Payment made by wound up company held to be valid. Liquidators attempt to recover payment disallowed.

In the recent High Court decision of Centaurea International Pte Ltd (In Liquidation) v Citus Trading Pte Ltd [2016] SGHC 264, the High Court held that whilst any payment made by a wound up company after the commencement of winding up, as a starting point, is void, section 259 of the Companies Act allows the High Court to make a retrospective order to approve the payment (“validation order”).

In Centaurea, the company under liquidation had made payment to bunker suppliers of 5 tax invoices incurred before the liquidation. At the time that the payment was made, the Defendant was not aware that an application to wind up the Company was made. The order to wind up the company was made after the payment was made.

The High Court granted the validation order. In doing so, the High Court took the following into consideration:-

·    The payments were made bona fide (i.e. on good faith),
·    Good faith itself is not sufficient to grant validation,
·    Company receiving payment must not have actual or constructive knowledge of the winding up application,
·    The party receiving payment must show ‘special circumstances’ as to why the validation order should be given.
·    The fact that the payment was for the benefit of the Company or for its general body of creditors is one such “special circumstances”.
·    The relevant time to look at whether there was such a benefit would be at the time the payment was made.
·    As such, the correct test would be to consider if the payment was ‘likely’ or ‘apt’ for the benefit of the Company and its general body of creditors.
·   Given the fact that the Company under liquidation did receive a benefit from the payment made, in that the defendant continued to supply goods on credit terms and that the defendant was not aware of the winding up application when payment was made, the High Court granted the validation order.

If you require further information on this topic, please feel free to contact Valerie Ang (DID 6713 0228) or at valerieang@straitslaw.com.sg or any director from our Dispute Resolution Department.