Court’s power to summon persons connected with company in liquidation

Under section 285 of the Companies Act of Singapore (Cap 50, 2006 Rev Ed), when a company is in liquidation, the Court may summon before it any person whom the Court considers capable of giving information concerning the promotion, formation, trade dealings, affairs or property of the company. Such person may be examined on oath regarding the above-mentioned matters and the Court may also require him to produce any books or papers in his custody or power relating to the company.

Key Point

In an application under section 285 of the Companies Act, the Court will consider whether the oppression to the person required to produce its working papers is outweighed by the assistance that the liquidator may be able to derive from such production.

Facts

In BNY Corporate Trustee Services Ltd v Celestial Nutrifoods Ltd [2014] SGHC 155, the liquidator of a company, after identifying certain suspicious or irregular transactions undertaken by the company in China, sought an order from the High Court under section 285 of the Companies Act against the company’s former auditors for its relevant representatives to be examined and to obtain further documents and information, including the former auditors’ primary records and working papers, to enable the liquidator to carry out his statutory functions. The company’s former auditors, which had a long relationship with the company, had given only three arch-lever files containing high-level documents to the liquidator.

The liquidator’s application was opposed by the company’s former auditors, who alleged that:

  • the liquidator was not objective and neutral and that his true motivation was to seek discovery to support his case for a potential claim against them;
  • an order made under section 285 of the Companies Act would be oppressive to them as its working papers were its proprietary information and it would expose them to a real risk of civil liability and criminal sanction under Chinese law; and
  • the liquidator’s request for the former auditors’ documents was too wide.

Decision

The High Court held that:

  • there was no merit to the former auditors’ arguments that the liquidator was not objective and neutral and that his true motivation was to seek discovery to support his case for a potential claim against them; 
  • the fact that the working papers were the former auditors’ property was not a basis for non-disclosure and there was no real risk of the former auditors being subject to civil liability or criminal sanction under Chinese law; and
  • the evidence showed that the liquidator needed the additional documents and information to correctly assess the suspicious transactions that he had identified and determine whether anything wrong had been done and, if so, who should be held responsible for the same.

Comment

This decision reaffirms the expansive approach taken by the Singapore Courts that section 285 of the Companies Act should not be interpreted in a constricted manner, but may be invoked to give effect to the legislative policy that the power under section 285 should be used to assist the liquidator in accumulating facts, information and knowledge that would enable him to discharge his statutory duties.