Court Decides Conversion Date For
Foreign Currency Debts In
Creditors' Voluntary Liquidation
Introduction
The Singapore High Court in Re Lehman Brothers Finance Asia Pte Ltd (in creditors’ voluntary liquidation) [2012] SGHC 190 was confronted with the issue of whether debts of a company in a currency other than Singapore Dollars which are admitted in proof by its liquidators should be converted at the exchange rate prevailing on the date on which the company’s statutory declaration was lodged, or on the date of the passing of the resolution placing the company in liquidation. The issue in this case turned on determining the equivalent “date of bankruptcy order” provided for in the relevant provision of the Singapore Bankruptcy Act (the law that governs bankruptcy of individuals) in the context of company liquidation. Currently, Singapore legislation does not contain any express provision on what the equivalent of the "date of bankruptcy order" in a creditor’s voluntary liquidation is. There has also been no decided case on this issue.
Justice Quentin Loh ruled that, in a creditors' voluntary liquidation, the date of conversion of foreign currency debts into the local currency should be the date when the resolution placing the company in liquidation is passed. This is to ensure equality of treatment between all creditors, regardless of whether their claims are in local or foreign currency, by fixing liabilities on the same day.
This is a landmark decision for insolvency practitioners and stakeholders which clarifies the law on the relevant date for foreign exchange conversion of debts in creditors' voluntary liquidation.
The Applicant in this case was represented by Patrick Ang and Chua Beng Chye from the Firm’s Business Finance & Insolvency Practice.
Brief Facts
1. On 23 September 2008, the Board of Directors of the applicant company (“Company”) decided to place the Company in Creditors’ Voluntary Liquidation (“CVL”) and to appoint provisional liquidators. That day, the Board also lodged a statutory declaration with the Accounting and Corporate Regulatory Authority (“ACRA”) and the Official Receiver, stating that the Company could no longer continue its business by reason of its liabilities and that meetings of the Company and its creditors had been called.
2. On 17 October 2008, a resolution was passed to place the Company in liquidation. The provisional liquidators were made the Liquidators of the Company (“Liquidators”).
3. The Liquidators received claims denominated in foreign currencies from unsecured creditors. They applied to the Court for the purpose of determining the relevant date of conversion of these foreign currency claims into Singapore Dollars.
Issue
The Court had to determine whether the debts of the Company in foreign currency which had been admitted in proof by the Liquidators were to be converted at the exchange rate prevailing:
-(i) on the date when the statutory declaration was lodged with ACRA and the Official Receiver, being the date of commencement of the CVL of the Company (i.e. 23 September 2008) (“Commencement Date”); or
(ii) on the date of the passing of the resolution placing the Company in liquidation (i.e. 17 October 2008) (“Resolution Date”).
Ruling of the Court
Quentin Loh J ruled that the foreign currency debts in question were to be converted into the local currency at the exchange rate prevailing as at the Resolution Date.
Relevant Bankruptcy Rules Apply to Insolvent Companies
The Companies Act (“CA”) provides that the rights of creditors relating to debts provable in the liquidation of an insolvent company follow the rules pertaining to the bankruptcy of individuals, i.e. the Bankruptcy Act (“BA”) and the Bankruptcy Rules (“BR”).
Rule 181 of the BR provides that the amount of debt incurred or payable in foreign currency shall be converted into Singapore dollars “at the rate prevailing on the date of the bankruptcy order”. However, the term “the date of the bankruptcy order”, which relates to bankruptcy of individuals, does not have an equivalent in the context of insolvent companies.
Two Possible Interpretations of “the date of the bankruptcy order”
Commencement Date
One possible interpretation of “the date of the bankruptcy order” is that it refers to the Commencement Date of a CVL. Section 75 of the BA provides that the date of the bankruptcy order is also the date on which the bankruptcy commences. Hence, one way of determining the equivalent
of “the date of the bankruptcy order” for CVLs is to determine what would be the date on which the CVL commences. According to Section 291(6) of the CA, the CVL commences on the date on which the prescribed statutory declaration is lodged.
Resolution Date
Another approach is to consider the substantive effect which a bankruptcy order has on the legal status of an individual, and look for the analogous situation in a CVL. Using this reasoning, the equivalent of “the date of the bankruptcy order” for CVLs would be the Resolution Date.
Resolution Date: Correct Basis for Foreign Currency Conversion
The correct basis for foreign currency conversion is the Resolution Date. As the legal status of an individual changes to become a bankrupt at the time when the bankruptcy order is made, so the legal status of a company only conclusively changes to being under liquidation at the time a resolution is passed to place the company into CVL. The Resolution Date is therefore the equivalent of the “date of the bankruptcy order” in the context of insolvent companies.
An examination of the language used in the BR and the Companies (Winding Up) Rules (“CWR”) makes it clear that the phrases ”bankruptcy order” and “winding up order or resolution” are used in the same context to refer to the same thing.
Relevant parallel provisions of the BR and the CWR on periodic payments and proof of debts payable at a future time point to the same event of reckoning in both bankruptcy and liquidation: the date on which the debt becomes payable or due.
Provisions on claim for interest under the BR and CWR also stipulate that the time at which an interest is payable in the context of bankruptcy or winding up is calculated from the date of the bankruptcy order or the date of the winding up order (for Court-ordered liquidations) or the date of the resolution, as the case may be. If interest only starts accruing at the point of the bankruptcy order or the date of the winding up order or resolution, it means that the debt only becomes due at the Resolution Date and not before.
Cases Considered
In coming to its decision, the Court considered certain English and Commonwealth cases which discussed the date of conversion of foreign currency debts.
The English case of In re Dynamics Corporation of America [1976] 2 All ER 669 (“Re Dynamics”) held that the date of a winding up order is the date at which the conversion of payment expressed in foreign currency into the local currency must be made. This was so that the claims of creditors could be crystallised at the same date. Although Re Dynamics concerned compulsory winding up of a company, the case was approved by the English Court of Appeal in In re Lines Bros Ltd (in Liquidation)
[1983] Ch 1 (“Re Lines Bros”) which concerned a CVL. Brightman J remarked in Re Lines Bros that no distinction should be made between a voluntary liquidation and a compulsory liquidation, because there remains in either case the need to value foreign debt uniformly at a specific date. There is also a concurrent need to keep the conversion rate constant throughout the liquidation until all debts have been paid in full.
Re Dynamics has been applied in Australia in Re Gresham Corporation Pty Ltd (in liq) [1990] 1 Qd R 306, where Dowsett J noted that the considerations in the UK case relating to the date of conversion of foreign currency are likewise persuasive in Australia.
It had been suggested that the decision of the Court of Appeal of Sarawak, North Borneo and Brunei in Attorney General v Creditors of Tenganipah Estate [1956] SCR 90 (“Tenganipah”) is binding in Singapore. Essentially, Tenganipah established a different date for the valuation of foreign debts as compared to debts in local currency. The Court in the present case noted that this will create confusion and introduce inconsistency between local and foreign creditors when calculating provable debts. The Court was of the view that the decision in Tenganipah was inapplicable to the present case and that it was also distinguishable on its facts.
Concluding Words
This case clarifies Singapore position with respect to the date of conversion of foreign currency debts in CVLs. This is a welcome development in the industry as there will now be certainty as to the reckoning date of foreign currency conversion of company debts that are admitted in proof by its liquidators.
Equally important is the equal treatment given to all creditors whose claims are denominated in currencies other than Singapore Dollars.
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Patrick Ang
Partner
D (65) 6232 0400 F (65) 6428 2020
patrick.ang@rajahtann.com
Chua Beng Chye
Partner
D (65) 6232 0419 F (65) 6428 2005
