Independence of Liquidator: Do Not Be a Lapdog Held Thrall to Improper Considerations

It is well established that a liquidator must not only act independently but that he must be seen to do so. In the Singapore Court of Appeal case of Fustar Chemicals Ltd (Hong Kong) v Liquidator of Fustar Chemicals Pte Ltd [2009] SGCA 35, the Court of Appeal reiterated that:

“All liquidators have to uncompromisingly observe their obligations to maintain independence and act fairly regardless of the manner of their appointment and the identity of their appointer. For instance, in a voluntary liquidation, the liquidator must act independently, and not be open to influence from appointing directors…”

The facts of Fustar Chemical related to the liquidator rejecting a proof of debt, the Court of Appeal spoke generally of the duty of a liquidator to hold an even hand. Therefore, the Court found that the liquidator had failed to act independently and fairly.

The English High Court case of Re Lowerstoft Traffic Services Ltd [1986] BCLC 81. Although, the case involved a creditor’s voluntary winding up rather than a member’s voluntary winding up, the facts therein are similar to the current facts. In Re Lowerstoft, the company had been put into creditor’s voluntary liquidation and a liquidator appointed by means of proxy votes although the appointment was opposed to by the other creditors present at the meeting. The other creditors thereafter presented a petition in court to wind-up the company. Hoffmann J allowed the order for compulsory winding-up, even where there was no evidence that the liquidator had failed in its duties, as:

“There was no general rule that an order would only be made where there was doubt as to the voluntary liqudiator’s competence or probity. It was in the public interest that creditors should have confidence in the liquidator’s independence and where there was suspicion of wrongdoing the liquidator should not only be independent but be seen to be independent.”

Further, Re Pinstripe Farming Co Ltd [1996] 2 BCLC 295 involved a company in a creditor’s voluntary liquidation and a voluntary liquidator had been appointed. The Court however allowed the appointment of a provisional liquidator pending the hearing of a winding up petition presented in Court as it was of the opinion that inter alia the voluntary liquidator and those entrusted with the liquidation were not sufficiently independent.

In the Singapore High Court decision of Liquidator of W&P Piling Pte Ltd v Chew Yin What [2004] 3 SLR 164, at para 27, VK Rajah JC (as he then was) held:

“the liquidator is expected to assume different roles and to discharge different responsibilities in different insolvency milieu. Where, as is usually the case, a company fails because of business conditions or for reasons which do not hint of any improprietary, to liquidator ought to assume a benign approach in dealing with the failed company’s affairs and processes. His role in such instances is that of a watchdog. Where there is evidence of impropriety,, the liquidator will have to shift gears. He then assumes the role of a hound dog. The court will however have to be astute to ensure that the liquidator does not use the insolvency scheme for improper third party collateral interests or personal considerations; in other words, he must not become a lapdog held thrall to improper considerations”

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