ADCROP PTE. LTD. v GOKUL VEGETARIAN RESTAURANT AND CAFE PTE. LTD.

Facts

Gokul Vegetarian Restaurant and Cafe Pte Ltd ran an Indian vegetarian restaurant at 19 Upper Dickson Road. Its equal shareholders were two sisters-in-law, Mdm Rajeswary d/o Sinan and Mdm Chandra Maha Lakshmi. Each accused the other of neglecting or undermining the business. On 21 April 2021 Mdm Lakshmi and her husband notified ACRA that Mdm Rajeswary had ceased to be a director; Mdm Rajeswary challenged this in HC/OS 842/2021, served on 19 August 2021, and was later reinstated.

The next day a notice went out for an extraordinary general meeting to issue new shares to Adcrop Pte Ltd. At the meeting on 4 September 2021 Mdm Rajeswary's proxy opposed the resolution and it failed, but Adcrop's director, Mr Arvind Sharma, who was present, still paid $20,000, which Mdm Lakshmi accepted and used towards rent arrears. The landlord then gave notice to end the tenancy; on 17 September 2021 Mdm Lakshmi signed a new tenancy for the same premises for another company, Gokul-Raas, and moved the food licence and foreign workers to it, without telling Mdm Rajeswary. Adcrop served a statutory demand for the $20,000 on 28 September 2021 and filed HC/CWU 198/2021 to wind up the company. It later took assignments of trade debts from suppliers, payable only from what it recovered. The company was unrepresented; Mdm Rajeswary opposed the application.

Issues

1. Whether a shareholder or contributory has standing to oppose a winding-up application, and whether leave is required
2. Whether the winding-up application should be dismissed as an abuse of process because it served a collateral purpose
3. Whether the debts relied on were disputed on substantial and bona fide grounds

Holding

Andrew Ang SJ dismissed the winding-up application as an abuse of process, holding that it was brought for the collateral purpose of advancing a scheme to take the company's business away from it and Mdm Rajeswary. Costs were to be heard separately.

Reasoning

The court held that a contributory may oppose a winding up as of right. The insolvency rules give contributories copies of the papers and a form to appear, and s 186 of the IRDA lets them apply to stay a winding up. Even if leave were needed, solvency need not always be shown where insolvency is said to have been engineered; Mdm Rajeswary held half the shares and her good faith was not in doubt.

Although a company deemed unable to pay its debts is normally wound up, the court keeps a discretion to refuse where the process is used for a collateral purpose. On the balance of probabilities the judge found a scheme orchestrated chiefly by Mdm Lakshmi to wrest the business from the company and Mdm Rajeswary. The meeting was called the day after she was served with the directorship challenge; the $20,000 could never clear the rent owed; she moved the tenancy, licence and workers before the demand was served, kept Mdm Rajeswary in the dark, and gave a misleading affidavit in the directorship proceedings. Adcrop was complicit: Mr Sharma paid despite seeing the resolution defeated, could not have expected repayment from a company with almost nothing in the bank, and the debt assignments began the very day the debt was first challenged, with no plausible commercial reason.

Alternatively, there were triable issues as to whether the $20,000 was owed at all, whether some trade debts were really owed by Gokul-Raas, and whether Adcrop, possibly only an equitable assignee, had standing.

From the judgment