A recent Singapore case (Harrick Engineering v Singapore Finance  1 SLR 197) has important implications for receivers who are appointed by creditors to act as agents for insolvent companies.
The facts behind the Harrick Case are as follows. The plaintiff (Harrick) leased equipment from the defendant (SFL) by entering into two 36-month hire purchase agreements. SFL would therefore retain title to the equipment until all payments had been made. Harrick defaulted and SFL repossessed the equipment and subsequently leased it to another party after the 36-month term had ended. SFL then took out a writ to claim from W, the guarantor, the sums outstanding under the lease agreements. Judgment was given to SFL on its writ.
However, Harrick had executed a debenture in favour of the Overseas Union Bank (OUB) and OUB appointed receivers for the equipment claiming the equipment as fixtures to Harrick's factory and therefore subject to the debenture. OUB believed the lease agreements were still in force but in fact the 36-month term had already lapsed. SFL and OUB therefore entered into negotiations which resulted in SFL releasing its interest in the equipment in exchange for a payment of S$70,000 by OUB.
Harrick and W then commenced a writ against SFL for negligence in selling the equipment for what they considered to be a grossly undervalued amount, alleging that the equipment had a true value of almost S$2 million. Harrick and W also argued that the receivers acted as agents for SFL.
The court hearing the second writ dismissed both claims. In relation to the suit against SFL, the court held that the loan agreements had expired at the end of the term and therefore SFL became the legal owner of the equipment. SFL could therefore deal with the equipment as it chose (ie, it was under no duty to Harrick to ensure that the equipment was sold at market value).
Further, the court found that SFL had not sold the equipment to OUB, but instead had settled their dispute for that sum. The only way SFL could sell the equipment was through the receivers. No evidence was given for the court to come to the conclusion that the receivers were agents of SFL or of OUB.
The court's ruling is significant because it prescribes that a receiver is not a creditor's agent in conducting a sale of the debtor's assets. Under the terms of a debenture, a receiver is usually the agent of the debtor. However, where the debtor-company is compulsorily wound up, the agency is called into question. The receiver continues to exercise power in the debtor's name even though the debtor is no longer liable for any debt. Hence, a winding-up does not terminate a receiver's agency. Rather, the scope of the agent's authority is simply limited to be consistent with the winding-up.
For further information on this topic please contact Leena Pinsler or Lim Gek Choo at Drew & Napier by telephone (+65 535 0733) or by fax (+65 535 4906) or by e-mail ([email protected] or [email protected]). The Drew & Napier web site can be accessed at www.drewnapier.com .
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.