In a climate where many commercial entities are struggling financially, the recent decision of the Singapore High Court in Centaurea International Pte Ltd v Citus Trading Pte Ltd  SGHC 264 provides both businesses and professional liquidators with welcome clarity on the legal position in relation to retrospective validation of payments made by an insolvent company after the commencement of winding up proceedings.
This decision involved a series of transactions between a bunker supplier (Centaurea) and a commodities trader (Citus). Unbeknownst to Citus, a winding up application had been filed against Centaurea on 1 July 2013. Citus continued to engage in business dealings with Centaurea and payments amounting to around USD 1,500,000 were made from Centaurea to Citus.
Centaurea was eventually wound up on 23 August 2013 and the liquidators for Centaurea subsequently applied under section 259 of the Singapore Companies Act to pursue repayment of the payments made. Under section 259 of the Singapore Companies Act:-
“Any disposition of the property of the company, including things in action, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court shall unless the Court otherwise orders be void.”
Arguing on behalf of Citus, Dato’ Jude Benny successfully persuaded the Singapore High Court that in a retrospective validation situation, one should focus the inquiry at the time of payment (rather than at the time of the liquidator’s application) and that the appropriate query at such time would be whether the disposition of the company’s property was likely to benefit the company’s creditors (rather than the disposition having to lead to an actual benefit).
Applying this test to the facts before the court, the court found that the payments were made in relation to the provision of additional supplies for Centaurea’s business as a bunker supplier, and that the payments would have the effect of refreshing the credit limit imposed on Centaurea. As a continuing supply of bunkers was the source of Centaurea’s business, the making of payments to creditors like Citus in order to stay afloat would at least carry a potential or prospective benefit to Centaurea, and consequently, its creditors. Consequently, the court validated the payments made to Citus.
The test articulated by the court is welcome as it is one informed by commercial sensibility, and is one which recognizes the difficulties faced by creditors with imperfect information, and limited visibility on the debtor’s affairs.
This update is for general information only and is it not intended to constitute legal advice. JTJB has made all reasonable efforts to ensure the information provided is accurate at the time of publication
Dato’ Jude P. Benny / Mary-Anne Chua
Senior Partner & Arbitrator / Associate
firstname.lastname@example.org / email@example.com
The contributors represented Citus Trading in this decision.