In this significant judgment, the Honourable Goh Yihan J proffers observations about the principles on the application of s 438 of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA).
S 438 empowers the Court to make orders in respect of undervalue transactions which are for the purpose of putting assets beyond the reach of creditors or otherwise prejudicing the interests of any creditor.
As background, s 438, IRDA succeeds s 73B of the Conveyancing and Law of Property Act (CLPA). There are to date no reported decisions on the application of s 438, IRDA.
Several key observations are as follows:
– s 438, IRDA is not a replica of s 73B, CLPA. Past cases on s 73B, CLPA are of limited value.
– Instead, the new s 438, IRDA is meant to mirror s 423 of the UK Insolvency Act (UK IA). Authorities on s 423, UK IA, are more instructive, subject to the policy rationale for s 438, IRDA.
– The prerequisite to application of s 438, IRDA is of course undervalue transaction. Existing case law on this remains applicable.
– Under s 423, UK IA, intention to defraud creditors is eschewed for a subjective inquiry of a purpose of intention to putting assets beyond reach of actual/potential creditors. The purpose need not be sole/dominant. This is likely the case for s 438, IRDA.
– Under s 438(4), IRDA, the court has a discretion as to relief. This entails a balancing of interests between transferor’s creditors and transferee. The mental state of the transferee and degree of involvement in the fraudulent scheme of the transferor matters.
– Ordinarily, transferee would have to return to transferor. But if the transferee has changed his position on the basis of the receipt in a way that would make it unfair to him to repay the money, it would not be appropriate for the court to make an order requiring the transferee to pay back a sum equivalent to the amount he received.
From DDP v DDR [2023] SGHC 285 at [24]-[40].