Introduction

1. It is not uncommon for businesses to use special purpose vehicles to carry out a specific business objective. The main benefit of doing so is the separation of the special purpose vehicle’s legal identity from its parent. If the distinction in legal identities is strictly respected, the separation should in turn shield the parent from any liabilities that the special purpose vehicle may incur on its own.
2. Indeed, a special purpose vehicle set-up is particularly commonplace in the realm of private residential housing development in Singapore. Aside from the main commercial benefit highlighted above, in cases where the developer is a consortium, its use helps effect the joint venture intent through the incorporation of a separate company that can be jointly owned by the consortium partners. In cases where the developer is not a consortium, its use is nevertheless helpful to segregate and manage the legal requirements prescribed under the Housing Developers (Control and Licensing) Act 1965 and the accompanying subsidiary legislation.
3. Special purpose vehicles ordinarily take the form of a one-time single use subsidiary company: after the desired business objective is achieved, the parent will take steps to promptly wind up the subsidiary voluntarily with a view to stop further liabilities from accruing and to pave the way for final distributions to be made at the end of the winding up to the parent as its shareholder.
4. A legal issue then emerges: does the termination of the company truly signal the end of its legal liabilities and allow the parent a clean break from its subsidiary?
5. This is a legal issue that is often encountered but does not appear to be sufficiently analysed. In this article, we will briefly consider that legal issue in light of the recent Singapore High Court decision of Management Corporation Strata Title Plan No 4339 v Coral Edge Development Pte Ltd (dissolved) (Thio Khiaw Ping Kelvin and another, non-parties) [2022] SGHC 250 (Coral Edge Development).
6. At the end, we will conclude that termination of the subsidiary company’s life does not immediately create a clean break for the parent company; there is a window period in the company’s afterlife, where the dissolved company could still be revived at law with the effect that contingent creditors may thereafter bring proceedings against the dissolved company.

When is a company considered “dead”?

7. Unlike natural persons (where death can sometimes be swift and unexpected), a company must go through strict legal processes set out in the Insolvency, Restructuring and Dissolution Act 2018 (the IRDA) (and prior to 30 July 2020, as set out in the now repealed Subdivision 1 of the Companies Act) before its life can be said to be properly extinguished by its parent. The overall legal process is known as a members’ voluntary winding up.
8. A members’ voluntary winding up generally involves 5 main stages: (i) a directors’ meeting; (ii) a first shareholders’ meeting; (iii) the liquidator’s administration; (iv) a final shareholders’ meeting; and (v) the final dissolution. To give some context, we will broadly touch on each of these 5 stages.
9. Stage 1: the winding up process begins with the convening of a directors’ meeting where the directors of the company must be able to form the opinion that the company will be able to pay its debts in full within a period not exceeding 12 months after the commencement of the winding up.
10. After the directors’ meeting, the directors must then execute a declaration of solvency confirming on record the abovementioned opinion and enclosing a statement of affairs of the company in the VWU-9 form prescribed under the Insolvency, Restructuring and Dissolution (Voluntary Winding Up) Regulations 2020. The directors’ declaration of solvency is key; without the said declaration, the winding up cannot proceed as a members’ voluntary winding up but will instead have to proceed as a creditors’ voluntary winding up, under which a different regime and set of rules will apply.
11. Because of the importance of the declaration of solvency, directors who execute the declaration without reasonable grounds face potential criminal liability.
12. Stage 2: within 5 weeks of the date of the declaration of solvency, an extraordinary general meeting of the company (the First Winding Up Meeting) will then have to be convened for the shareholders to resolve by special resolution that the company be wound up voluntarily pursuant to section 160(1)(b) of the IRDA.
13. Once the company had so resolved, the company must within 7 days lodge a copy of the resolution with ACRA and advertise it in the Government Gazette and a local daily English newspaper (typically, this will be the Business Times). Again, if this is not done, the company and its officers face potential criminal liability.
14. At the First Winding Up Meeting, the shareholders will also be asked to pass other resolutions related to the winding up such as the appointment of a liquidator to take charge of the winding up, the approval of his remuneration pursuant to section 164(1) of the IRDA, and the approval of his powers pursuant to section 177(1)(a) of the IRDA.
15. In other words, once a company resolves to voluntarily wind up, the liquidator takes over the administration of the company with the objective of winding up its affairs. The appointment of the liquidator moves the winding up from stage 2 to stage 3.
16. Stage 3: once the liquidator is appointed, the company enters what can notionally be called “the winding up administration phrase” where the liquidator is expected to realize the company’s assets and pay off its liabilities.
17. As part of the liquidator’s administration, the liquidator will typically publish a notice in the Gazette and newspaper to request the company’s creditors to submit their respective proofs of debt, failing which the creditors will be excluded from the benefit of any distribution that will be made prior to such proof.
18. The liquidator will have to carry out and complete the winding up administration timeously and if the administration exceeds one year, the liquidator must convene a general meeting of the company to update the shareholders of the progress of the winding up administration. Such a general meeting will then have to be convened annually for as long as the administration continues.
19. In addition, if the liquidator forms the opinion that the company will not be able to pay its debts in full within the period stated in the directors’ declaration of solvency, the liquidator must promptly convert the members’ voluntary winding up into a creditors’ voluntary winding up by summoning a creditors’ meeting. In this event, the regime and set of rules applicable only to a members’ voluntary winding up will no longer apply and conversely, the regime and set of rules applicable only to a creditors’ voluntary winding up will start to apply.
20. Once the liquidator has realized all the company’s assets and paid off all its debts, the liquidator will call for a final general meeting of the company (the Final Winding Up Meeting). The liquidator must advertise the Final Winding Up Meeting in the Gazette and newspaper at least 30 days in advance of the meeting. Once the Final Winding Up Meeting is called, the winding up moves into stage 4.
21. Stage 4: at the Final Winding Up Meeting, the liquidator will have to provide an account to the shareholders of the company showing how the winding up has been conducted and how the property of the company has been disposed of. Once the Final Winding Up Meeting is over, the winding up moves into the last stage.
22. Stage 5: within 7 days of the Final Winding Up Meeting, the liquidator will lodge a return of the holding and date of the final general meeting with ACRA. There will then be a wait-and-see period for 3 months where any interested party can apply to defer the date on which the dissolution is to take effect (see for example, the case of Management Corporation Strata Title Plan No. 4701 v MCL Land (Vantage) Pte Ltd (in members’ voluntary liquidation) [2022] SGHC 308). If there is no application to defer the dissolution then once the 3 months expires, the company will be dissolved at law.
23. Once all 5 stages of winding up outlined above are completed, the company is officially considered “dead”.

What are the consequences of a “dead” company?

24. Strictly speaking, once a company is dissolved, it is “dead” and no longer exists. Accordingly, the dissolved company cannot be sued (see for example, Vasudevan v Icab Pte Ltd [1987] SLR(R) 46) or hold any property (as all property outstanding after a company is dissolved will become bona vacantia and be vested in the Official Receiver pursuant to section 213 of the IRDA).
25. However, this does not mean that the dissolved company’s liabilities that were not known to and dealt with by the liquidator at the winding up administration phase are automatically extinguished by operation of law such that a potential creditor of the dissolved company no longer has any legal recourse for its claim.
26. What it does mean is for as long as the dissolved company remains dissolved, a potential creditor’s claim against the dissolved company is legally unenforceable. A potential creditor is thus obliged to take the additional step of restoring the dissolved company first before it can commence legal action to enforce its claim against that company (see for example, the recent case of JWR Pte Ltd v Edmond Pereira Law Corp and another [2020] 4 SLR 832). Consequently, a potential creditor is presented with an additional preliminary legal hurdle to cross if it intends to recover its alleged claim sum from the dissolved company.
27. While that legal hurdle is not insurmountable, it is nevertheless significant. An application to restore a dissolved company is governed by three legal requirements set out in section 208 of the IRDA namely, (i) the applicant must possess the relevant interest to file the application to restore the dissolved company, (ii) the applicant must file the application within the prescribed period of two years from the date of the dissolution, and (iii) the applicant must be able to satisfy the Court that it is appropriate for the Court under the circumstances to exercise its discretion under section 208 of the IRDA to restore the dissolved company.
28. It is notable that unlike applications under section 344(5) of the Companies Act to restore companies that have been administratively struck off the register by ACRA (see for example Re Asia Petan Organization Pte Ltd [2018] 3 SLR 435), applications to restore dissolved companies under section 208 of the IRDA are not granted as a matter of course. Indeed, the past 2 reported cases concerning the application of section 208 of the IRDA (or more precisely, its past incarnation, the now repealed section 343 of the Companies Act, as the reported cases concerned companies wound up before the IRDA came into force) have both been dismissed.
29. The first reported case is Lee Hung Pin v Lim Bee Lian and another [2015] 4 SLR 1004. In that case, an ex-shareholder – who claimed he was not aware of the winding up of the dissolved company in question – argued that there were irregularities in the winding up process and possible mishandling of the dissolved company’s financial affairs, and he wanted the dissolved company to be restored for those irregularities to be investigated. The liquidator denied the improprieties and opposed the application.
30. The Singapore High Court in what appears to be the first local reported case of its kind dismissed the application. While Justice Aedit Abdullah found that the ex-shareholder had the relevant locus standi to file the application and the ex-shareholder was within the relevant time in filing the application, he nevertheless held that the ex-shareholder’s bare allegation that there was possible mishandling of the dissolved company’s financial affairs and his request that an inquiry be made was insufficient to trigger the Court’s discretion to reverse the winding up. Something more concrete is required to disturb the winding up.
31. The second reported case is the recent decision of Coral Edge Development. In Coral Edge Development, the MCST of Waterwoods Executive Condominium asserted it had a common property defects claim but was largely corresponding with the main contractor Greatearth Construction to try to resolve it. When Greatearth Construction became insolvent, the MCST turned to the developer. It was then that the MCST discovered the developer had already been dissolved. The MCST thus applied to declare the dissolution void to bring the defects claim against the developer.
32. The Singapore High Court dismissed the application. Like the case of Lee Hung Pin, Justice Chua Lee Meng in Coral Edge Development found that the MCST had the relevant locus standi to file the application and the MCST was within the relevant time in filing the application. And like Justice Abdullah, Justice Chua nevertheless also found that the Court’s discretion should not be exercised to restore the company.
33. Justice Chua reasoned that an order to restore in the circumstances of that case would be futile because the dissolved developer would not have any assets available after restoration to meet the MCST’s alleged claim. When the MCST tried to overcome this by contending that the Court had a power under that section to make consequential orders that could void the liquidator’s prior distributions of the developer’s assets to the parent company, that contention was flatly rejected by Justice Chua; Justice Chua held that the true position at law is the converse of what the MCST contended: once the dissolved company’s assets had been properly distributed by the liquidator, it cannot be retrospectively reopened or recovered.
34. The experience from the 2 cases illustrates the following principles of law:
    1. A “dead” company can still be “revived”, at least within two years of the dissolution. Once revived, any outstanding claims against the company may still be brought.
    2. However, it is not easy to convince the Court to exercise its discretion in favour of a revival. The applicant must not only be able to show that its claim is meritorious, the applicant also must be able to show that there are assets which the applicant could look to enforce its claim such that an order to restore would not be futile.

Conclusion

35. Having regard to those principles, the answer to the legal issue posed above becomes apparent: the termination of the company does not immediately put an end to its legal liabilities and allow the parent a clean break from its subsidiary. There is still the possibility of (some) life in the afterlife of a “dead” company, but that life is not only short in duration, it is carefully guarded.
36. Following the case of Coral Edge Development, the playing field in the private residential housing development space has been altered in favour of the developers: it has made it more difficult for MCSTs – who are often the main contingent creditors of private residential housing developers – to look to developers who are special purpose vehicles those subject to prompt winding ups, for liability.
37. For now, the lesson for contingent creditors is this: be alert as to the legal status of your contingent debtors. If your contingent debtor has commenced a members’ voluntary winding up, you should immediately give notice of your claim to the company in liquidation and the liquidator so the liquidator can consider your claim as part of the winding up. Alternatively, you can apply to Court to defer the dissolution until your claim had been fully sorted out. Any delay or failure to do so will be at the contingent creditor’s peril.
38. We should caveat that despite the guidance in the current case law, there are still important legal questions that relate to contingent creditors’ claims against dissolved companies that remain unanswered. For instance, does the limitation period prescribed under the Limitation Act 1980 count in favour of the dissolved company during the period of the dissolution? If so, can the Court make a consequential order under section 208 of the IRDA when it is restoring a company to negate that period?
39. To fully resolve these questions, further jurisprudence will have to develop locally, and we await with bated breath what is to come in this exciting area of law.
40. Finally, and for completeness, we should add that aside from the liability that may arise from restoring the dissolved company, other legal remedies may be available to the contingent creditors: for example, if the separate legal personality between the parent and the subsidiary company is not strictly respected, there is the possibility of the contingent creditor piercing the corporate veil to impute liability directly on the parent. This can be done regardless of whether the dissolved company is restored.
41. Hence, for a parent company to truly have a clean break from its subsidiary company, the parent company must ensure that it has good corporate governance and respect for the corporate rule of law.

[The author has successfully acted for a parent company in intervening in – and to resist – an application by an alleged creditor to restore the subsidiary company. That case was ultimately resolved privately and is thus not reported.]