In the recent case of Atlas Equifin Pte Ltd v Electronic Cash and Payment Solutions (S) Pte Ltd (Andy Lim and others, non-parties)  SGHC 258 (“Equifin Atlas”), the High Court of Singapore had occasion to consider the unexplored question of whether shareholders/contributors have standing to oppose a creditor’s liquidation claim.
The affair of Equifin Atlas concerned a request for liquidation filed by the Claimant against the Respondent on the basis of a guarantee (“Guarantee”) given by the defendant. Under the Guarantee, the Defendant agreed to pay the Plaintiff all sums due and payable by the Defendant’s subsidiary (“Subsidiary company”), resulting from a Loan Credit Facility entered into between the Subsidiary and the Applicant.
Due to the non-reimbursement by the Subsidiary of the amounts due under the Credit Facility, the Claimant then demanded payment from the Defendant under the Guarantee. As the defendant failed to make payment to the plaintiff, the plaintiff issued a legal demand to the defendant and subsequently filed for liquidation against the defendant.
A shareholder and contributor of the defendant, a certain Mrs. Monica Kochhar, a 36.2% shareholder and contributor of the defendant, sought and obtained leave to oppose the defendant’s application for liquidation on the ground that the debt owed by the Defendant to Plaintiff is disputed, that Defendant remains a going concern, and Plaintiff’s liquidation request is an abuse of process by Plaintiff to impose improper pressure on Defendant.
Singapore High Court Decision
Having found that the plaintiff has established the defendant’s ground for liquidation under section 125(1)(e) read in conjunction with section 125(2)(a) of the Insolvency Act 2018, restructuring and dissolution (“IRDA”), the Singapore High Court then ruled that the shareholders/contributors had the legal capacity to oppose the liquidation claims.
Firstly, the High Court of Singapore was aware that although there is no explicit grant of a right to shareholders/contributors to object to a winding-up claim in the IRDA, the subsidiary legislation relevant, namely the Insolvency and Dissolution (Insolvency and Corporate Restructuring) Rules 2020 (“2020 CIR Regulation”), is not incompatible with such a right either. In this regard, Rule 69 of the 2020 CIR Regulation expressly provides for the “contributor of a company” the right to be provided with a copy of the liquidation request and the supporting affidavit. In this regard, Rule 69 of the 2020 CIR Rules reads as follows:
“Copy of application for liquidation and supporting affidavit to be provided to creditor or contributor
69. Any creditor or contributor of a company has the right to obtain, from the plaintiff of an application for liquidation with respect to the company, a copy of each of the [winding up] application and the affidavit in support of the application within 48 hours of making the request, upon payment of $1 per page of such copy.”
For clarity, in Singapore, the term “contributor” refers to a person who may contribute to the company’s assets in the event of the company’s liquidation and includes the holder of fully paid shares.
The High Court of Singapore further concluded that the purpose of Rule 69 of the 2020 CIR Rules is to provide shareholders/contributors with relevant information on a winding-up application so that they can, if they wish, oppose it.
Second, the High Court of Singapore further referred to Rule 72(1) of the CIR Rules 2020, a provision which relates to the filing of affidavits in opposition to a winding up application which does not limit the right to oppose a request for liquidation to the only companies facing liquidation. In this regard, rule 72(1) of the CIR 2020 regulation reads as follows:
“Affidavits Opposing the Liquidation Application and Affidavits in Response
- Any affidavit opposing an application for liquidation must be produced and a copy of the affidavit must be served on the plaintiff at least 5 days before the day fixed for the hearing of the application..”
Third, the Singapore High Court also held that the proposition that shareholders/contributors have standing to oppose a winding-up petition is supported by the English authorities. In this regard, the High Court of Singapore took into account the following English authorities (“English authorities”):
I. Re Camburn Petroleum Products Ltd  3 All ER 297 (“Cambridge”) where Slade J, ruled that a court hearing a creditor’s liquidation claim could “take into account the wishes of contributors“, although “little weight” is attached “to the will of the contributors, with regard to the weight it attaches to the will of a [unpaid] creditor”.
ii. McPherson & Keay’s Law of Business Liquidation (Sweet & Maxwell, 5e Ed, 2021) where the authors explain that “[o]Liquidation petition may come from co-creditors of the petitioner…or of the company or (which is about the same thing) of the shareholders”;
iii. Re Rodencroft Ltd.  1 WLR 1566 (“Re Rodencroft”) where Evans-Lombe J endorsed Cambridge and ruled that a contributor has the “prima facie right to appear on [winding up] motion and filing of evidence in opposition” on condition that “he could show that [the] the company was solvent.” ; and
iv. Goode on principles of corporate insolvency law (Sweet & Maxwell, 5e Ed, 2018) where the authors wrote that “contributors also have the right to be heard in opposition”.
The High Court of Singapore also recognized that with such a conclusion, the courts could be inundated with frivolous requests to oppose liquidation claims, which could unduly disrupt the liquidation process and unnecessarily increase costs. Based on this, the High Court of Singapore then set out a non-exhaustive set of factors to consider in determining whether the court should allow shareholders/taxpayers to object to a winding-up petition. These factors are:
I. the shareholder/contributor holds a significant portion of the company’s shareholding so that he has a substantial interest in opposing the liquidation request;
ii. the shareholder/contributor is able to demonstrate that the company is solvent. The reason for this is that the liquidation plaintiff should not be “put at the cost of a contested request where the only opposition comes from a contributor who cannot demonstrate that the company is solvent so that he has a real interest in the result”;
iii. the shareholder/contributor must act authentic; and
iv. the court must balance the interest of the shareholder/contributor against the wishes of an unpaid creditor. In this regard, the court would normally give little weight to the wishes of the shareholders/taxpayers compared to the weight it would give to the wishes of any creditor in the situation where the creditor proves both that he is unpaid and that the company is “unable to pay debts”.
The applicability of Equifin Atlas and the English authorities
Although the Companies Act 2016 does not explicitly grant shareholders/contributors the right to object to a winding-up application, it is likely that the decision in Equifin Atlas would be applied here by Malaysian courts to the effect that shareholders/contributors would be required to have standing to oppose liquidation petitions.
Firstly, as in the case of Singapore, the relevant subsidiary legislation here, the Companies (Winding Up) Rules 1972 (“Winding-up rules”), is not incompatible with such a right either. In fact, Rule 27 of the Liquidation Rules reads as follows:Any contributor or creditor of the company is entitled to be furnished by the petitioner or his attorney with a copy of the petition within forty-eight hours after demanding it against payment at the rate of fifty cents per folio of 100 words or part of it.”. This is similar to Rule 69 of the 2020 CIR Rules.
Second, Rule 30(1) of the WUR, which also relates to the filing of affidavits against the liquidation petition, also does not prohibit contributors from filing opposing affidavits. In this regard, Rule 30(1) of the WUR provides that “Affidavits opposing a motion to wind up a corporation must be filed and a copy served on the petitioner or his attorney at least seven days before the time set for the hearing of the motion.”. This is similar to rule 72(1) of the CIR 2020 regulations.
Third, Rule 28 of the WUR which relates to the notice of intention to be filed by those who intend to appear at the hearing of the winding up motion also does not prohibit contributors from appearing at the hearing of the petition for liquidation. Indeed, form n°8 of the WUR explicitly provides that a contributor may express his intention to appear and oppose a request for liquidation. In this respect, Form 8 of the WUR is identical to Form CIR-15, contained in the First Schedule of the CIR Rules 2020, which was also considered by the High Court of Singapore in Equifin Atlas.
Fourth, there are also similarities between English and Malaysian law in this context. For example, the English High Court of Re Rodencroft refers to section 195(1)(a) of the Insolvency Act 1986 as the only provision referring to a contributor’s possible legal capacity to oppose a winding-up petition. In this regard, Section 195(1)(a) of the Insolvency Act 1986 provides as follows:
“(1) The court may—
(a) in all matters relating to the winding up of a company, take into account the will of the creditors or contributors (as proved to him by any sufficient evidence)…”
Similarly, Section 521 of the Companies Act 2016 reads: “the court may, for all matters relating to the liquidation of a company, take into account the wishes of creditors or contributors as proved to the Court by sufficient evidence…” [Emphasis added].
The decision to Equifin Atlas certainly tips the balance of the law in favor of the debtors, which seems to deviate from the almost strict common law position that an unpaid creditor has the right to liquidate a company as of right. Nevertheless, Equifin Atlas is undoubtedly a much appreciated decision as it sheds some light on this matter. There is also no doubt that Equifin Atlas would most likely also be enforced by Malaysian courts. However, it is prudent for the Malaysian courts to tread carefully on this issue lest they be inundated with waves of frivolous motions to oppose the liquidation of the claims. It is important to note that Malaysian courts must ensure that shareholders/contributors present sufficient evidence to show that the company in question is solvent.