Singapore High Court grants funding creditor prospective priority for funding claw-back actions and clarifies scope of court’s powers in granting authorisation to liquidators to appoint solicitors

20 December 2024

Re Mingda Holding Pte Ltd and another matter [2024] SGHC 130

Liquidators of distressed companies are often constrained by the lack of funding to commence actions to recover assets on behalf of the company. While liquidators may look to creditors for funding, creditors need to be appropriately incentivised, considering the potentially significant risks involved. Liquidators who seek to engage solicitors to assist in preparing the funding agreement and bringing the action may also face opposition from the committee of inspection, whose members could be made up of the potential defendants to the proposed action or their affiliates. In such a situation, an application for court approval would be necessary.

The decision of the Singapore High Court in Re Mingda Holding Pte Ltd and another matter helpfully illustrates the considerations for rewarding funding creditors with an appropriate priority in the distribution of assets, and also provides guidance for liquidators seeking to appoint solicitors to assist in their duties or to bring legal proceedings on behalf of the company.

In this case, Amalgamated Metal Trading Limited (“Funding Creditor”) agreed to fund the liquidator’s pursuit of certain actions against a former director and a related company to recover assets of Mingda Holding Pte Ltd (“Company”). As a condition of the funding agreement, the Funding Creditor sought recovery of its funding costs and 100% of its admitted debt in priority over the debts of all other creditors and any liquidation expenses, if the Company successfully recovered assets. The other creditors objected to the priority sought.

Having examined the circumstances under which funding was offered, the court was satisfied that the Funding Creditor’s application for priority of its funding costs and 100% of its admitted debt was fair and reasonable. This decision is significant as it is one of the first reported decisions addressing a contested application for prospective priority under section 204(3) of the Insolvency, Restructuring and Dissolution Act 2018.

Allen & Gledhill Partner Chua Xinying acted for the successful funding creditor in this case.

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