failure to pay within 21 days after service of a demand complying with the statutory requirements.

(iv) In order to obtain a judicial management order, the petitioner must show that the company is unable to pay its debts and that the making of a judicial management order would be likely to achieve (a) the survival of the company or the whole or part of its undertaking as a going concern; (b) the approval of a compromise or arrangement between the company and its creditors; or (c) a more advantageous realization of the company's assets than could be effected on a winding up.

(d) How is each type of insolvency procedure commenced? (For example by application to the Court, by administrative act, by written notice to the business organization.)

 

(i) Proceedings to implement a scheme of arrangement are commenced by originating summons seeking the leave of court to convene meetings of the creditors or members or the requisite classes thereof as the case may be.

(ii) A receiver or a receiver and manager is appointed in accordance with the terms of the debenture, usually by unilateral act of the floating chargeholder in writing upon default or the declaration of an event of default.

(iii) Compulsory winding up proceedings are commenced by presenting a petition to the High Court seeking a winding up order. Voluntary winding up proceedings are commenced by passing the requisite members' resolution or by the directors' making the statutory declaration of inability to carry on business by reason of liabilities.

(iv) Judicial management proceedings are commenced by presenting a petition to the High Court seeking a judicial management order.

(e) What is the usual time period between the commencement of formal insolvency proceedings and the declaration or imposition of a formal administration on the corporate debtor?

 

(a) The usual time period for a scheme of arrangement depends largely on the complexity of the negotiations between the company and its creditors. There is an incentive to finalise the scheme documents quickly because the company does not enjoy a moratorium while the scheme is pending unless an order is made under section 210(10) of the Companies Act. The two court applications required at the beginning to convene the necessary meetings and at the end to approve the scheme usually take place 3 to 4 weeks after the papers are filed.

(b) An order for winding up or placing a company under judicial management is usually made 4 to 5 weeks after the petition is presented. In cases of urgency, the petitioner may apply for a provisional liquidator or an interim judicial manager to be appointed. A voluntary winding up commences immediately upon the passage of the requisite resolutions.

(c) A receiver's appointment takes immediate effect upon the necessary documents being executed by the chargeholder.

(f) How effective is the judicial or court system (or administrative system) in relation to the handling of formal insolvency proceedings?

 

The judicial system is effective in handling insolvency proceedings. However, it must be borne in mind that the court's role in formal insolvency proceedings is limited to initiating the proceedings and playing the purely residual role in the ensuing procedure of resolving disputes or giving directions. The Singapore courts do not play an active role in insolvency proceedings as compared to for example the role played by the United States Bankruptcy Court.

(a) In relation to each type of insolvency procedure available in the legal system of this economy, what is the effect on the corporate debtor, its constituent parts and its business relationships of initiation of the relevant insolvency procedure?

 

(For example - How does initiation of the insolvency procedure affect :-

* the powers of management of the debtor;

* the interests of owners/shareholders of the debtor;

* contracts to which the debtor is a party;

* legal proceedings to which the organization is a party;

* remedies available to persons in contractual (non-debt) relationships with the debtor);

Scheme of arrangement

A scheme of arrangement does not in itself affect the powers of management of the debtor, the interests of the owners or shareholders of the debtor, the contracts to which the debtor is a party. Thus, this is the closest thing in Singapore law to a debtor-in-possession model of reorganisation such is implemented under Chapter 11 of the United States Bankruptcy Code. However, in practice, if the debtor is multi-banked, there will very likely be an independent accountant overseeing the affairs of the company as a special consultant. Furthermore, if the creditors insist, the scheme itself may be administered by an independent scheme administrator. The powers and duties of the scheme administrator is a matter for agreement between the company and its creditors as part of the scheme.

A scheme of arrangement affects legal proceedings to which the company is a party and the remedies available to persons in contractual (non-debt) relationships with the debtor only insofar as orders are made under section 210(10) of the Companies Act or the scheme makes provision for it.

Receivership

The debenture under which a receiver is appointed will invariably provide that the appointment of a receiver displaces the powers of management vested in the directors of the company and vests them in the receiver. This is subject to an implied exception for certain residual powers which remain in the directors, such as the power in the name of the company to challenge the appointment of the receiver.

The appointment of a receiver does not in itself affect the interests of the owners or the shareholders of the debtor. Legal proceedings to which the company is a party are not affected by the appointment of a receiver. However, in practice, the receiver may reassess the cost-effectiveness of the company continuing to prosecute or defend proceedings. Furthermore, proceedings in which the company is a defendant become moot because upon the appointment of a receiver over the whole or substantially the whole of a company's undertaking, the company ceases to have free assets out of which any judgment which may be obtained can be satisfied.

A receiver or a receiver and manager is in a better position than the company as far as pre-existing contracts which do not create proprietary rights are concerned because he is free to cause the company to repudiate those contracts so long as he does so in good faith without needlessly damaging the company's goodwill. A receiver cannot, however, disregard proprietary rights accrued under pre-existing contracts.

Liquidation

Upon the making of a winding up order, the powers of the company's directors are displaced and vested in the liquidator. However, the directors do not formally vacate office and retain certain residual powers, including the power to apply in the name of the company to have the winding up order set aside.

Section 259 of the Companies Act renders void unless the court otherwise orders any transfer of shares or alteration in the status of members of a company made after the commencement of the winding up (the presentation of the petition in a compulsory winding up or the passing of the members' resolution in a voluntary winding up). In a liquidation, the members' only interest is in the surplus, if any, after the unsecured creditors have been paid in full.

The effect of liquidation on contracts entered into by the company depends on whether the contract is executed or executory. An executed contract is one which has been wholly performed by one party leaving outstanding only the unperformed obligations by the other party. An executory contract is a contract in which obligations remain to be performed on both sides.

Where a contract is executed and it is the company in liquidation which has wholly performed, the liquidator can enforce the counterparty's obligations in the usual way. Where a contract is executed and it is the counterparty who has wholly performed, the liquidator is entitled to retain the benefit of the performance and the counterparty is left to prove in the liquidation for the loss suffered.

Where a contract is executory, the liquidator is not obliged to procure performance by the company unless the counterparty has acquired proprietary rights under the contract. The liquidator can either exercise his power under section 332 of the Companies Act to disclaim onerous property within 12 months of the commencement of the winding up or simply decline to perform the contract. If this constitutes a repudiatory breach of contract entitling the counterparty to terminate it, he is left to prove in the liquidation for the loss occasioned by the company's breach. If the contract rather than being terminated continues on foot, and the liquidator accepts the benefit of the counterparty's performance, the liability of the company in that respect becomes an expense of the liquidation and is payable in priority accordingly.

After a winding up petition is presented, there is no automatic stay of legal prceedings against the company. Instead, the court has a discretion under section 258 of the Companies Act to make an order staying or restraining further proceedings in the action or proceedings on the application of the company, a creditor or a contributory. Once a winding up order is made or a provisional liquidator appointed, there is an automatic stay of proceedings against the company under section 262(3) of the Companies Act unless the court gives leave for the proceedings to continue. In a creditior's voluntary liqudation, the mandatory stay is imposed upon the passing of the members' resolution by section 299(2).

Further, by section 260 and section 299 of the Companies Act, any attachment, sequestration, distress or execution put in force against the estate or effects of the company shall after the commencement of a compulsory or creditors' voluntary liquidation be void. Any such proceedings commenced before the commencement of the winding up but which has not been completed at that time are also ineffective under section 334 of the Companies Act.

Judicial management

Under section 227G(2), once a judicial management order is made and remains in force, all powers conferred and duties imposed on the directors shall be exercised and performed by the judicial manager.

The making of a judicial management order has no effect on the rights of owners or shareholders.

The making of a judicial management order does not, to a large part, affect the contracts to which the company is a party. The judicial manager does not have the liquidator's power to disclaim onerous contracts; nor does he have the receiver's powers to cause the company to breach its contracts.

Creditors of the company are prevented by the moratorium from commencing or continuing legal action against the company, from levying execution on the assets of the company or from exercising their security or other interests over the elements comprising the company's undertaking.

(b) If another insolvency procedure has already been initiated in relation to the corporate debtor, how does the initiation of a second procedure affect the first?

 

A scheme of arrangement can be proposed in a liquidation or a judicial management as it can outside formal insolvency proceedings. A receivership can co-exist with a liquidation regardless of which occurs first in time. When this occurs, the liquidator remains on the sidelines until the receiver has completed his task of realising the company's assets and paying off the debenture holder.

A receivership and a judicial management cannot coexist as it is a condition precedent to the making of a judicial management order that the court is satisfied that no receiver over the whole or substantially the whole of the company's property has or will be appointed. Furthermore, once a judicial management order is made, no such receiver can be appointed.