Statutory Demand Insufficiently Served
Creditor not Secured
Petitioner Must Prove Debtor's Inability to Pay
There have been several recent significant decisions relating to bankruptcy law and practice rendered by the Singapore courts that are worthy of discussion.
Statutory Demand Insufficiently Served
In the case of Chan Yeo Tuck (Tony Chandra) v The Development Bank of Singapore (Bankruptcy No 7160 of 1999), rendered on May 25 2000, the court set aside a bankruptcy order that was made on the basis of the failure of the debtor to pay after a statutory demand was served. At issue was the question of whether Rule 96 of the Bankruptcy Rules had been complied with by the creditors (ie, whether they had taken all reasonable steps to ensure that the statutory demand was brought to the debtors' attention).
Personal service of the statutory demand was not effected in this case. The court was of the view that service of the demand on an address given by the defendant (his place of work, given in an affidavit deposed by him) was insufficient where the demand had been returned. The court was also not satisfied with the demand being sent to a hotel in Batam, where the debtor had sought refuge at some point, when that demand was also returned.
The creditors were aware that the debtor had a residential address in Jakarta and a PO Box number. They did not attempt to serve the demands at those places. The failure to serve the demand on these more direct places was, in the court's view, sufficient for it to hold that reasonable steps had not been taken. The onus of establishing such reasonable steps was on the petitioner and, given the serious consequences of a bankruptcy order on the debtor, the court placed a high onus on the petitioner.
The court in the case of Re Ho Kok Cheong (Bankruptcy No 1235 of 1987) had to consider the position of the creditors of a bankrupt. The bankrupt's liability to the creditor arose as guarantor of the debts of a company, where the company (ie, the principal debtor) had provided security to the creditor by way of a mortgage over property. The question arose as to whether the creditor's position, in respect of the bankrupt guarantor, was that of a secured creditor by virtue of the security it held from the principal debtor.
The court was of the view that the creditor was not secured in such circumstances. The security in question was not provided by the bankrupt, it was provided by the principal debtor, an entirely separate entity. As such, the obligations imposed on a secured creditor by the Bankruptcy Act and Rules did not apply to the creditor in this case. The creditor was therefore entitled to use the security to pay off interest and principle as provided for in the contract between the creditor and principal debtor, without consideration of the Bankruptcy Act and Rules. The creditor could then make a claim on the balance.
The court also stated that a secured creditor is entitled to contractual interest up to the date of liquidation of his security. He is not obliged to dispose of his security at any particular time. The right to apply security as the creditor saw fit would extend to post-liquidation contractual interest.
Petitioner Must Prove Debtor's Inability to Pay
In the case of Medical Equipment Credit Pte Ltd v Sim Kiok Lan Alice & Anor [1999] 1 SLR 70, two debtors entered into a scheme of arrangement with their creditors pursuant to Section 45 of the Bankruptcy Act, which allows for voluntary arrangements. The scheme provided for their creditors to withhold taking action against the debtors for a period of four months, during which time the debtors would sell a specified property to pay their debts. At the final creditor's meeting, the debtors said they no longer agreed to pursue the sale of the property, and that they did not necessarily admit the debts they had previously admitted.
It was held that failure to comply with an obligation under a voluntary agreement was not grounds for petitioning for bankruptcy. It was an essential ground for the presentation of a bankruptcy petition that the debtor was unable to pay a debt of more than the statutory minimum sum. Admitting a debt could not be equated with an inability to pay it, nor displace the requirement of proof of inability to pay the debt. The court stated that "the underlying foundation of a petition in bankruptcy against a debtor ... is the inability of the debtor to pay a debt which satisfies the requirements of Section 61 of the Act...".
Section 61 of the Bankruptcy Act sets out preconditions for the presentation of a bankruptcy petition, and ultimately it requires that it be shown that the debtor is unable to pay the debt claimed. The Court of Appeal was of the view that it was incumbent on the creditor, in a creditor's petition, to support the allegation that the debtor is unable to pay his debts.
The Court of Appeal's judgment means that, whether the petition for bankruptcy is presented in the normal means, or in relation to a failure to comply with the terms of a voluntary arrangement, it remains incumbent on the petitioner to show the debtor's inability to pay his debts.
For further information on this topic please contact Sushil Nair at Drew & Napier by telephone (+65 531 2410) or by fax (+65 5327149) or by e-mail ([email protected]). The Drew & Napier web site can be accessed at www.drewnapier.com.
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