Metalform Asia v Holland Leedon: Winding-Up Petition & Bona Fide Cross-Claim Dispute

In Metalform Asia Pte Ltd v Holland Leedon Pte Ltd, the Court of Appeal of Singapore heard an appeal regarding an application by Metalform Asia to restrain Holland Leedon from presenting a winding-up petition against them. The basis for the application was that Metalform Asia had a bona fide cross-claim against Holland Leedon that exceeded the undisputed debt. The court allowed the appeal, finding that Metalform Asia had a genuine cross-claim based on substantial grounds and that the filing of a winding-up petition would likely cause irreparable harm to Metalform Asia's business and reputation. The court also found that Holland Leedon had not shown any special circumstances why the court should not restrain them from presenting a winding-up petition against Metalform Asia.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal Allowed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Metalform Asia sought to restrain Holland Leedon from presenting a winding-up petition. The court considered if Metalform Asia had a bona fide cross-claim.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Metalform Asia Pte LtdAppellantCorporationAppeal AllowedWon
Holland Leedon Pte LtdRespondentCorporationAppeal DismissedLost

3. Judges

Judge NameTitleDelivered Judgment
Andrew AngJudgeNo
Chan Sek KeongChief JusticeYes
Andrew Phang Boon LeongJustice of the Court of AppealNo

4. Counsels

Counsel NameOrganization
Moiz Haider SithawallaTan Rajah & Cheah
Chelva Retnam RajahTan Rajah & Cheah
Lavinia RajahTan Rajah & Cheah
Davinder SinghDrew & Napier LLC
Adrian TanDrew & Napier LLC
Valerie TanDrew & Napier LLC
Angie HanDrew & Napier LLC
Vanita JegathesanDrew & Napier LLC

4. Facts

  1. Metalform Asia owed Holland Leedon US$16,877,641.93 and S$112,677.17 for steel supplied.
  2. Holland Leedon served a statutory demand on Metalform Asia for the undisputed debt.
  3. Metalform Asia applied for an injunction to restrain Holland Leedon from presenting a winding-up petition.
  4. Metalform Asia claimed damages against Holland Leedon for breach of warranties under a sale and purchase agreement.
  5. The Sers (Anthony Ser and George Ser) controlled Holland Leedon and owned 67% of its shares.
  6. Metalform Asia is wholly-owned by Metalform International Ltd, which is in turn a subsidiary of MPL(I) Ltd.
  7. The purchase of Holland Leedon's business by Metalform Asia was a leveraged buyout.
  8. Metalform Asia claimed a cross-claim of S$34m against Holland Leedon for breach of warranties.

5. Formal Citations

  1. Metalform Asia Pte Ltd v Holland Leedon Pte Ltd, CA 48/2006, [2007] SGCA 6

6. Timeline

DateEvent
Sale and purchase agreement signed
Steel supplied by Holland Leedon to Metalform Asia began
Holland Leedon agreed to sell an initial stock of 5,000mt of steel at a discounted price of US$6.5m to Metalform Asia
Facilities agreement with DBS Bank Ltd signed
William Merrell Fulton appointed chief executive officer of Metalform Asia
Metalform Asia considered ways to pay the undisputed debt
Anthony Ser and George Ser's service agreements terminated by mutual agreement
Holland Leedon rejected Metalform Asia's proposal to repay the undisputed debt by installments
Metalform International approved the refinancing proposals at a board meeting
Anthony Ser denied that any resolution had been approved as he had not been asked to vote on it
Holland Leedon rejected Metalform Asia's offer to pay the undisputed debt in six installments
JPMP MPL wrote to Leedon to explain the benefits of the refinancing proposals
Metalform Asia paid US$2m to Holland Leedon
Holland Leedon rejected Metalform Asia's offer and demanded payment of the undisputed debt within seven days
Metalform Asia sought an opportunity to meet to explain Metalform Asia's current financial situation
Anthony Ser wrote to Metalform Asia saying that he would be unable to attend the meeting
Metalform Asia directors' meeting was held
Metalform International held a directors' meeting
Meeting of Metalform International's directors
Metalform Asia received a letter from Holland Leedon's solicitors demanding payment of US$18,614,288.90 within seven days
Metalform Asia replied, disputing the amount demanded by Holland Leedon
Metalform Asia directors' meeting could not be convened due to a lack of a quorum
Metalform Asia directors' meeting was held
Metalform Asia received an email from the Sers alleging that the management presentation of Metalform Asia's accounts for the financial year 2005 was inaccurate
Audit was done by Deloitte & Touche
Metalform Asia engaged Ernst & Young to examine the heads of claims and quantify the damages Metalform Asia had suffered by reason of Holland Leedon's breach of warranties
Ernst & Young completed its report
Metalform Asia sent Ernst & Young’s report to Holland Leedon
Audit was done by Deloitte & Touche
Holland Leedon's solicitors replied rejecting Metalform Asia's claims
Board meeting of MPLI was held
MPLI sent a formal letter to Leedon
Leedon replied by e-mail
Holland Leedon served a statutory demand on Metalform Asia
Metalform Asia applied to court for an injunction to restrain Holland Leedon from presenting a winding-up petition
Cross-claim was referred for arbitration
Anthony Ser filed an affidavit
Letter from Metalform Asia's counsel to Holland Leedon's counsel
The Sers obtained a report from Deloitte & Touche
The Sers commenced an action for a declaration that Metalform Asia was insolvent
PriceWaterhouseCoopers issued its report
Metalform Asia applied to the arbitrator to amend its statement of claim
Judgment reserved

7. Legal Issues

  1. Restraining a Winding-Up Petition
    • Outcome: The court held that the appeal should be allowed and Holland Leedon should be restrained from presenting a winding-up petition against Metalform Asia.
    • Category: Procedural
    • Sub-Issues:
      • Bona fide cross-claim
      • Substantial grounds for cross-claim
      • Irreparable harm to debtor company
      • Collateral purpose of creditor
  2. Breach of Warranty
    • Outcome: The court did not make a definitive ruling on the breach of warranty claim, as it was referred to arbitration.
    • Category: Substantive
    • Sub-Issues:
      • Failure to follow product management processes
      • Failure to monitor manufacturing processes
      • Use of non-approved subcontractors and vendors
      • Failure to comply with environmental and safety laws

8. Remedies Sought

  1. Injunction to restrain the presentation of a winding-up petition
  2. Damages

9. Cause of Actions

  • Breach of Contract
  • Breach of Warranty

10. Practice Areas

  • Commercial Litigation
  • Insolvency Law

11. Industries

  • Manufacturing

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Re Sanpete Builders (S) Pte LtdHigh CourtYes[1989] SLR 164SingaporeCited for the principle that the court has discretion to restrain a creditor from presenting a winding-up petition when the company has a bona fide cross-claim based on substantial grounds which is equal to or exceeds the creditor’s undisputed debt.
In re Bayoil SACourt of AppealYes[1999] 1 WLR 147England and WalesCited for the principle that the court has discretion to restrain a creditor from presenting a winding-up petition when the company has a bona fide cross-claim based on substantial grounds which is equal to or exceeds the creditor’s undisputed debt.
Malayan Plant (Pte) Ltd v Moscow Narodny Bank LtdPrivy CouncilYes[1980-1981] SLR 8SingaporeCited for the principle that a creditor who cannot obtain payment of his debt is entitled to a winding-up order ex debito justitiae.
Bowes v Hope Life Insurance and Guarantee CoHouse of LordsYes(1865) 11 HL Cases 389; 11 ER 1383United KingdomCited for the principle that it is the duty of the court to direct a winding up when a debt is established and not satisfied.
Mann v GoldsteinHigh CourtYes[1968] 1 WLR 1091England and WalesCited for the principle that the court has jurisdiction to restrain the presentation or advertising of a winding-up petition to prevent an abuse of the process of the court.
In re Portman Provincial Cinemas, LtdCourt of AppealYes(1964) 108 Sol J 581England and WalesCited as authority for the proposition that a winding-up petition ought to be dismissed in cross-claim cases, except in special circumstances.
In re L H F Wools LtdChancery DivisionYes[1970] Ch 27England and WalesCited as authority affirming the practice established in Portman that winding up should not be allowed where there is a genuine cross-claim except in special circumstances.
Ng Tai Tuan v Chng Gim Huat Pte LtdHigh CourtYes[1990] SLR 903SingaporeCited for following the practice established by Portman and affirmed by Wools to stay a winding-up petition on the ground that the debtor had a genuine and substantial cross-claim exceeding the debt.
De Montfort University v Stanford Training Systems Pte LtdHigh CourtYes[2006] 1 SLR 218SingaporeCited for staying a winding-up petition which was presented before the company commenced an action against the creditor claiming an unliquidated sum, applying the Privy Council’s statement in Malayan Plant.
Re S Y Engineering Co LtdCourt of AppealYes[2002] HKCA 61Hong KongCited for adopting and applying Bayoil in Hong Kong.
Re Keen Lloyd Resources LtdHigh CourtYes[2003] HKCFI 671Hong KongCited for following Re S Y Engineering Co Ltd.
Re a Company (No 006273 of 1992)High CourtNo[1992] BCC 794England and WalesCited as a divergent English decision where the court refused to restrain the presentation of a winding-up petition based on an undisputed debt where the company had a cross-claim which exceeded substantially the debt due to the petitioning creditor but had not been litigated.
Re Leasing and Finance Services LtdHigh CourtNo[1991] BCC 29England and WalesCited for the observation that it could not be said at the preliminary stage when an application was made for an injunction to restrain the application of a petition, that the existence of the cross-claim meant that the petition was bound to fail.
Re a Company No 1122 of 2003UnknownYes[2003] ALL ER (D) 338England and WalesCited for the propositions representing the current practice in England, Australia and Singapore in cross-claim cases.
Glenbawn Park Pty Ltd, ReUnknownYes(1977) 2 ACLR 288AustraliaCited as an Australian decision on cross-claims.
Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation of the Commonwealth of AustraliaSupreme CourtYes[1978] VR 83AustraliaCited for the principle that the presentation of a winding up petition may be restrained by injunction where its presentation would amount to an abuse of the process of the court.
Cadiz Waterworks Co v BarnettUnknownYes(1874) LR 19 Eq 182England and WalesCited for the principle that the court may restrain the presentation of the petition where the debt is genuinely disputed on substantial grounds.
Cercle Restaurant Castiglione Co v LaveryUnknownYes(1881) 18 Ch D 555England and WalesCited for the principle that a court may grant an injunction restraining the presentation or advertisement of the petition where a creditor intends to present or advertise a petition and the company has a genuine cross-claim based on substantial grounds, which equals or exceeds the creditor’s debt.
Tranquility Holdings Pty Ltd v Glass Pools Pty LtdUnknownYes(1974) CLC ¶40-133AustraliaCited for the principle that a court may grant an injunction restraining the presentation or advertisement of the petition where a creditor intends to present or advertise a petition and the company has a genuine cross-claim based on substantial grounds, which equals or exceeds the creditor’s debt.
L & D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty LtdUnknownYes(1982) 7 ACLR 180AustraliaReference was made to the case where the courts took into account the consideration of irreparable harm would be caused to MA if HL was not restrained from filing a winding up petition against MA.
The Pacific VigorousCourt of AppealNo[2006] 3 SLR 374SingaporeHL argued that by electing to lay claim to the security in its letter dated 28 September 2005, MA was contractually bound to do so, citing The Pacific Vigorous.
Re Julius Harper Ltd, ex parte Winkler & Co (Hong Kong) LtdHigh CourtNo[1983] NZLR 215New ZealandCited as a New Zealand case where the court departed from its previous practice and held that where the creditor’s debt was undisputed, there was no question of the creditor’s locus standi in presenting the winding up petition and that its so doing was not an abuse of process of the court since it had a statutory right to do so.
Charles Forte Investments Ltd v AmandaUnknownNo[1964] Ch 240England and WalesCited in relation to the New Zealand approach in Julius Harper.
Bryanston Finance Ltd v De Vries (No 2)UnknownNo[1976] Ch 63England and WalesCited in relation to the New Zealand approach in Julius Harper.
Anglian Sales Ltd v South Pacific Manufacturing Co LtdCourt of AppealNo[1984] 2 NZLR 249New ZealandCited as a New Zealand case where the court approved Julius Harper.
Tang Choon Keng Realty (Pte) Ltd v Tang Wee ChongHigh CourtNo[1992] 2 SLR 1114SingaporeCited for policy concerns in relation to the New Zealand approach.
Lim Swee Khiang v Borden Co (Pte) LtdCourt of AppealYes[2006] 4 SLR 745SingaporeCited for the principle that the court will not grant a shareholder a winding-up order unless there is no other way of bringing an end to or remedying the matters complained of.
Pembinaan Lian Keong Sdn Bhd v Yip Fook ThaiHigh CourtYes[2005] 5 MLJ 786MalaysiaCited for the conclusion that the “bound to fail” test should only be applied in a shareholder’s petition and not in the case of a creditor’s petition where the debt was disputed.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Companies Act (Cap 50, 1994 Rev Ed)Singapore
Companies Act (Cap 50, 1994 Rev Ed) s 254(2)(a)Singapore
Civil Law Act (Cap 43, 1988 Rev Ed) s 5(1)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Winding-up petition
  • Statutory demand
  • Injunction
  • Cross-claim
  • Bona fide
  • Substantial grounds
  • Irreparable harm
  • Collateral purpose
  • Leveraged buyout
  • EBITDA
  • Refinancing proposals
  • Breach of warranty
  • Escrow account

15.2 Keywords

  • Winding up
  • Injunction
  • Cross-claim
  • Companies Act
  • Breach of warranty

17. Areas of Law

Area NameRelevance Score
Winding Up95
Injunction to Restrain Winding-Up Petition80
Company Law70
Breach of Contract60
Contract Law50
Shareholders Agreement40
Bankruptcy30
Commercial Disputes25
Abuse of Process20
Misrepresentation20
Fraud and Deceit15

16. Subjects

  • Company Law
  • Insolvency
  • Civil Procedure