Case Update: Bombay Talkies (S) Pte Ltd v United Overseas Bank Limited [2015] SGCA 66 – compounding debt, statutory demands, winding-up

Bombay Talkies (S) Pte Ltd v United Overseas Bank Limited [2015] SGCA 66

Significance: meaning of compounding debt in respect of statutory demands under the companies winding-up regime.

As a starting point, the court accepted that where a debt has in fact been compounded to the reasonable satisfaction of the creditor, a winding up petition cannot be presented in reliance on the statutory demand that was based on the debt which has since been compounded: [7].

To compound a debt connotes the acceptance of an alternative obligation in lieu or in satisfaction of the debt in question. To put it another way, a debt is compounded when it is discharged or rendered unenforceable pursuant to an agreement between the debtor and the creditor. In such circumstances, it will frequently be the case that a new obligation is created and this will be the consideration for the discharge of the original debt; but that is a separate matter which will have to be separately pursued by the creditor in the event of a breach: [8].

If the debt which is purportedly the subject of a composition remains valid and enforceable and an action can continue to be brought upon it, there will in fact have been no composition: [9].

Where an arrangement as to repayment terms were agreed between parties without prejudice to any of the creditor’s rights, this makes it explicit that although the creditor was prepared to withhold winding up or bankruptcy or execution proceedings for the time being, subject to certain terms, this was on terms that its rights in respect of the original obligation owed by the appellant were not to be disturbed. The original obligation had not been discharged, and absent such a discharge, it is wrong to speak of it as having been compounded. The creditor was not compounding the debt but was granting the debtor an indulgence and this was on express terms that its rights would not be compromised: [13]-[14].

Creditors are encouraged to include the necessary protective language in their agreements to afford debtors the opportunity to pay by instalments so that deserving debtors may avoid having to be wound up: [16].

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