Sun Electric Power v RCMA Asia: Winding Up Appeal Based on Insolvency
Sun Electric Power Pte Ltd appealed to the Court of Appeal of the Republic of Singapore against the High Court's decision to wind up the company based on insolvency. RCMA Asia Pte Ltd, the respondent, argued that Sun Electric Power was unable to pay its debts. The Court of Appeal, comprising Sundaresh Menon CJ, Judith Prakash JCA, and Steven Chong JCA, dismissed the appeal, finding Sun Electric Power to be cash flow insolvent. The court also clarified issues regarding control of appeal conduct, the test for actual insolvency, and the deemed inability to pay debts under the Companies Act. The court ordered Mr. Peloso, the director of Sun Electric Power, to pay $50,000 to the respondent as the costs of the appeal.
1. Case Overview
1.1 Court
Court of Appeal of the Republic of Singapore1.2 Outcome
Appeal Dismissed
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Sun Electric Power appealed a winding-up order, arguing solvency. The Court of Appeal dismissed the appeal, finding the company cash flow insolvent and clarifying insolvency tests.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Sun Electric Power Pte Limited | Appellant, Defendant | Corporation | Appeal Dismissed | Lost | |
| RCMA Asia Pte Ltd (formerly known as Tong Teik Pte Ltd) | Respondent, Plaintiff | Corporation | Appeal Upheld | Won |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Sundaresh Menon | Chief Justice | No |
| Judith Prakash | Justice of the Court of Appeal | Yes |
| Steven Chong | Justice of the Court of Appeal | No |
4. Counsels
4. Facts
- Sun Electric Power was in the business of transmitting, distributing, and selling electricity.
- RCMA Asia and Sun Electric Power had an agreement where RCMA Asia assumed Sun Electric Power's market-making obligations.
- Sun Electric Power stopped payments to RCMA Asia, leading to Suit 191.
- RCMA Asia obtained an injunction freezing 70% of incentive payments received by Sun Electric Power.
- Sun Electric Power transferred funds from its OCBC account to its DBS account.
- Kashish Worldwide FZE obtained a judgment against Sun Electric Power and garnished the DBS account.
- Sun Electric Power applied for judicial management, which was dismissed.
- RCMA Asia sent a statutory demand for $11,568.88 to Sun Electric Power.
- Sun Electric Power paid $3,000, leaving a balance of $8,568.88.
- RCMA Asia filed CWU 393 seeking a winding-up order.
5. Formal Citations
- Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd (formerly known as Tong Teik Pte Ltd), Civil Appeal No 150 of 2020, [2021] SGCA 60
6. Timeline
| Date | Event |
|---|---|
| Agreement between Sun Electric Power and RCMA Asia for market-making obligations. | |
| RCMA Asia filed Suit 191 against Sun Electric Power. | |
| Interim injunction granted to RCMA Asia. | |
| Interim injunction extended after contested hearing. | |
| Kashish Worldwide FZE commenced suit against Sun Electric Power. | |
| Sun Electric Power applied for judicial management. | |
| Sun Electric Power asked for an interim judicial management order. | |
| Interim judicial management application dismissed. | |
| Judicial management application dismissed. | |
| RCMA Asia sent statutory demand to Sun Electric Power. | |
| Sun Electric Power paid $3,000 to RCMA Asia. | |
| RCMA Asia filed HC/CWU 393/2019 seeking winding up order. | |
| High Court ordered Sun Electric Power to be wound up. | |
| Hearing of the appeal. | |
| Appeal dismissed. |
7. Legal Issues
- Insolvency
- Outcome: The court found the appellant to be cash flow insolvent, justifying the winding-up order.
- Category: Substantive
- Sub-Issues:
- Cash flow insolvency
- Balance sheet insolvency
- Failure to pay statutory demand
- Control of Conduct of Appeal
- Outcome: The court held that the directors of a company have the right to control the conduct of an appeal against a winding-up order, regardless of whether a stay order is granted.
- Category: Procedural
- Test for Actual Insolvency
- Outcome: The court held that the cash flow test is the sole applicable test under s 254(2)(c) of the Companies Act.
- Category: Substantive
- Sub-Issues:
- Cash flow test
- Balance sheet test
- Deemed Insolvency
- Outcome: The court held that a company that pays the debt demanded in a statutory demand in part within the prescribed period such that the remaining amount payable falls below $10,000 should not be deemed to be unable to pay its debts pursuant to s 254(2)(a) of the Companies Act.
- Category: Substantive
- Sub-Issues:
- Neglect to pay statutory demand
- Partial payment of debt
8. Remedies Sought
- Winding Up Order
- Payment of Debt
9. Cause of Actions
- Breach of Contract
- Debt Recovery
10. Practice Areas
- Commercial Litigation
- Insolvency Litigation
11. Industries
- Energy
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| RCMA Asia Pte Ltd v Sun Electric Power Pte Ltd (Energy Market Authority of Singapore, non-party) | High Court | Yes | [2020] SGHC 205 | Singapore | Cited as the judgment under appeal, detailing the High Court's decision to wind up Sun Electric Power. |
| Re A. & B.C. Chewing Gum Ltd.; Topps Chewing Gum Incorporated v Coakley and others | N/A | Yes | [1975] 1 WLR 579 | United Kingdom | Cited for the principle that a stay is generally not granted in winding-up orders to allow the liquidator to ascertain the company's assets and liabilities. |
| KTL Sdn Bhd v Azrahi Hotels Sdn Bhd | High Court | Yes | [2003] 3 CLJ 49 | Malaysia | Cited for the principle that a stay pending appeal of a winding-up order is granted only in exceptional circumstances. |
| Centaurea International Pte Ltd (in liquidation) v Citus Trading Pte Ltd | High Court | Yes | [2017] 3 SLR 513 | Singapore | Cited for the principle that the purpose of Section 259 of the Companies Act is to prevent the dissipation of assets to procure the rateable payment of unsecured creditors' claims. |
| DB Trustees (Hong Kong) Ltd v Consult Asia Pte Ltd and another appeal | N/A | Yes | [2010] 3 SLR 542 | Hong Kong | Cited for the conditions under which a court can order costs against a non-party to the proceedings. |
| SIC College of Business and Technology Pte Ltd v Yeo Poh Siah and others | N/A | Yes | [2016] 2 SLR 118 | Singapore | Cited for the conditions under which a court can order costs against a non-party to the proceedings. |
| Seah Chee Wan and another v Connectus Group Pte Ltd | High Court | Yes | [2019] SGHC 226 | Singapore | Cited for the principle that s 254(2)(c) involves a holistic and commercial inquiry into whether it is expected that at some point, the company would be unable to meet a liability. |
| Chip Thye Enterprises Pte Ltd (in liquidation) v Phay Gi Mo and others | N/A | Yes | [2004] 1 SLR(R) 434 | Singapore | Cited for the principle that s 254(2)(c) involves a holistic and commercial inquiry into whether it is expected that at some point, the company would be unable to meet a liability. |
| Living the Link Pte Ltd (in creditors’ voluntary liquidation) and others v Tan Lay Tin Tina and others | N/A | Yes | [2016] 3 SLR 621 | Singapore | Cited for the argument that the cash flow and balance sheet tests are disjunctive, such that the appellant would be found to be unable to pay its debts as long as it was proven insolvent on either test. |
| Tam Chee Chong and another v DBS Bank Ltd | N/A | Yes | [2011] 2 SLR 310 | Singapore | Cited for the argument that the cash flow and balance sheet tests are disjunctive, such that the appellant would be found to be unable to pay its debts as long as it was proven insolvent on either test. |
| Kon Yin Tong and another v Leow Boon Cher and others | High Court | Yes | [2011] SGHC 228 | Singapore | Cited for the argument that the cash flow and balance sheet tests are disjunctive, such that the appellant would be found to be unable to pay its debts as long as it was proven insolvent on either test. |
| Re Cheyne Finance plc (in receivership) | N/A | Yes | [2008] 2 All ER 987 | United Kingdom | Cited for the principle that the UK equivalent of s 254(2)(c) of the Companies Act was s 518(e) of the Companies Act 1985 (c 6) (UK). The two provisions were in pari materia. The UK courts interpreted s 518 as requiring a single test of commercial insolvency, which assesses the company’s present capacity to meet its liabilities as and when they became due. |
| Re Great Eastern Hotel (Pte) Ltd | N/A | Yes | [1988] 2 SLR(R) 276 | Singapore | Cited as the first local case to take the view that both the balance sheet and cash flow tests are applicable under s 254(2)(c) of the Companies Act. |
| Bombay Talkies (S) Pte Ltd v United Overseas Bank Limited | Court of Appeal | Yes | [2015] SGCA 66 | Singapore | Cited for the principle that the qualifier (“to the reasonable satisfaction of the creditor”) does not apply to all three limbs of s 254(2)(a) of the Companies Act. |
| Tan Cheng Bock v Attorney-General | N/A | Yes | [2017] 2 SLR 850 | Singapore | Cited for the principle that it is necessary to refer to legislative material to ascertain the proper meaning of s 254(2)(a) of the Companies Act. |
| BNP Paribas v Jurong Shipyard Pte Ltd | N/A | Yes | [2009] 2 SLR(R) 949 | Singapore | Cited for the principle that where a company is unable or deemed to be unable to pay its debts, the creditor is prima facie entitled to a winding up order ex debito justitiae. |
| Lian Soon Construction Pte Ltd v Guan Qian Realty Pte Ltd | N/A | Yes | [1999] 1 SLR(R) 1053 | Singapore | Cited for the principle that an appeal against the exercise of a judge’s discretion will not be entertained unless it is shown that he exercised his discretion under a mistake of law, in disregard of principle, under a misapprehension as to the facts, or that he took account of irrelevant matters, or the decision reached was outside the generous ambit within which a reasonable disagreement is possible. |
| Deputy Commissioner of Taxation v CYE International Pty Ltd (No 2) | N/A | Yes | (1985) 10 ACLR 305 | N/A | Cited for the principle that the effect of the deeming provision is only to deem the company to be unable to pay its debts at the point of the expiry of the prescribed period, and not at the time of the winding up hearing. |
| Re G Stonehenge Constructions Pty Ltd and the Companies Act | N/A | Yes | (1978) 3 ACLR 941 | N/A | Cited for the principle that the effect of the deeming provision is only to deem the company to be unable to pay its debts at the point of the expiry of the prescribed period, and not at the time of the winding up hearing. |
| Club Marconi of Boosley Park Social Recreation Sporting Centre Ltd v Rennat Construction Pty Ltd | N/A | Yes | (1980) 4 ACLR 883 | N/A | Cited for the principle that the effect of the deeming provision is to deem the company to be unable to pay its debts at the point of the expiry of the prescribed period, but this would continue until the winding up hearing unless payment is made. |
| DCT v Guy Holdings Pty Ltd | N/A | Yes | (1994) 14 ACSR 580 | N/A | Cited for the principle that the effect of the deeming provision is to deem the company to be unable to pay its debts at the time of the winding up hearing, regardless of whether the debt had been paid off subsequent to the expiry of the prescribed period. |
13. Applicable Rules
| Rule Name |
|---|
| Rules of Court (Cap 322, R 5, 2014 Rev Ed) O 57 r 15 |
| Rules of Court (Cap 322, R 5, 2014 Rev Ed) O 59 r 2(2) |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap 50, 2006 Rev Ed) | Singapore |
| Companies Act (Cap 50, 2006 Rev Ed) s 254(2)(c) | Singapore |
| Companies Act (Cap 50, 2006 Rev Ed) s 254(2)(a) | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018) | Singapore |
| Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed) s 17(1)(c) | Singapore |
| Insolvency Act 1986 (c 45) (UK) s 123 | United Kingdom |
| Bankruptcy Act (Cap 20, 2009 Rev Ed) s 100(4) | Singapore |
| Companies Act 1985 (c 6) (UK) s 518(e) | United Kingdom |
15. Key Terms and Keywords
15.1 Key Terms
- Winding Up
- Insolvency
- Statutory Demand
- Cash Flow Insolvency
- Balance Sheet Insolvency
- Companies Act
- Market-Making Obligations
- Injunction
- Garnishee Order
- Judicial Management
15.2 Keywords
- Winding Up
- Insolvency
- Statutory Demand
- Cash Flow
- Companies Act
- Singapore
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Insolvency Law | 95 |
| Winding Up | 95 |
| Appeal | 60 |
| Company Law | 50 |
| Civil Procedure | 40 |
| Contract Law | 30 |
16. Subjects
- Insolvency
- Winding Up
- Companies Law
- Civil Procedure