22 January, 2016
In the recent decision of Bombay Talkies (S) Pte Ltd v United Overseas Bank Limited [2015] SGCA 66, the Singapore Court of Appeal ruled that an appropriately worded arrangement to repay a debt in instalments does not necessarily mean that this debt is compounded.
Facts
The plaintiff bank served a statutory demand on the defendant company on 24 February 2014 for the sum of $233,202.33. Subsequently, on 15 May 2014, the parties entered into an agreement to repay the debt in instalments (the “Repayment Agreement”).
The relevant terms of the Repayment Agreement are as follows:
“3. Having regard to the foregoing, for the avoidance of doubt and without prejudice to any of our clients’ rights, our clients [ie, the respondent] are prepared to withhold for the time being winding up and/or bankruptcy proceedings and/or execution proceedings under the Consent Judgment [in Originating Summons No 221 of 2014] subject to the following terms:
…
(f) Your clients shall make monthly repayments of the sum of S$33,000 from March 2014 to August 2014 to our clients, the cheques for the first such payment was received on 14 March 2014, and thereafter, payments shall be received by our clients on the last working day of each month;
(g) Our clients shall be entitled in their sole discretion to apply the monthly payments of S$33,000 received from March 2014 to August 2014 towards the repayment and satisfaction of any of the amounts due and owing by your clients to our clients;
(h) Your clients are to submit by no later than 31 August 2014 a fresh repayment proposal in respect of the balance outstanding amount as at 31 August 2014 (including all accrued and accruing interest, costs and expenses incurred on a full indemnity basis) for our client’s consideration; and
…
In the event of any failure on the part of your clients to comply with any of the terms as set out in paragraph 3 above, our clients shall proceed to enforce their rights against your clients, including but not limited to enforcing their rights under the Consent Judgment and instituting winding up and/or bankruptcy actions against your clients without further reference to you or your clients.”
The defendant defaulted on the payment of the instalments, and the plaintiff applied to wind up the defendant. The defendant contended that the plaintiff was not entitled to wind up the defendant on the basis of the former statutory demand as the debt had been compounded pursuant to the Repayment Agreement.
Judgment
The Court of Appeal held that the debt had not been compounded, and this was because the first paragraph of clause 3 of the Repayment Agreement clarified that the repayment terms were agreed to be “without prejudice” to any of the plaintiff creditor’s rights. This made it known that although the plaintiff creditor was prepared to withhold winding up or bankruptcy or execution proceedings for the time being, subject to certain terms, this was on the terms that its rights in respect to the original obligation owed by the appellant were not to be disturbed.
This conclusion was fortified by clause 4 of the Repayment Agreement in which the parties provided that the plaintiff creditor would be entitled to proceed to enforce its rights against the debtor in the event of any failure on the part of the debtor to comply with any of the terms set out in clause 3 of the Repayment Agreement.
The Court of Appeal therefore found that the plaintiff was granting the defendant an indulgence, and it was not compounding the defendant’s debt.
Practical considerations
The Court of Appeal’s decision in this case allows creditors, with proper wording, to agree with debtors to allow the payments by instalments of any debts owing, while at the same time not giving up any legal rights to wind up or bankrupt debtors should they not agree to adhere to such instalment payments.
For further information, please contact:
Wei Chern Tham, Director, Duane Morris & Selvam
wctham@selvam.com.sg
