June 5, 2024

Statutory Avoidance Provisions in Singapore – An Overview

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Following an overhaul of the Singapore insolvency regime which came into force on 30 July 2020, the insolvency and restructuring framework was consolidated in the omnibus Insolvency, Restructuring and Dissolution Act 2018 (IRDA). One of the key features of the IRDA was to amend the then-existing construct of statutory avoidance actions in Singapore.

Overview of statutory avoidance provisions following IRDA

Summarized below are the various circumstances prescribed under the IRDA where transactions entered into prior to commencement of winding-up or judicial management in respect of a company may be set aside or varied by the Singapore courts.

Provision under IRDA	Conditions	Relevant avoidance period	Consequences
Section 224 (Transactions at undervalue)	Company entered into transaction at an undervalue, i.e., made a gift or otherwise entered into a transaction: on terms that provide for no consideration; or for a consideration the value of which is, in money or money’s worth, significantly less than the value, in money or money’s worth, of the consideration provided by the company. Not applicable if: company entered into transaction in good faith and for the purpose of carrying on its business; and there were reasonable grounds for believing that transaction would benefit the company. Company was unable to pay its debts or became unable to pay its debts as a result of the transaction. In the case where transaction was with a connected person¹, inability to pay debts is presumed unless the contrary is shown.	Three years ending on the date of commencement of winding up or judicial management.	Court may make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction.
Section 225 (Unfair preferences)	Company gave an unfair preference to a person, i.e.: that person is one of the company’s creditors or a surety or guarantor for the company’s debts; and the company does anything or suffers anything to be done which (in either case) has the effect (the “Relevant Preference Effect”) of putting that person into a position which, in the event of the company’s winding up, will be better than the position that person would have been in if that thing had not been done. Company was influenced by a desire to produce the Relevant Preference Effect. In the case where preference was given to a connected person, a desire to produce the Relevant Preference Effect is presumed unless the contrary is shown. Company was unable to pay its debts or became unable to pay its debts as a result of the preference.	Preference was given to a connected person (otherwise than by reason only of being the company’s employee): Two years ending on the commencement of winding up or judicial management. In any other case: One year ending on the commencement of winding up or judicial management.	Court may make such order as it thinks fit for restoring the position to what it would have been if the company had not given that unfair preference.
Section 228 (Extortionate credit transactions)	Company has been party to extortionate transaction for provision to the company of credit. Transaction is presumed to be extortionate unless the contrary is proved if, having regard to the risk accepted by the person providing the credit: terms of transaction required grossly exorbitant payments; or transaction is harsh and unconscionable or substantially unfair.	Three years before commencement of winding up or judicial management.	Court may make an order to: set aside the transaction; vary the transaction; require the any person to pay to the company or the liquidator any sums paid by the company; require any person to surrender the collateral; and/or direct accounts to be taken between any persons.
Section 229 (Avoidance of certain floating charges)	Company created a floating charge. In the case of a charge created in favour of persons other than connected persons, company was unable to pay its debts or became unable to pay its debts as a result of the creation of the floating charge.	In the case of a charge created in favour of connected persons: Two years ending on the commencement of winding up or judicial management. In any other case: One year ending on the commencement of winding up or judicial management.	Floating charge is invalid, except to the extent of the aggregate of: value of the consideration for the creation of the charge as consists of money paid, or goods or services supplied, to the company at the same time as, or after, the creation of the charge; value of that consideration as consists of the discharge or reduction, at the same time as, or after, the creation of the charge, of any debt of the company; and the amount of such interest (if any) payable on the amount falling within the sub-paragraphs above pursuant to any agreement under which the money was so paid, the goods or services were so supplied or the debt was so discharged or reduced.
Section 438 (Transactions defrauding creditors)	Company entered into transaction at an undervalue, i.e., made a gift or otherwise entered into a transaction: on terms that provide for no consideration; or for a consideration the value of which is, in money or money’s worth, significantly less than the value, in money or money’s worth, of the consideration provided by the company. Transaction was for the purpose: of putting assets beyond the reach of a person who is making, or may at some time make, a claim against the company; or of otherwise prejudicing the interests of any person in relation to a claim which the person is making or may make against the company.	No time limitation.	Court may make such order as it thinks fit for: restoring the position to what it would have been if the company had not entered into that transaction; and protecting the interests of any person who is, or is capable of being, prejudiced by the transaction.

Personal liability on persons involved in business of company

While strictly not statutory avoidance provisions, the various provisions under the IRDA where a person involved in the carrying out of the company’s business may be held liable when the company is subject to winding-up or judicial management are also summarized below.

Provision under IRDA	Conditions	Relevant avoidance period	Consequences
Section 238 (Responsibility for fraudulent trading)	Any business of the company has been carried on with intent to defraud creditors or for any fraudulent purpose. Any person was knowingly a party to the carrying on of the business in that manner.	No time limitation.	Relevant person may be personally responsible, without any limitation of liability, for debts of the company. Criminal liability on the relevant person.
Section 239 (Responsibility for wrongful trading)	Company has traded wrongfully, i.e. incurred debt or liabilities, when insolvent (or became insolvent as a result of incurring such debt or liability), without reasonable prospect of meeting them in full. Any person party to the company trading in that manner knew or, as an officer of the company, ought to have known that the company was trading wrongfully.	No time limitation.	Relevant person may be personally responsible, without any limitation of liability, for debts of the company. Criminal liability on the relevant person.

1 Under section 217 (Interpretation of this Part) of the IRDA, a person is connected with a company if (a) the person is a director of the company or an associate of such a director; or (b) the person is an associate of the company. For this purpose, a person (A) is an associate of another person (B) if A is an associate of B; or B is an associate of A, and:

A person is an associate of an individual if that person is the individual’s spouse; or a relative of the individual or the individual’s spouse; or the spouse of a relative of the individual or the individual’s spouse.
A person is an associate of any person with whom that person is in partnership; and any spouse or relative of any individual with whom that person is in partnership.
A person is an associate of any person whom that person employs or by whom that person is employed.
A person in the person’s capacity as trustee of a trust is an associate of another person if the beneficiaries of the trust include, or the terms of the trust confer a power that may be exercised for the benefit of, that other person or an associate of that other person.
A corporation is an associate of another corporation if the same person has control of both corporations; if a person has control of one of the 2 corporations and persons who are that person’s associates, or that person and persons who are that person’s associates, have control of the other corporation; or if a group of 2 or more persons has control of each corporation, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person of whom he or she is an associate.
A corporation is an associate of another person if that person has control of the corporation, or if that person and persons who are that person’s associates together have control of the corporation.
A person is an associate of a corporation if persons who are his or her associates are employed by the corporation.

For the purposes of the above, a person is to be taken as having control of a corporation (C) if:

the directors of C or of another corporation which has control of C (or any of those directors) are accustomed to act in accordance with the person’s directions or instructions; or
the person is entitled to exercise, or control the exercise of, one third or more of the voting power at any general meeting of C or another corporation which has control of C,

and where 2 or more persons together satisfy the paragraphs above, they are to be taken as having control of C.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.