Journal Article

Singapore Court of Appeal Settles Controversy on When a Grant of Security to Cover Existing Indebtedness May Amount to a Transaction at an Undervalue

Pereira, Raelene

2023

Overview

On 29 June 2020, the Liquidator also lodged a caveat against the Property.9 On 20 January 2021, the PTIBs and the Liquidator filed applications in the Singapore High Court to set aside the Legal Mortgage on the ground that it was a transaction at an undervalue or a voluntary conveyance to defraud creditors.10 In response, on 26 January 2021, RGL filed an application under section 127(1) of the Land Titles Act11 (LTA) for the PTIBs to show cause as to why the PTIBs' caveat should not be removed.12 The High Court Judge found that the Legal Mortgage was not a voluntary conveyance to defraud creditors but decided in favour of the PTIBs and the Liquidator on the basis that the Legal Mortgage was a transaction at an undervalue.13 The Judge, therefore, dismissed RGL's application under section 127(1) of the LTA.14 RGL appealed against the Judge's decision. RGL sought leave to raise new points on appeal, in particular, whether Pictorial became insolvent as a result of the grant of the Legal Mortgage; whether the Liquidator and the PTIBs were estopped from arguing that Pictorial and Mr Ng were insolvent or became insolvent when they granted the Legal Mortgage; and whether the Judge should have voided the Legal Mortgage in view of the previously existing Equitable Mortgage.15 In response, the Liquidator and the PTIBs sought to raise new points relating to the validity and priority of the Equitable Mortgage.16 The Court of Appeal allowed all the applications for leave to raise new points as they were essentially questions of law and no fresh evidence was required for these points to be determined on appeal. (1) Subject to this section and sections 100 and 102, where an individual is adjudged bankrupt and he has at the relevant time (as defined in section 100) entered into a transaction with any person at an undervalue, the Official Assignee may apply to the Court for an order under this section. In considering the proper interpretation and requirements of section 98(3)(c) of the Bankruptcy Act, the Court of Appeal noted that \"consideration\" is not defined for purposes of section 98(3) of the Bankruptcy Act, but \"would appear to have the normal meaning ascribed to it by contract\".21 Whereas section 98(3)(a) of the Bankruptcy Act is concerned only with the existence of consideration in the contractual sense, section 98(3)(c) expressly requires \"a comparison of value between the consideration provided and the consideration received\".22 RGL sought to argue that section 98(3)(c) of the Bankruptcy Act does not require the court to compare the value of the consideration received by the grantor personally with that given by the grantor.23 The Court of Appeal disagreed and held that the comparison of value between the consideration provided and the consideration received should be governed by the following principles: (a) The value comparison exercise has to be undertaken from the perspective of the insolvent grantor (citing Re MC Bacon (No. 1)24 (MC Bacon))}5 Even though the consideration need not be directly received by the grantor, the value of that consideration is relevant only in so far as it accrues to the grantor.26 Further, the grantor's mere perception of value will not suffice.27 (b) The value of the consideration has to be assessed \"in money or money's worth\", thus requiring the value of the

• Publisher: HAB Press Limited
• Subject: Bankruptcy / Loan agreements / Secured loans / Stockholders