Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd (formerly known as Tong Teik Pte Ltd) [2021] SGCA 60
Supreme Court Case Summary | Judgment
Significance:
A. Directors’ conduct of appeal against company winding up
A company may appeal against a winding up order. Its directors may control the conduct of the appeal. However, the directors and/or shareholders may not use the company’s funds to pursue an unmeritorious appeal when these funds should be reserved for payment to the creditors. 2 general rules:
(1) directors and/or shareholders controlling the conduct of the appeal should pay costs incurred by the company in prosecuting the appeal out of their own pockets instead of using company funds. If the appeal succeeds, the directors and/or shareholders can reclaim from the company the funds that they had expended from their own pockets in prosecuting the appeal.
(2) the directors and/or shareholders controlling the conduct of the appeal should be personally responsible for the payment of any party and party costs awarded in favour of the respondent if the appeal fails.
B. Cash Flow Test for Insolvency
Previously, courts have applied both the cash flow test and the balance sheet test to assess if a company is insolvent.
The Court of Appeal held that the cash flow test is the only test under s 254(2)(c) of the Companies Act (now s 125(2)(c) of the Insolvency Restructuring and Dissolution Act) to determine whether a company is unable to pay its debts: at [65].
It assesses whether the company’s current assets exceed its current liabilities such that it is able to meet all debts as and when they fall due.
“Current assets” and “current liabilities” refer to assets which will be realisable and debts which will fall due within a 12-month timeframe.
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