Majestica Enterprises Limited & Anor v Kams Singapore Pte Ltd (In Compulsory Liquidation)

Facts

Kams Singapore Pte Ltd was wound up in 2020 and the court appointed a liquidator. Majestica Enterprises Limited and a segregated portfolio of the South Africa Alpha SPC were creditors of the company and had filed proofs of debt. The liquidator began investigating the company's affairs, but the estate ran out of money. At a creditors' meeting he told the creditors he could not continue investigating or pursue recovery of assets for lack of funds, and a Committee of Inspection was formed at the same meeting.

The liquidator and the two creditors then signed a funding agreement. The creditors would first fund an investigation of the company's accounts and past transactions, with no recovery at that stage. After that, the liquidator would tell them of any claim he wished to bring, and they could choose whether to fund it. The liquidator would keep full control of any proceedings. Money recovered through funded proceedings would first repay the funders; after that, 75% would go towards the funders' admitted debts and 25% towards those of the other creditors, with the liquidator able to reduce the funders' share in a quarter to no less than 70% if he reasonably believed the liquidation needed more funds. The other creditors had been offered the chance to fund the liquidator but declined, and did not object to the agreement.

In Originating Application No 592 of 2023, the two creditors asked the court for an order under s 204(3) of the Insolvency, Restructuring and Dissolution Act 2018 giving them an advantage over other creditors in the distribution of what their funding recovered.

Issues

1. Which factors the court should weigh when granting a prospective order under s 204(3) of the IRDA
2. Whether such an order should remain open to later challenge by other creditors who might be prejudiced
3. Whether the advantage given to the funding creditors under this funding agreement was reasonable

Holding

Chua Lee Ming J granted the application and made an order under s 204(3) of the IRDA giving the applicants an advantage over the other creditors on the terms of the funding agreement. The order was not made subject to later challenge by other creditors.

Reasoning

The judge started from the list of factors set out in Song Jianbo v Sunmax Global Capital Fund 1 Pte Ltd (in compulsory liquidation [2022] SGHC 312 and refined it. Necessity of the proceedings added little, since funding is sought precisely because recovery proceedings are needed; complexity mattered mainly as a measure of the funder's risk. The size of the funding and the risk taken go to how large an advantage is justified. The judge thought the emergence of new creditors after the order could not sensibly be weighed when making a prospective order, and that the public interest in encouraging funding simply explains why the provision exists. He added a further factor drawn from Lavrentiadis, Lavrentios v Dextra Partners Pte Ltd (in liquidation) and another matter [2023] SGHC 131: the liquidator should keep control of the proceedings, though the funder may reasonably have a say on the choice of solicitors or any settlement or discontinuance.

On later challenges, the judge agreed with the applicants that the order should not carry such a term. Section 204(2) was enacted so that funders would have assurance before they paid out; leaving the order open to later attack would defeat that purpose and be unfair to the funder.

Applying the factors, the advantage was reasonable given that recovery was far from certain, the other creditors had been offered the chance to fund and declined, no creditor, the liquidator or the Official Assignee objected, and the liquidator kept full control of any proceedings.

From the judgment