When a company enters liquidation, the appointed liquidator steps into a pivotal role – one that requires navigating complex challenges to recover assets and maximize returns for creditors. This task entails conducting detailed investigations and pursuing legal actions, processes that demand a careful balance of inquiry, judgment, and responsibility.
The Singapore High Court has recently provided helpful guidance to liquidators in charting out their duties and responsibilities conducting investigations and legal actions for asset recovery. It is important for liquidators to take notice of these guidelines when seeking the assistance of the Court to recover assets from directors and debtors.
This article delves into the key takeaways from the Court’s decision in SW Trustees Pte Ltd (in compulsory liquidation) v Teodros Ashenafi Tesemma [2024] SGHC 322, shedding light on best practices for liquidators and their advisors.
The Court first recognised the challenges of the liquidator’s role and appointment. He or she assumes management of an insolvent entity as a stranger and must quickly understand the business, the reasons for its failure, and determine how to maximise returns for the entity’s creditors. Significant powers of inquiry and investigation are therefore conferred on the liquidator, along with the ability to pursue asset recovery via legal proceedings. Such powers naturally entail a commensurate level of responsibility.
The following key guiding principles were then laid down for insolvency practitioners and their advisors:
(a) A liquidator must exercise their significant powers of inquiry and investigation responsibly and reasonably – he or she is duty bound to act in the best interests of the creditors and, in the case of a court-appointed liquidator, is an officer of the court with consequential obligations. (at [1])
(b) A liquidator, especially a court-appointed one, is expected to act diligently and reasonably to assess the steps to be taken to maximise returns to the company’s creditors and to review aspects of the company’s management that may have had a bearing on the company’s demise. (at [273])
(c) However, a liquidator has no mandate to commence litigation which has no real prospect of succeeding. (at [273])
(d) Where a liquidator has commenced litigation, the liquidator is under an obligation to pursue the claim without delay and to obtain and bring all relevant evidence in his possession or power to the attention of the Court, even if it was not favourable to his or her case. The claims also ought to be pleaded with clarity. (at [273] and [281])
(e) It is incumbent on the liquidator to find out key pieces of information and make any necessary enquiries in relation to the claims brought against other parties. This is especially so given that a liquidator is conferred significant powers of inquiry and investigation. (at [1] and [277])
(f) A liquidator must act in the best interest of the creditors, including for instance, to ensure that no viable claims are omitted when commencing litigation. (at [279])
Our restructuring and insolvency lawyers regularly advise liquidators in investigations and the commencement and conduct of legal proceedings. Please feel free to contact Special Counsel Lam Zhen Yu if you require assistance on such matters.
For further information, please contact:
Zhen Yu Lam, Withersworldwide
zhenyu.lam@withersworldwide.com
