Can a shareholder or contributory oppose an application to wind up a company?
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 (“Atlas Equifin”), the Singapore High Court had the opportunity to consider the unexplored issue of whether shareholders/ contributories have legal standing to oppose a creditor’s winding up application.
The case of Atlas Equifin concerned a winding up application filed by the Claimant against the Defendant on the basis of a guarantee (“Guarantee”) given by the Defendant. Pursuant to the Guarantee, the Defendant had guaranteed to pay the Claimant all sums due and payable by the Defendant’s subsidiary (“Subsidiary”), arising from a Loan Credit Facility entered between the Subsidiary and the Claimant.
Due to the Subsidiary’s failure to repay the sums due under the Loan Credit Facility, the Claimant had then demanded for payment from the Defendant pursuant to the Guarantee. As the Defendant failed to make payment to the Claimant, the Claimant issued a statutory demand to the Defendant and thereafter, proceeded to file a winding up application against the Defendant.
A shareholder and contributory of the Defendant, one Ms Monica Kochhar, a 36.2% shareholder and contributory of the Defendant, sought and obtained leave to oppose the winding up application of the Defendant on the basis that the debt owed by the Defendant to the Claimant is disputed, that the Defendant remains a going concern, and the Claimant’s winding up application is an abuse of process by the Claimant to impose illegitimate pressure on the Defendant.
Decision of the Singapore High Court
Having concluded that the Claimant had made out the ground for the Defendant to be wound up under section 125(1)(e) read together with section 125(2)(a) of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) the Singapore High Court also then held that shareholders/ contributories had the legal standing to oppose winding up applications.
Firstly, the Singapore High Court was cognisant of the fact that while there is no explicit conferral of a right on shareholders/ contributories to oppose a winding up application in the IRDA, the relevant subsidiary legislation, being the Insolvency and Dissolution (Corporate Insolvency and Restructuring) Rules 2020 (“CIR Rules 2020”), is also not inconsistent with such a right. In this regard, Rule 69 of the CIR Rules 2020 specifically provides “contributory of a company” with the right to be provided with a copy of the winding up application and the affidavit in support. In this regard, Rule 69 of the CIR Rules 2020 reads as follows:
“Copy of winding up application and supporting affidavit to be provided to creditor or contributory
69. Every creditor or contributory of a company is entitled to be provided, by the applicant of a winding up application in respect of the company, with a copy each of the [winding up] application and the affidavit supporting the application within 48 hours after requiring the same, upon payment of $1 per page of such copy.”
For clarity, in Singapore, the term “contributory” refers to a person liable to contribute to the assets of the company in the event of the company being wound up and includes the holder of fully paid shares.
The Singapore High Court further concluded that the purpose of Rule 69 of the CIR Rules 2020 was to give shareholders/ contributories the relevant information on a winding up application so that they can, if they so wish, oppose the application.
Secondly, the Singapore High Court further referred to Rule 72(1) of the CIR Rules 2020, a provision which concerns the filing of affidavits in opposition of a winding up application which does not limit the right to oppose a winding up application to only the company facing the winding up. In this regard, Rule 72(1) of the CIR Rules 2020 reads as follows:
“Affidavits opposing winding up application and affidavits in reply
1. Every affidavit in opposition to a winding up application must be filed and a copy of the affidavit must be served on the applicant at least 5 days before the day appointed for the hearing of the application.”
Thirdly, the Singapore High Court was also of the view that the proposition that shareholders/ contributories have legal standing to oppose a winding up application is supported by English authorities. In this regard, the Singapore High Court had regard to the following English authorities (“English Authorities”):
1. Re Camburn Petroleum Products Ltd  3 All ER 297 (“Re Camburn”) where Slade J, held that a court hearing a creditor’s winding up application could “pay regard to the wishes of contributories”, albeit “little weight” is attached “to the wishes of contributories, in comparison with the weigh it attaches to the wishes of an [unpaid] creditor”.
2. McPherson & Keay’s Law of Company Liquidation (Sweet & Maxwell, 5th Ed, 2021) where the authors explained that “[o]pposition to winding up may proceed from the petitioner’s fellow creditors…or from the company or (what is virtually the same thing) from the shareholders”;
3. Re Rodencroft Ltd  1 WLR 1566 (“Re Rodencroft”) where Evans-Lombe J endorsed Re Camburn and held that a contributory has the “prima facie right to appear on the [winding up] petition and file evidence in opposition” provided that “he could demonstrate that [the] company was solvent.”; and
4. Goode on Principles of Corporate Insolvency Law (Sweet & Maxwell, 5th Ed, 2018) where the authors wrote that “contributories also have the right to be heard in opposition”.
The Singapore High Court also acknowledged that with such a finding, the courts may be inundated with frivolous applications to oppose winding up applications, which may be too disruptive to the winding up process and unnecessarily increase costs. On that basis, the Singapore High Court went on to set out a non-exhaustive basket of factors to be taken into account in determining whether leave should be granted by the court to shareholders/ contributories to oppose a winding up application. These factors are as follows:
1. the shareholder/ contributory owns a significant portion of the company’s shareholding such that they have a substantial interest in opposing the winding up application;
2. the shareholder/ contributory is able to demonstrate that the company is solvent. The rationale for this is so that the winding up petitioner should not be “put to the cost of a contested petition where the only opposition is from a contributory who cannot demonstrate that the company is solvent so that he has a genuine interest in the result”;
3. the shareholder/ contributory must be acting bona fide; and
4. the court must weigh the interest of the shareholder/ contributory against the wishes of an unpaid creditor. In this regard, the court would ordinarily attach little weight to the wishes of shareholders/ contributories in comparison to the weight it would attach 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 its debts”.
The applicability of Atlas Equifin and the English Authorities
While the Companies Act 2016 does not explicitly confer upon shareholders/ contributories, the right to oppose a winding up application, it is likely that the decision in Atlas Equifin would be applied here by the Malaysian courts to the effect that shareholders/ contributories would be held to have legal standing to oppose winding up petitions.
Firstly, as in the case in Singapore, the relevant subsidiary legislation here, the Companies (Winding Up) Rules 1972 (“Winding Up Rules”), is also not inconsistent with such a right. In fact, Rule 27 of the Winding Up Rules reads “Every contributory or creditor of the company shall be entitled to be furnished by the petitioner or his solicitor with a copy of the petition within forty eight hours after requiring the same on payment at the rate of fifty cents per folio of 100 words or part thereof”. This is similar to Rule 69 of the CIR Rules 2020.
Secondly, Rule 30(1) of the WUR which also concerns the filing of affidavits opposing winding up petition, similarly does not prohibit contributories from filing affidavits in opposition. In this regard, Rule 30(1) of the WUR provides that “Affidavits in opposition to a petition that a company may be wound up shall be filed and a copy thereof served on the petitioner or his solicitor at least seven days before the time appointed for the hearing of the petition”. This is similar to Rule 72(1) of the CIR Rules 2020.
Thirdly, Rule 28 of the WUR which concerns the notice of intention to be filed by those who intend to appear on the hearing of the winding up petition also does not prohibit contributories from appearing at the hearing of the winding up petition. In fact, Form No.8 of the WUR explicitly provides that a contributory can express an intention to appear and oppose a winding up application. In this regard, Form 8 to the WUR is identical to Form CIR-15, found in the First Schedule of the CIR Rules 2020, which was also taken into consideration by the Singapore High Court in Atlas Equifin.
Fourthly, there are also similarities between the English and Malaysian legislation in this context. For example, the English High Court in Re Rodencroft referred to section 195(1)(a) of the Insolvency Act 1986 as the only provision which hints at the possible legal standing of a contributory 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) as to all matters relating to the winding up of a company, have regard to the wishes of the creditors or contributories (as proved to it by any sufficient evidence)…”
Similarly, section 521 of the Companies Act 2016 reads “the Court may as to all matters relating to the winding up of a company, have regard to the wishes of the creditors or contributories as proved to the Court by sufficient evidence…” [Emphasis added].
The decision of Atlas Equifin certainly tilts the balance of the law in favour of debtors which appears to depart from the nearly strict common law position that an unpaid creditor has a right to wind-up a company as of right. Even so, Atlas Equifin is no doubt a much-welcomed decision as it provides clarity on this issue. There is also no doubt that Atlas Equifin would very likely be applied by the Malaysian Courts as well. However, it is prudent that the Malaysian Courts do tread carefully on this issue lest they be inundated with waves of frivolous applications to oppose winding up petitions. Importantly, the Malaysian Courts must ensure that the shareholders/ contributories put forth sufficient evidence to demonstrate that the company in question is solvent.
*Published with permission of Skrine, Advocates and Solicitors, Kuala Lumpur. Original article can be found here.