Avoidance of Dispositions

IN THE HIGH COURT OF THE REPUBLIC OF SINGAPORE
[2016] SGHC 264
Originating Summons No 637 of 2016
In the matter of Section 259 of the Companies Act (Cap 50,

2006 Rev Ed)
And
In the matter of Centaurea International Pte Ltd (in liquidation)
Between
Centaurea International Pte Ltd (in liquidation)
… Plaintiff
And
Citus Trading Pte Ltd
… Defendant
JUDGMENT
[Insolvency Law] — [Avoidance of transactions] — [Dispositions

of property after commencement of insolvency proceedings]
Version No 2: 27 Oct 2020 (22:40 hrs)

TABLE OF CONTENTS
INTRODUCTION............................................................................................1
THE FACTS .....................................................................................................2

TRANSACTION HISTORY BETWEEN THE PARTIES ..............................................4
RELEVANT POST-LIQUIDATION EVENTS ...........................................................8
APPLICABLE LEGAL PRINCIPLES..........................................................9

RELEVANT TIME OF THE INQUIRY ..................................................................13
THE EXERCISE OF DISCRETION UNDER SECTION 259..................18

WERE THE PAYMENTS MADE IN GOOD FAITH IN THE ORDINARY COURSE OF
BUSINESS WITHOUT NOTICE? .........................................................................18
THE SIGNIFICANCE OF THE CREDIT LIMIT AND THE CREDIT PERIOD ................20
THE IMPACT OF THE PERSONAL GUARANTEE AND THE VESSEL MORTGAGE ....22
WERE THE PAYMENTS FOR THE BENEFIT OF THE GENERAL BODY OF
CREDITORS? ..................................................................................................24
CONCLUSION...............................................................................................29

This judgment is subject to final editorial corrections approved by the
court and/or redaction pursuant to the publisher’s duty in compliance
with the law, for publication in LawNet and/or the Singapore Law
Reports.
Centaurea International Pte Ltd (in liquidation)

v
Citus Trading Pte Ltd
[2016] SGHC 264
High Court — Originating Summons No 637 of 2016

Steven Chong J
1 November 2016
1 December 2016 Judgment reserved.
Steven Chong J:
Introduction
1 It is not uncommon for a company to continue operating after the

commencement of winding up. This could be due to a variety of reasons including
the company making legitimate efforts to keep itself afloat. It is equally not
uncommon for third parties to continue doing business with such a company
oblivious of the winding up application. However, such business transactions may
well give rise to unanticipated legal implications and complications.
2 The case before me concerns a series of transactions between the parties

and the corresponding payments made by the plaintiff in the period between the
commencement of the winding up and the eventual winding up order. The
liquidators of the plaintiff seek to recover the payments which were made after the

Centaurea International Pte Ltd v Citus Trading Pte Ltd [2016] SGHC 264
commencement of the winding up while the defendant seeks to validate those

payments.
3 After the commencement of the winding up, s 259 of the Companies Act
(Cap 50, 2006 Rev Ed) (“s 259”) provides that any disposition of the property of
the company shall be void “unless the Court otherwise orders”. While there are
local cases dealing with the transfer of shares after the commencement of winding
up under s 259, I was informed by the parties that the issue of validating payments
under s 259 has not been the subject matter of any reported decision of our courts.
Both parties referred me to decisions in other jurisdictions which have considered
provisions similar to s 259. In general, there appears to some consensus that in
order to validate the payments, the court must be satisfied that such payments
would be, inter alia, for the benefit of the company and consequently the general
body of creditors. This judgment will examine the circumstances under which this
criterion would be satisfied. It will also analyse the time at which this criterion is
to be assessed – should it be assessed as at the time the payment was made or as at
the time the payment is sought to be validated with the benefit of hindsight?
Finally, should a distinction be made between prospective validation and
retrospective validation? This case concerns the latter.
The facts
4 The essential facts are largely not in dispute. The plaintiff was wound up
on 23 August 2013. Pursuant to the winding up order, Mr Chee Yoh Chuang and
Mr Abuthahir Abdul Gafoor of Stone Forest Corporate Advisory Pte Ltd (“the
liquidators”) were appointed as the joint and several liquidators for the plaintiff.1
1 1st Affidavit of Chee Yoh Chuang, dated 8 June 2016, at para 7

5 Prior to its winding up, the plaintiff was engaged in the business of
supplying bunkers to vessels. The defendant is an international trader dealing in
commodities including crude oil, petroleum distillates and petrochemicals.2 The
plaintiff would purchase the bunkers from oil traders including the defendant in
order to supply them to vessels.
6 The parties started their business dealings in May 2013. The sale of the
bunkers by the defendant to the plaintiff was on credit terms, the details of which
will be examined below. At the outset of the business relations, two forms of
security were provided to the defendant to secure the plaintiff’s liabilities: (a) a
personal guarantee dated 22 May 2013 by the plaintiff’s director, Lim Tiong Ling
(“Lim”); and (b) a mortgage dated 27 May 2013 over MT Sirima 1, a vessel
owned by the plaintiff’s affiliate company, Centaurea International Ltd
(“Centaurea Ltd”).3 It is important to bear in mind that these two securities were
provided by third parties and not by the plaintiff itself. At all times, the parties
dealt with each other through an intermediary, G Ocean Trading Pte Ltd (“the
broker”). It was the broker who introduced the plaintiff to the defendant.4
7 On 1 July 2013, another creditor, Navig8 Pool Inc (“Navig8”),

commenced winding up proceedings against the plaintiff.5 This was advertised in
the Gazette, The Straits Times and the Lianhe Zaobao on 3 July 2013.6
8 After the commencement of the winding up, the plaintiff made five
payments totalling US$1,526,803.53 to the defendant between 5 to 31 July 2013
2 1st Affidavit of Nadar Ajlani, dated 11 August 2016, at para 7

3 2nd Affidavit of Nadar Ajlani, dated 3 October 2016, at paras 7–8
4 1st Affidavit of Nadar Ajlani at para 8
5 1st Affidavit of Chee Yoh Chuang at p 9

in settlement of various pre-liquidation invoices. The liquidators requested the

defendant to return the payments in November 2013.7 This was denied by the
defendant and the liquidators eventually filed Originating Summons 637 of 2016
(“the application”) seeking a declaration that these payments are void under s 259
which provides as follows:
Avoidance of dispositions of property, etc.

259. Any disposition of the property of the company, including
things in action, and any transfer of shares or alteration in the
status of the members of the company made after the
commencement of the winding up by the Court shall unless the
Court otherwise orders be void.
The liquidators have disclosed the fact that this application is funded by Navig8.8
9 As the impugned payments were made after the commencement of the

winding up, the liquidators submit that they are prima facie void. As it is common
ground that the winding up commenced on 1 July 2013, the defendant does not
dispute that the payments are caught by s 259 and hence prima facie void but
relies on the court’s discretion under s 259 to validate the payments.
Transaction history between the parties
10 A review of the transactions between the parties is essential to a proper

understanding of their respective competing positions. Their entire transaction
history spanned a very short period between May and August 2013. All the
relevant transactions were for the sale of bunkers by the defendant to the plaintiff.
11 The defendant’s position is that the sale of bunkers to the plaintiff was
subject to a credit limit of US$1.2m and a typical credit period of 30 days.

8 1st Affidavit of Chee Yoh Chuang at para 4

12 The first trade between the parties took place on or about 21 May 2013.9
By 24 June 2013, the parties had entered into four transactions as evidenced by
the following invoices:10
(a) CIT 230057 dated 21 May 2013 for the sum of US$309,560, due
for payment on 20 June 2013.
(b) CIT 230058 dated 30 May 2013 for the sum of US$206,482.56,
due for payment on 29 June 2013.
(c) CIT 230059 dated 30 May 2013 for the sum of US$722,688.96,
due for payment on 29 June 2013.
(d) CIT 230068 dated 24 June 2013 for the sum of US$309,563, due
for payment on 24 July 2013.
13 It appears from the evidence that the May invoices were not paid on their
respective due dates. However there is no dispute that as of 1 July 2013, the May
invoices had been paid by the plaintiff though the precise dates were not stated in
the affidavits.11
14 The next transaction was evidenced by invoice number CIT 230071 dated
26 June 2013 for the sum of US$597,800.12 Notably, the credit period for this
invoice was reduced from the usual 30 days to five days. The defendant explained
that the credit period was reduced because payments due under invoice numbers
CIT 230058, 230059 and 230068 had remained outstanding as at 26 June 2013.13

10 1st Affidavit of Nadar Ajlani at pp 55–58
12 1st Affidavit of Nadar Ajlani at p 59

It can therefore be inferred that these three invoices were eventually paid
sometime after 26 June but prior to 1 July 2013. Nothing turns on the exact dates
for these payments.
15 Thereafter, the parties entered into a further transaction in June 2013 –

CIT 230074 dated 27 June 2013 for the sum of US$928,689.14 The credit period
for this invoice was restored to the usual 30 days.
16 The subject matter of this application concerns five payments by the

plaintiff to the defendant in settlement of the two June invoices:
(a) Cheque payment of US$200,000 on 5 July 2013.
(b) Cheque payment of US$300,000 on 11 July 2013.
(c) Cheque payment of US$97,800 on 11 July 2013.
Sub-total – US$597,800 in payment of CIT 230071
(d) Cash payment of US$479,003.53 on 30 July 2013.
(e) Cheque payment of US$450,000 on 31 July 2013.
Sub-total – US$929,003.53 in payment of CIT 230074
17 Following receipt of the first three payments totalling US$597,800 in

payment of CIT 230071 by 11 July 2013, the defendant entered into two further
transactions with the plaintiff on the usual credit terms – as evidenced by invoices
CIT 230092 dated 23 July 2013 for the sum of US$309,946 and CIT 230096
dated 30 July 2013 for the sum of US$412,650.15 The final transaction, CIT

15 1st Affidavit of Nadar Ajlani at pp 81–82

230100 dated 6 August 2013 for the sum of US$32,709.39,16 was entered into
after receiving the balance two payments totalling US$929,003.63 for CIT
230074. The plaintiff had not directly made any payment for the last three
transactions totalling US$755,305.39 at the time when it was wound up.
18 During the hearing, it occurred to me when the payments were matched

against the respective invoices, one invoice, ie, CIT 230068 dated 24 June 2013
for the sum of US$309,563, was not accounted for. There was no mention of the
status of this invoice in the affidavits. In response to the court’s query, counsel for
the defendant, Mr Jude Benny, informed the court that this invoice had been paid
by Lim directly in cash. For that reason, the defendant did not pursue this invoice
against Lim in the bankruptcy proceedings. Neither does it feature in the proof of
debt against the plaintiff. Similarly, the liquidators have not challenged this
payment because there is no record in the plaintiff’s books that this payment was
made with the plaintiff’s funds. Nonetheless, for good order, I directed the
defendant to file an affidavit to explain the circumstances for this cash payment. A
director of the defendant, Mr Nadar Ajlani, duly filed the affidavit as directed on
2 November 2016 to explain that this cash payment was made by Lim on
24 July 2013.17 The liquidators have not taken issue with this disclosure by the
defendant which arose directly from the court’s question.
Relevant post-liquidation events
19 On 26 August 2013, the defendant learned from the broker that Lim had
“absconded”.18 A search conducted by the broker with Accounting and Corporate

17 3rd Affidavit of Nadar Ajlani, dated 2 November 2016, at para 4

Regulatory Authority on 27 August 2013 revealed that the liquidators had been
appointed to wind up the plaintiff.19
20 On 30 August 2013, the defendant issued a statutory notice against Lim

under the personal guarantee in respect of the liabilities due and owing by the
plaintiff.20 Lim did not respond to the statutory notice and the defendant thereafter
commenced bankruptcy proceedings against Lim on or about 17 October 2013.
Lim was adjudged a bankrupt on 21 November 2013.21 The defendant has filed a
proof of debt against the plaintiff for the sum of US$755,305.39 being the total
amount outstanding under the last three invoices – numbers CIT 230092, 230096
and 230100.
21 The defendant then exercised its rights under the mortgage to take
possession of the Sirima 1. By 29 August 2013, the defendant, acting under the
mortgage, transferred the ownership of the Sirima 1 to itself.22 The vessel was
subsequently sold by the defendant for about US$350,000. Mr Benny informed
the court during the hearing that the sale of the Sirima 1 took place after the filing
of the proof of debt and that the defendant would file an amended proof of debt to
reflect the amount recovered from the sale of the vessel.
22 The plaintiff is relying on the personal guarantee and the vessel mortgage
to demonstrate that the defendant continued to supply the bunkers to the plaintiff
under the last three unpaid invoices on the strength of the two securities and not

20 2nd Affidavit of Chee Yoh Chuang, dated 8 September 2016, at p 31
22 3rd Affidavit of Chee Yoh Chuang, dated 20 October 2016, at para 19

on account of the five impugned payments made by the plaintiff. The significance
of this point will become clear when the law is examined below.
Applicable legal principles
23 As I observed earlier, there is no local reported decision dealing with the

validation of payments made by a company under s 259 after the commencement
of the winding up. In this regard, it is relevant to note that s 259 is in pari materia
with s 127 of the UK Insolvency Act 1986 (c 45) (“the UK Insolvency Act”) and
substantially similar to the various equivalent legislations in Australia. It is
therefore instructive to examine English and Australian authorities on this issue.
24 The underlying rationale of s 259 is to prevent the dissipation of the assets

of the company so as to “procure so far as practicable the rateable payments of the
unsecured creditors’ claims” (per Buckley LJ in In re Gray’s Inn Construction Co
Ltd [1980] 1 WLR 711 (“Gray’s Inn Construction”) at 718). Hence,
… the court should not validate any transaction or series of

transactions which might result in one or more pre-liquidation
creditors being paid in full at the expense of other creditors, who
will only receive a dividend, in the absence of special
circumstances making such a course desirable in the interest of the
unsecured creditors as a body.
[emphasis added]
25 Consistently with the underlying rationale, it has also been said that s 259
is intended to ensure that there are no preferential payments to pre-liquidation
creditors which would infringe the pari passu rule.
26 A third party who, despite having knowledge that the winding up petition
has been filed, is asked to enter into a transaction with a company after the
commencement of winding up can always decline to do so until he or the
company has obtained a prospective validating order. If he chooses to go ahead

without first obtaining the validating order, then he obviously takes the risk of the
court subsequently refusing to make the order. However, it is not always feasible
to obtain such an order in advance because the third party may be unaware of the
winding up application. Here we are concerned with such a situation; hence, the
necessity for the retrospective validation order.
27 Mr Benny submits that payments made (a) in good faith; (b) in the
ordinary course of business; and (c) without notice of the winding up application
“would usually be validated by the court unless there are grounds for thinking that
the transaction may involve an attempt to prefer the disponee”, as Buckley LJ held
in Gray’s Inn Construction at 718.
28 I do not think Buckley LJ meant, in Gray’s Inn Construction, to lay down

any general rule or presumption. In fact, this was very recently clarified in
Express Electrical Distributors Ltd v Beavis and ors [2016] EWCA Civ 765
(“Beavis”) where Sales LJ described it at [36] as a “bald proposition”. He went on
to observe:
Validation on that basis could well prejudice the interest of the

body of unsecured creditors, unless the making of such a
validation order depends upon a more searching inquiry whether
it is in the circumstances in the overall interest that the
transaction in question should be validated.
29 Further on in the judgment, Sales LJ opined “that the time has come to
recognise that the statement by Buckley LJ … cannot be taken at face value and as
a rule in itself” (at [56]).
30 In my view, showing that the impugned payments to pre-liquidation

creditors were made in good faith in the ordinary course of business without
notice of the winding up petition would not be sufficient to validate the payments.
The statement that such transactions would “usually” be validated is only a
10

descriptive statement and does not explain why the court would permit a departure
from the pari passu rule in making a validation order. The departure is permitted
when there is a benefit to the company and hence its creditors.
31 That is not to say that these requirements are not relevant considerations.
Obviously, if the payments were not made bona fide in the ordinary course of
business, the “searching inquiry” as to validation of the payments would, in many
cases, stop there without further examination simply because such payments
would ex hypothesi not be for legitimate purposes, and may have been attempts to
prefer the disponee.
32 But, to borrow the words of Fox LJ in Denny v John Hudson & Co Ltd
[1992] BCLC 901 (“John Hudson”) at 905, “while good faith is, in my view,
established, I do not think that good faith is enough by itself to justify validation”.
In support of this view, Fox LJ relied on the following passage from Re J Leslie
Engineers Co Ltd [1976] 2 All ER 85 (“Leslie”) at 95:
Whilst obviously the absence of any actual knowledge in the

recipient of a payment that a petition is in being is a factor – indeed
a very powerful factor – to be considered in relation to the exercise
of discretion, I do not think that, by itself, it can be conclusive and,
indeed, counsel for the respondents does not so contend. I think
that in exercising discretion the court must keep in view the
evident purpose of the section which, as Chitty J said in Re Civil
Service and General Store Ltd (1887) LJ Ch 119, is to ensure that
the creditors are paid pari passu. Obviously there are
circumstances where this cannot in fairness be the sole criterion
in cases where, for instance, the creditor concerned has since the
presentation of the petition helped to keep the company afloat, or
has otherwise swollen the company’s assets, salvage cases and
that sort of thing.
[emphasis added]
33 Further, if the third party decides to enter into transactions with the
company despite actual knowledge of the commencement of winding up, the third
party would be deemed to have taken the risk that the court may not issue the
11

validating order ex post facto and that it might eventually only receive a dividend
upon liquidation of the company. In such a case, it would be prudent for the third
party to first seek prospective validation prior to entering into the transaction. But
the fact that the third party is aware of the winding up petition is not necessarily
fatal. As mentioned in Jardio Holdings Pty Ltd v Dorcon Construction Pty Ltd
(1984) 2 ACLC 574 (“Jardio Holdings”) at 581, “knowledge of the company’s
financial embarrassment, or even its insolvency, is not necessarily fatal” to an
application for validation. Also, as elaborated in [43] below, Gray’s Inn
Construction itself dealt with a situation where the third party bank permitted the
company to continue using its current account for its trades notwithstanding the
bank’s actual notice of the winding up petition.
34 In short, while the fact that the payments were bona fide in the ordinary
course of business without notice are strong factors in favour of validation, the
crucial requirement remains whether there are “special circumstances making
such a course desirable in the interest of the unsecured creditors as a body”. That
is the main dispute which divides the parties in this case as to whether the five
impugned payments should be validated.
35 It is at least common ground between the parties that the “special

circumstances” would be satisfied if the defendant was able to prove that the
payments were for the benefit of the general pool of unsecured creditors. This is
the pivotal issue which will be examined below with reference to the parties’
submissions. However, what further divides the parties is the relevant time to
determine whether there was “benefit” to the general body of unsecured creditors
– is it the time of the payment or the time when the payment is sought to be
validated?
12

Relevant time of the inquiry
36 The case before me concerns retrospective validation, ie, validation after

the disposition in question has occurred. Mr Benny submits that it is sufficient for
the defendant to demonstrate that, looking at the payments at the time they were
made, it was likely that they would benefit the company.23 Counsel for the
plaintiff, Mr Edgar Chin, submits that the defendant must demonstrate with cogent
evidence that, looking at the payments with the benefit of hindsight, they in fact
turned out to be for the benefit of the general body of creditors.24
37 The difference in the two approaches is likely to be material to the

eventual exercise of my discretion under s 259 because the plaintiff submits that,
looking at the evidence with the benefit of hindsight, the plaintiff and
consequently the unsecured creditors did not actually benefit from the supplies of
bunkers delivered by the defendant following the payments by the plaintiff which
are now impugned.
38 I agree with Mr Benny’s submission as to the proper time for the inquiry.
It is both grounded on relevant case law and preferable as a matter of principle.
39 The preponderance of authorities supports the defendant’s position. The

following dicta by the Federal Court of Australia in Jardio Holdings at 581, in the
context of s 227 of the Companies Act (NT) (which is substantially similar to s
259), is particularly instructive:
Logically, the merits of the application should be tested as at the

date of entry into the transaction sought to be validated.
Subsequent events may be capable of throwing light on the
position at an earlier point of time, but that is a different matter.
23 Defendant’s Submissions at paras 33 and 37

24 Plaintiff’s Submissions at para 37
13

If an applicant can make out a case for validation of a transaction

upon the footing that, looked at as at the time of entry into the
transaction, it was in the interests of the general body of creditors
that the disposition of the company’s property concerned should
take place, sanction should not be denied because subsequent
events prove wrong a judgment reasonably formed at the time that
the transaction offered advantages or potential advantages to the
general body of creditors.
[emphasis added]
The court also observed at 579 that a transaction entered into in good faith which
offers actual or prospective advantage to the company or its general body of
creditors would ordinarily be sanctioned by the court.
40 In John Hudson at 906, Fox LJ approached the inquiry by posing the

question whether the relevant transactions were “likely” to be for the benefit of
creditors generally. Staughton LJ observed, similarly, that a judge would be
entitled to find that a transaction “was apt to benefit the creditors, even if it is not
shown that it did in fact do so” [emphasis in original] (at 908).
41 In similar vein, in Tellsa Furniture Pty Ltd v Glendave Nominees Pty Ltd
(1987) 12 ACLR 64 (“Tellsa”) at 66, the Court of Appeal of New South Wales
observed that in exercising the power of validation, the court’s inquiry is whether
the transaction is “apt” to benefit the creditors generally. These cases support the
defendant’s position that the court should assess whether, at the time of the
payment, the impugned transaction was likely to benefit the creditors.
42 Mr Chin relies on Beavis at [56] for the proposition that in respect of

retrospective validation, the court should inquire whether the payment “has been”
for the benefit of the general body of unsecured creditors such that it is
appropriate to disapply the usual pari passu principle. Although the court in
Beavis preferred the hindsight test, Sales LJ had observed at [26], “I do not think
that it matters in this case which of these two approaches is adopted”. I should
14

also mention that the court also found on the facts that: (a) there was no evidence
that the further supplies were made for the benefit of the general body of the
creditors whether as at the time of the payment or with the benefit of hindsight (at
[31]); and (b) that the payment was, in any event, not made in the ordinary course
of business (at [57]). Hence it was neither critical nor necessary for the court to
decide that the appropriate inquiry should be as at the time when the validation is
sought.
43 Mr Chin also relies on Gray’s Inn Construction where Buckley LJ held at

720 that the judge below was bound to deal with the inquiry “in the light of all the
facts then known to him including the fact, according to his finding, that the
company had traded at a loss”. This statement seemingly suggests that the inquiry
should be carried out with the benefit of hindsight. However, the hindsight test
was applied in Gray’s Inn Construction to disallow part of the validating order
made by the judge below because the bank allowed the company to continue using
its current account even after having actual knowledge of the winding up petition.
Buckley LJ held (at 724) that the proper course for the bank to adopt was to have
applied for a prospective validating order at which time the court might have
granted the order subject to certain precautions. The bank made no such
application and instead “took the risk of going on without an order”. In such a
case, it is not unfair to require the third party to prove that the further transactions
in fact benefited the company since, in continuing to transact with the company
despite having notice of the winding up application, the third party has accepted
the risk that the further transactions may not turn out to be beneficial to the
company. The result in Gray’s Inn Construction was that the court only validated
the credits to the company’s bank account before the bank knew of the winding up
petition, but not those credits after it did (at 721).
15

44 I should not be taken as saying that the hindsight test will invariably be
applied once it is shown the third party had knowledge of the winding up petition.
Jardio Holdings seems to suggest otherwise. The third party in that case – a
mortgagee – knew of the company’s “perilous financial condition” when taking a
mortgage from the company (at 581). The court disagreed with the lower court’s
application of the hindsight test. It went on to apply the test of prospective benefit,
asking whether the mortgage “could, at the time, reasonably be perceived as
offering some advantage or at least some potential advantage” to the company (at
582). In the end, it found that there had been no such prospective benefit (at 583).
The present case does not involve a third party with notice of the winding up
petition (or insolvency of the company) and there is hence no need for this court
to take a firm view of whether the hindsight test should apply in the context where
the third party had notice. In any event, neither Beavis nor Gray’s Inn
Construction is clear authority that the court should apply the hindsight test in
such a situation.
45 Furthermore, examining an impugned transaction with the benefit of

hindsight would work unfairness to parties dealing in good faith with “insolvent”
companies without notice. This is for a number of reasons. First, as pointed out by
Staughton LJ in John Hudson at 908:
… it would be a substantial task to prove by detailed evidence

that the creditors’ position was better after those further supplies
were made than it had been before, and that it was profitable for
the company to pay the disputed amounts in order to obtain
them.
Such difficulties of proof are compounded by the fact that the burden of doing so
lies on the defendant seeking to validate the transaction, whereas it is the company
which would be best placed to say whether the transactions were eventually
profitable or for the benefit of the creditors.
16

46 Second, whether or not the payments did in fact benefit the company, and
hence the creditors, may be determined by extraneous circumstances beyond the
control of the parties. Advanced EPI Technology Corporation v Vitelic (Hong
Kong) Ltd and others [2007] HKCFI 896 (“Vitelic”) is a case in point. It dealt
with s 182 of the Companies Ordinance (Cap 32) which is similar to s 259. The
insolvent company’s solicitors sought to validate the payment of fees they
received between the date of the winding up petition and the date of the winding
up order for work they had done before the company was wound up. The work
done was in assisting with the transfer of a lease held by the company to a
transferee who was prepared to pay a fair price for it. The transfer of the lease was
not only likely to produce a substantial surplus for the company but was
prospectively validated by the court after the winding up petition. However, the
transfer did not take place because the lessor withheld its consent. Nonetheless,
Barma J found that the services rendered by the solicitors were, when viewed
objectively, for the benefit of the company and its creditors (at [14]). In my view,
the result Barma J arrived at was correct. He found (at [16]) that the lease not
having been transferred did not detract from his conclusion:
It is true that the transaction ultimately fell through and that it

therefore did not actually produce a benefit for the company or its
creditors at the end of the day. However, it seems to me that to
take this into account would be to view the matter with the
benefit of hindsight.
47 The present case is another illustration of this point. The transactions

concern the sale and purchase of bunkers to the plaintiff for onward sales to end
users. What price the plaintiff would eventually realise from the onward sales
would invariably depend on market conditions. Consider a scenario where two
traders in similar positions to the defendant both sold bunkers to the plaintiff on
the same day and at the same price, but the plaintiff resold them on different days,
generating a profit on one day but incurring a loss on the other. It would not be
17

right, as a matter of principle, that the payment would be validated in the former
case but not in the latter case. Both traders would be identically situated, yet the
outcome would be different on account of matters completely outside the control
of the parties.
48 All things considered, I do not think the suitability of retrospective

validation should depend on such extraneous accidents. The proper and, in my
view, just approach is to focus the inquiry at the time of the payment whether the
disposition is likely to benefit the creditors.
The exercise of discretion under section 259
Were the payments made in good faith in the ordinary course of business
without notice?
49 It is not seriously disputed by the liquidators that the impugned payments

were made and received in good faith in the ordinary course of business. It is clear
from the transaction history that the payments were for arms-length transactions
between the parties.
50 However, the liquidators take issue with the question of notice. Mr Chin
submits that the advertisement of the winding up petition is “notice to all the
world of its presentation” (see Leslie at 304, Rose v AIB Group (UK) plc and anor
[2003] EWHC 1737 (Ch) at [45]) and that the defendant must be taken to have
known of the winding up petition at the time of the payments since the winding up
advertisements had been published before any of the payments were made.25
51 On the strength of this proposition, Mr Chin submits that it is immaterial

whether the defendant in fact knew of the winding up at the time when the
18

payments were made.26 This statement is not incorrect but it serves only to make
the point that the lack of actual knowledge of the winding up proceedings does not
take the payment outside the ambit of s 259. The case law shows, however, that
the absence of actual knowledge is a factor in favour of validation (see [32]
above). This is precisely what the defendant is relying on the lack of actual
knowledge for.
52 I think the evidence is clear that the defendant did not have actual notice of
the winding up each time the payments were made. There is no suggestion by the
liquidators that the defendant in fact had actual notice of the winding up at the
time when the payments were received. The defendant’s lack of actual notice is
also borne out by the objective evidence. From the transaction history, the
defendant made three deliveries to the plaintiff on the usual credit terms in July
and August 2013 after the commencement of the winding up (see [17] above).
Such a course would have been commercially inexplicable had the defendant been
aware of the winding up, and hence aware of the risks that (securities
notwithstanding) it would not be fully paid for those deliveries. There is also no
suggestion by the liquidators that the deliveries were made by the defendant in
spite of actual notice of the winding up proceedings.
53 I now turn to examine the critical issue: were the payments for the benefit
of the company and the general body of creditors? The defendant’s case is that the
trades with the plaintiff “were guided by a credit exposure limit” and that as long
as the trades were cumulatively within the exposure limit, it would continue to
trade with the plaintiff. Once the exposure limit was exceeded, the defendant
would not continue to trade “until some payment was made”. 27 The defendant

19

asserts that without the five impugned payments by the plaintiff, the defendant
would not have supplied the three deliveries in July and August 2013 (“the
additional supplies”). The liquidators dispute the defendant’s case on several
fronts. They deny that the additional supplies were made solely on account of the
impugned payments. In support, they deny that there was any operative credit
limit and that the additional supplies were made in reliance of the personal
guarantee and the mortgage instead. I will address each of these arguments in turn.
The significance of the credit limit and the credit period
54 The question whether the transactions with the plaintiff were subject to a
credit limit has an important bearing on this application. The defendant’s case is
that owing to the credit limit which had been exceeded at the relevant time, the
additional supplies would not have been made to the plaintiff without first
receiving payment for the outstanding invoices. The liquidators dispute that there
was any such credit limit.
55 From the objective and contemporaneous evidence before the court, it is

clear that there was in fact a credit limit of US$1.2m for the plaintiff’s trades.
(a) First, on the face of the vessel mortgage, the mortgage was
provided “as partial collateral for the purpose of a business loan/open
credit”.28 Although the amount of the “business loan/open credit” was not
stipulated in the mortgage, the liquidators accept that the amount intended
to be secured was US$1.2m. This mirrors the credit limit. This is also
supported by an email dated 20 May 2013 which was sent by the broker to
the agent preparing the vessel mortgage that the “[a]mount borrowed is
USD 1.2 Million”.29
28 2nd Affidavit of Goh Seng Wee at p 11
20

(b) Second, in an email dated 28 May 2013, the broker informed the
defendant that the plaintiff “was chasing … for the balance USD 1.2 m -
USD 300k first sales = USD 900k balance sales”.30 As at 28 May 2013, the
plaintiff had entered into one transaction with the defendant – CIT 230057
for approximately US$300,000. It is evident from the email that the
plaintiff was keen to utilise the balance credit of US$900,000.
(c) Third, in a WhatsApp message dated 5 August 2013, the broker

informed Lim that if the plaintiff could address the defendant’s concern of
prompt payment, the defendant would be minded to “possibly get even
more than 1.2 mil for u. U can grow too”.31 In the context of the parties’
business relationship, this message must have been referring to an existing
limit of US$1.2m which could increase with prompt payments.
56 The liquidators deny that there is any evidence to support the alleged
credit limit. Principally, they rely on the fact that as at 23 July 2013, the total
credit exposure was US$1,548,198.32 If the point made is that the defendant has
not consistently observed or adhered to the credit exposure limit, then I agree.
However, occasional departures from a credit limit do not negate its existence.
Such deviations are not unexpected in business dealings. When the credit limit is
permitted to be exceeded, ie, not strictly adhered to, all it indicates is a temporary
increase in the risk appetite of the defendant. This is entirely a business call. The
mere fact that the credit limit was allowed to be exceeded does not undermine the
objective evidence which points to the existence of a credit limit of US$1.2m.

31 1st Affidavit of Goh Seng Wee at p 66
32 2nd Affidavit of Chee Yoh Chuang at para 12
21

The impact of the personal guarantee and the vessel mortgage
57 As mentioned at [6] and [20]–[22] above, the defendant did obtain a

personal guarantee and a vessel mortgage from Lim and Centaurea Ltd
respectively to secure the plaintiff’s liabilities and it has since taken steps to
enforce the two securities.
58 The liquidators brought to my attention the fact that in the bankruptcy

proceedings against Lim, the defendant, through the affidavit of Mr Nadar Ajlani,
had stated that the additional supplies were made “[i]n reliance on the Personal
Guarantee”.33 Furthermore, the liquidators also asserted that the defendant had
omitted to mention that it had taken possession of the Sirima 1 and had obtained
some recovery from the sale of the vessel. The defendant does not dispute either
of these two points.
59 During the hearing before me, I asked Mr Chin what was the precise
significance of these two points to the liquidators’ case. He clarified that their
significance lay in the liquidators’ submission that the additional supplies by the
defendant to the plaintiff in July and August 2013 were made on the strength of
these two securities and not because of the impugned payments by the plaintiff. In
short, the liquidators claim that there was no causal link between the additional
supplies and the impugned payments. As observed at [53] above, this position of
the liquidators is in line with its denial that there was any credit limit of US$1.2m
for the plaintiff’s trades, a point on which I have found against them.
60 I do not think either of these two points assists the liquidators’ case. It
cannot be denied that the personal guarantee was provided by Lim to secure the
plaintiff’s liabilities to the defendant. Obviously, to enforce the personal
33 2nd Affidavit of Chee Yoh Chuang at p 28
22

guarantee, it would be necessary for the defendant to state, as it has done, that the
further supplies were made “in reliance on the Personal Guarantee”. That is
strictly correct. It does not follow that – as appears to be the liquidators’ position –
the defendant would have continued to supply further deliveries of bunkers
without the plaintiff first settling the outstanding invoices. Rather, it appears to me
that the defendant’s willingness to continue the deliveries on credit terms was
predicated on both the payment of the earlier invoices and the fact that the
personal guarantee had been given. This is particularly likely given that the
outstanding amounts had crossed the credit limit. It is also of significance that the
enforcement of the personal guarantee only took place after the defendant learned
that Lim had absconded. This suggests that the defendant viewed the personal
guarantee as a last resort, and is consistent with the defendant having also relied
on the earlier invoices being paid so as to reduce the likelihood that the personal
guarantee would have to be called on.
61 Further, I am unable to accept the liquidators’ argument as regards the

significance of the two securities. In the first place, it is pertinent to note that these
two securities were provided from the outset of the relationship. If the defendant
was always intending to rely solely on these two securities for payment of all
outstanding sums, then there would be no reason for the broker to send frequent
reminders to the plaintiff to pay up on the overdue invoices – text messages were
sent on various occasions on 1, 22, 23, 29 July 2013 and 22 and 26 August 2013
in addition to phone calls being made to Lim.34 Furthermore, it should be recalled
that when the May invoices remained unpaid, the defendant drastically reduced
the credit period from 30 days to five days. These contemporary measures show
that the defendant was always mindful of its credit exposure to the plaintiff and
had always insisted on payments of outstanding invoices before supplying further
34 1st Affidavit of Goh Seng Wee at pp 56, 60, 62, 81, 83
23

deliveries of bunkers. This reflects the commercial realities of the parties’

business dealings especially where the outstanding sums had crossed the credit
limit and exceeded the credit period.
Were the payments for the benefit of the general body of creditors?
62 This is the decisive factor for the exercise of discretion under s 259. The
liquidators have devoted much effort to demonstrating that the additional supplies
by the defendant following the impugned payments did not in fact benefit the
plaintiff or the creditors. For this reason, the liquidators have stated, in their
various affidavits, that there is nothing to suggest that the payments “benefited”
the plaintiff in any way or that the additional supplies “resulted” in projects that
benefited or “materially improved” the plaintiff’s financial position. Proceeding
on this basis, the liquidators attempted to demonstrate that the additional supplies
were probably sold by the plaintiff at a loss. There are several difficulties in this
assertion. First, the liquidators assumed that the additional supplies “must
necessarily be sold by the Plaintiff only or after the physical delivery date” of the
additional supplies [emphasis added].35 In other words, the sub-sales could not
have been sold forward, ie, by way of short selling. The defendant asserts that
short selling is not uncommon in the oil trade.36 However, the possibility of
forward sales was acknowledged by the liquidators in a subsequent affidavit: “it is
possible for the Defendant to have concluded contracts on dates other than the
invoice date”.37 Furthermore, the liquidators claim that they are unable to identify
the plaintiff’s invoices for the sub-sales of the additional supplies. In other words,
the liquidators are not able to state affirmatively what happened to the additional
35 2nd Affidavit of Chee Yoh Chuang at para 23

36 2nd Affidavit of Nadar Ajlani at para 20
37 3rd Affidavit of Chee Yoh Chuang at para 25
24

supplies delivered by the defendant. Therefore the submission that the sub-sales
were sold at a loss is speculative at best. It further illustrates the difficulties of the
liquidators, in spite of their full access to the plaintiff’s records, in making good
the point that the additional supplies did not in fact benefit the plaintiff. How then
would a third party like the defendant, without similar access, be expected to
discharge the burden that the additional supplies actually benefited the plaintiff?
This demonstrates the difficulty of proof alluded to by Staughton LJ in John
Hudson – see [45] above.
63 Nonetheless, this inquiry only assumes relevance if I accept Mr Chin’s

submission that the question of benefit in the context of retrospective validation is
to be examined with the benefit of hindsight. As elaborated at [36] to [48] above,
the relevant time for the inquiry is the time of the payment, contrary to Mr Chin’s
submission. Once the inquiry is settled as at the time of payment, the focus
necessarily shifts to the prospective (anticipated) advantage to the plaintiff and the
general body of creditors. It becomes unnecessary to examine whether the
payments in fact benefited the plaintiff.
64 I have already found at [55] above that there was a credit limit of US$1.2m
for the plaintiff’s trades which had been exceeded at the relevant time and that the
defendant would not have agreed to sell the additional supplies to the plaintiff on
credit terms but for the impugned payments (see [61] above).
65 Against these findings, the crucial question is whether the payments of the
overdue invoices in order to obtain the additional supplies from the defendant
were “likely” or “apt” to benefit the plaintiff and the general body of creditors.
This question must be examined with particular reference to the purpose of the
additional supplies for the plaintiff’s business. The plaintiff is in the business of
supplying bunkers to vessels. Its business is entirely dependent on sourcing for
25

favourable bunker prices from oil traders such as the defendant. The plaintiff’s
primary business model is to earn a margin from the onward sales to vessels. It
stands to reason that in order for the business to continue, the plaintiff must be
able to secure supplies on credit terms from traders like the defendant. The
payments by the plaintiff would have the effect of refreshing the credit limit. The
defendant’s continuing supply is therefore the source of the plaintiff’s business
without which the plaintiff would not be able to stay afloat. It follows that making
payments to pre-liquidation creditors like the defendant in order to stay afloat
must at least carry a potential or prospective benefit to the plaintiff and hence the
general body of creditors.
66 This approach was in fact adopted in John Hudson to validate payments

made in order to obtain further supplies in circumstances similar to the present
case. In that case, the company carried on business as hauliers. The respondent
carried on business as suppliers of fuel oil to customers including the company.
Owing to the company’s less than sterling payment record, the supply was on
terms that the previous deliveries had to be paid for before new deliveries could
be made. After the petition for compulsory winding up of the company had been
presented, the company paid various pre-liquidation invoices in order to obtain
new deliveries of fuel oil. The liquidator challenged the payments under s 127 of
the UK Insolvency Act. In validating the payments, the court held that the
continued supply of fuel oil was of value to the company’s business as hauliers
because “[w]ithout the diesel they could not continue in business” (at 906).
Although the payments were challenged on the premise that there was no
evidence that the supplies had been used profitably, the court went on to observe
(at 907) that while that might have been true “the supplies would enable the
business to be carried on, and to earn revenue”. Equally, the court attached
significance to the fact that the company received quid pro quo from the payments
26

– the ability to order a further supply of fuel oil while deferring payment (at 906).
If the impugned payments had merely been to pay the pre-liquidation invoices and
no more, then such payments would clearly infringe the pari passu principle.
67 In Tellsa, the Court of Appeal of New South Wales, in examining a

provision substantially similar to s 259, held (at 70) that such transactions would
ordinarily be validated
so long as they “related to the need to continue business, and

earn income, or save loss, during the pendency of the petition” …
as distinct from on the other hand payments which even though
made honestly are no more than reductions of a pre-existing debt
without arguable countervailing benefit to the company.
68 In Prospect Electricity v Advanced Glass Technologies of Australia P/L

(1996) 22 ACSR 6, also a decision of the Court of Appeal of New South Wales,
the court validated the payment of pre-liquidation electricity bills in order for the
company to continue receiving electricity supply to stay in business. The court
noted (at 13) that one important consideration was that the payments “contributed
towards the continued existence of the company as a going concern with actual
and possible benefit to relevant parties” [emphasis added]. The court fittingly
added (also at 13) that “the situation of actual and possible benefit could not have
been reached if there had not been payment of the amount outstanding”.
69 It may not always be the case that there is benefit to the company simply
by allowing it to continue trading. It would not, for instance, be in the interests of
the creditors to retrospectively validate a transaction which was “part of a course
of trading by the company at a loss” (see Beavis at [36]). In the same way, a
prospective validation order to allow a company to continue trading has been
refused because there were serious doubts as to the company’s solvency and
because it had not been trading profitably (see Re a Company (No 007523 of
1986) [1987] BCLC 200 at 203 and 205). There is no evidence that the plaintiff,
27

here, was trading at a loss. I would also venture to suggest that the benefit to a
company may in some cases be remote. In Fuji Photo Film Co Ltd v Jazz Photo
(Hong Kong) Ltd [2004] HKCFI 19, for example, the court declined to
prospectively validate expenses for business trips to meet clients and attend
camera and photography exhibitions. The court observed that this was hardly
sufficient to show that the trip would bring benefits to the company (at [26]).
70 Here, the plaintiff did receive quid pro quo from the payments through the
defendant’s additional supplies on credit terms. This is the crucial difference.
Providing the additional supplies as stock on credit terms allowed the plaintiff to
continue in its business. That would not have been possible without the plaintiff
first making the impugned payments. The payments in order to secure the
additional supplies, in my view, were at the material time, “likely” or “apt” to be
for the benefit of the plaintiff and the general body of creditors. It may well be
that with the benefit of hindsight, the additional supplies did not in fact benefit the
plaintiff but that, in my judgment, is the incorrect test in deciding whether the
discretion under s 259 should be exercised to retrospectively validate the
payments in a case where the defendant was unaware of the winding up
application.
Conclusion
71 In the circumstances, the payments to the defendants are hereby validated

and as a consequence, the liquidators’ application is dismissed with costs fixed at
$10,000 inclusive of disbursements.
28

Steven Chong
Judge
Edgar Chin Ren Howe, Jonathan Thio and Samantha Ch’ng (Incisive
Law LLC) for the plaintiff;
Jude Benny and Mary-Anne Chua (Joseph Tan Jude Benny LLP) for the
defendant.
29

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IN THE HIGH COURT OF THE REPUBLIC OF SINGAPORE

[2016] SGHC 264

Originating Summons No 637 of 2016

In the matter of Section 259 of the Companies Act (Cap 50,

In the matter of Centaurea International Pte Ltd (in liquidation)

Centaurea International Pte Ltd (in liquidation)

Citus Trading Pte Ltd

[Insolvency Law] — [Avoidance of transactions] — [Dispositions

Version No 2: 27 Oct 2020 (22:40 hrs)

THE FACTS .....................................................................................................2

APPLICABLE LEGAL PRINCIPLES..........................................................9

THE EXERCISE OF DISCRETION UNDER SECTION 259..................18

Version No 2: 27 Oct 2020 (22:40 hrs)

Centaurea International Pte Ltd (in liquidation)

[2016] SGHC 264

High Court — Originating Summons No 637 of 2016

1 December 2016 Judgment reserved.

1 It is not uncommon for a company to continue operating after the

2 The case before me concerns a series of transactions between the parties

Version No 2: 27 Oct 2020 (22:40 hrs)

commencement of the winding up while the defendant seeks to validate those

1 1st Affidavit of Chee Yoh Chuang, dated 8 June 2016, at para 7

Version No 2: 27 Oct 2020 (22:40 hrs)

7 On 1 July 2013, another creditor, Navig8 Pool Inc (“Navig8”),

2 1st Affidavit of Nadar Ajlani, dated 11 August 2016, at para 7

Version No 2: 27 Oct 2020 (22:40 hrs)

in settlement of various pre-liquidation invoices. The liquidators requested the