In Yit Chee Wah and another v. Inner Mongolia Huomei-Hongjun Aluminium Electricity Co., Ltd. and another appeal [2025] SGCA 27, the Singapore Court of Appeal took the opportunity to clarify the law in relation to an application made pursuant to Rule 133(1) of the Insolvency, Restructuring and Dissolution (Corporate Insolvency and Restructuring Rules 2020 (CIR Rules) by a liquidator to expunge or reduce a proof of debt (POD) that had previously been admitted as part of the adjudication process.
Background
Zhong Jun Resources (S) Pte. Ltd. (in liquidation) (the Company) was in the metal trading business and was part of a broader group of entities (the Dezheng Group). In the course of its business, the Company entered into commodity financing arrangements with various banks. It was subsequently discovered that multiple trade documents may have been issued by the Dezheng Group entities to fraudulently obtain financing from multiple banks over the same inventory. While investigations were ongoing, the Hongkong and Shanghai Banking Corporation successfully obtained a winding-up order from the Singapore court against the Company.
In August 2015, the then liquidators of the Company partially admitted the PODs filed by Inner Mongolia Huomei-Hongjun Aluminium Electricity Co., Ltd. (Inner Mongolia) and Shenzhen Huomei-Hongjun Aluminium Trading Co., Ltd. (Shenzhen). Inner Mongolia and Shenzhen were both part of the Dezheng Group. In or around December 2019, the liquidators discovered that former controllers of the Dezheng Group had been convicted of metal financing fraud, following which the liquidators commenced further investigations into related companies that traded with the Company, including Inner Mongolia and Shenzhen.
Subsequently, in late 2020, Mr Yit Chee Wah (the Liquidator) was appointed as the sole liquidator of the Company. After conducting further investigations and with the assistance of data from a vessel-tracking website (VesselFinder), the Liquidator formed the view that the supporting documents from Inner Mongolia and Shenzhen were fraudulent, and that the underlying trades forming the basis of the claims stated in the PODs were fictitious and had not taken place.
Given the circumstances, the Liquidator issued notices to Inner Mongolia and Shenzhen informing them of his intention to apply to the court to expunge their PODs. The Liquidator’s application under Rule 133(1) of the CIR Rules to the High Court to expunge Inner Mongolia's and Shenzhen's PODs was dismissed, and the Liquidator appealed.
Court of Appeal's decision
On appeal, the Court of Appeal overturned the High Court’s decision and ordered that the PODs of Inner Mongolia and Shenzhen be expunged. In so doing, the Court of Appeal laid down the requirements a liquidator must satisfy when making an application under Rule 133(1) of the CIR Rules.
Rule 133(1) of the CIR Rules states that “if a liquidator thinks that a proof has been improperly admitted, the Court may, on the application of the liquidator, after notice to the creditor who filed the proof, expunge the proof or reduce its amount”.
In light of the Court of Appeal’s decision, the applicable two-limb test in respect of Rule 133(1) of the CIR Rules is now as follows:
1. Whether the liquidator thinks on reasonable grounds that there has been an improper admission of the POD
The liquidator may prove that the POD was prima facie improperly admitted by demonstrating a mistake of fact or law, and if it had not been for that mistake, the proof would have been rejected. There are two requirements here: first, the liquidator must explain why he thinks the POD was improperly admitted, that is, why in his view it should not have been admitted. Second, the liquidator must be forthcoming as to how the improper admission occurred, even if this was due to carelessness or lack of thought on his part.
In the current case, data from VesselFinder (which the Liquidator considered to be a reliable vessel tracking service) supported the Liquidator’s views that Inner Mongolia’s and Shenzhen’s supporting documents were fraudulent and that the trades on which the PODs were based had not taken place – data from VesselFinder indicated that the vessels involved in the relevant trades were not anywhere near the declared port of lading shown on the relevant bills of lading around the times when the cargoes were said to be loaded. Further, the movements of a vessel involved in one of the trades were entirely untraceable during the relevant period.
The Court of Appeal was satisfied that the Liquidator had shown a reasoned basis for his assertion that a mistake had been made when the PODs were admitted by the Company’s previous liquidators, and that, had the Liquidator known at the time what he subsequently discovered, such PODs would have been rejected.
2. Whether the court should expunge or reduce the POD
After a liquidator shows that the POD was improperly admitted, the creditor bears the onus of proving the validity of its debt. Given that the court is considering the matters stated on the POD afresh and is not bound by the opinions of the liquidator, the creditor is entitled to adduce additional, fresh evidence in support of its claim as stated on the POD, even if such evidence was not previously presented to the liquidator. However, such further evidence should be raised before the first-instance court hearing on the application for expungement or reduction of the POD, failing which such evidence is likely to be disregarded by the court – save in exceptional circumstances, which are beyond the scope of this article.
In the current case, the Court of Appeal found that Inner Mongolia and Shenzhen failed to discharge their burden to show on a balance of probabilities that their respective PODs were valid and based on genuine debts. The Court of Appeal also noted that Inner Mongolia and Shenzhen had, apparently, not even attempted to ascertain from the owners or operators of the relevant vessels whether there was other evidence of their respective positions during the relevant periods. The Court of Appeal therefore expunged the PODs filed by Inner Mongolia and Shenzhen and such determination is final.
Conclusion
This is the first time the Court of Appeal has addressed an application for the expungement or reduction of a POD under Rule 133(1) of the CIR Rules. The clear guidance resolves uncertainty regarding the applicable test, as well as the requisite standard and burden of proof between a liquidator and creditors when a liquidator seeks to expunge or reduce a previously admitted POD.
Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.
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