Abstract: In Re Kirkham International Pte Ltd (in compulsory liquidation), the Singapore High Court held that liquidators must seek either the Court’s or the Committee of Inspection’s (“COI”) approval before appointing solicitors under s 144(1) of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”). Although failing to obtain such prior approval would not invalidate the liquidators’ exercise of their powers or deny the appointed solicitors of their standing, there is a risk that the legal fees incurred prior to the authorisation might have to be paid by the liquidators personally rather than out of the assets of the Company.
Re Kirkham International Pte Ltd (in compulsory liquidation)  SGHC 19 was an application brought by Mr Medora Xerxes Jamshid (the “Liquidator”), in his capacity as the liquidator of Kirkham International Pte Ltd (in compulsory liquidation) (the “Company”) for the Court’s authorisation to retrospectively appoint solicitors to assist him in his duties.
Following the Liquidator’s appointment, he engaged KPMG Service Pte Ltd (“KPMG”) to conduct forensic investigations into the Company. The Liquidator did not call for a creditors or COI meeting as he believed that he would not be able to adjudicate who the true creditors of the Company would be without the benefit of the KPMG Report. Since there was no COI convened, no authorisation was sought in respect of the appointment of the Liquidators’ solicitors Selvam LLC to (i) advise him in his duties and to respond to letters on his behalf and (ii) to act for the Company in HC/OS 430/2021 (“OS 430”) which was a former employee’s application for leave to commence proceedings against the Company. Nor was any court authorisation sought.
On 20 October 2022, DB International Trust Singapore (Limited) (“DB”) filed an application in HC/OA 707/2022 (“OA 707”) to remove and replace the Liquidator or in the alternative for an order that the Liquidator call a creditors’ meeting to form a COI. Following this application, the Liquidator filed his application to seek the Court’s authorisation to appoint solicitors to advise him in his duties with effect from April 2021.
In deciding the matter, the Court considered three main issues: (i) whether it should authorise the appointment of solicitors sought by the Liquidator; (ii) whether it had the power to backdate such appointment; and (iii) in the event that it did not possess the power, the effect it had on the Liquidator’s failure to obtain the authorisation.
Whether the court should authorise the appointment of solicitors
In considering whether a solicitor should be appointed, the Court provided that the following factors should be considered: (i) the general need to appoint a solicitor; (ii) the impact of legal fees on the assets of the estate; (iii) whether the proposed solicitor is in a position of conflict; and (iv) any objection raised by members of the COI or creditors. These factors will also apply when the decision is made by the COI and the Court noted that this is not a high threshold for a liquidator to cross (at  to ).
On the facts before the Court, the Court held that the Liquidators’ appointment of solicitors should be authorised for the following reasons: (i) there was no objection from any interested parties, (ii) the Liquidator’s failure to obtain prior authorisation was immaterial and should not affect the present interests of the creditors or shareholders for solicitors to be appointed to properly manage the affairs of the Company and (iii) there were good reasons for the appointment of solicitors as the Company faced several legal proceedings (at ).
Whether the court has the power to retrospectively authorise the appointment of solicitors
The Court held that it did not possess the power to backdate the Liquidator’s appointment of solicitors, as under ss 144(1)(e) and 144(1)(f) of the IRDA the Court or COI’s authorisation is mandatory before the liquidator can exercise his power to appoint a solicitor. In this regard, it was observed that this approach in Singapore is an outlier when compared to other jurisdictions such as the United Kingdom, Australia, New Zealand, Canada, Hong Kong and Malaysia who do not require such authorisation to be sought (in the latter two (2) jurisdictions the liquidator can appoint solicitors without such prior authorisation, but this is subject to some oversight) (at ).
The effect of the failure to obtain authorisation
In the event where a liquidator failed to obtain the requisite authorisation, the Court held that this would not render the solicitors’ actions in defending against certain legal proceedings invalid nor deny the solicitors of their standing. Rather, the absence of such authorisation only goes towards the question of whether the liquidator will be entitled to costs out of the company’s assets or whether he should be held personally liable (at ). Here, the Court held that the Liquidator had properly engaged the solicitors and that the appointments took effect on date when the solicitors were engaged (at ).
In deciding whether the legal fees incurred prior to authorisation should be paid out of the assets of the Company or if the liquidator should be personally liable for the same, the Court will assess whether there were any valid reasons on the part of the liquidator for failing to seek such authorisation. In this instance, the Court found that these legal fees can be paid out of the Company’s estate as, among other things, (i) there was some urgency in appointing solicitors to defend OS 403 and (ii) in relation to OA 707, the Court found that the Liquidator had sought the appointment of solicitors within a reasonable time.
In its conclusion, the Court emphasised that this decision should not be seen as condoning the Liquidator’s conduct and forewarned that any liquidator who decides not to abide by the legislative scheme in s 144(1) of the IRDA ran a risk of incurring legal costs personally.
Keith Han and Ammani Mathivanan of Oon & Bazul are acting for a creditor of the Company, DB International Trust (Singapore) Limited (“DB”). DB appeared as a non-party in this application on a watching brief.
This client update is authored by Head of Restructuring & Insolvency Keith Han, Senior Associate Ammani Mathivanan, and Practice Trainee Toh Ding Jun. If you have any enquiries or require assistance in any corporate restructuring or insolvency related matters, please do not hesitate to contact Keith Han by email [email protected] or mobile +65 9436 8330.
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