Tan Legend

On the court record

Illustrates how the courts distinguish between the several avoidance provisions in a winding up — undue preference, fraudulent preference and the validation of post-petition dispositions.

Tan Legend appears in this corpus as counsel for the respondents in a company-law appeal decided in the Court of Appeal (Mahkamah Rayuan), arising out of the winding up of a company. The dispute concerned two closely related but statutorily distinct concepts in insolvency law: undue preference and fraudulent preference. The allegation of undue preference was premised on voluntary settlements said to have been made without valuable consideration and not in good faith, while the fraudulent-preference argument, and a related application for a validation order, concerned a payment said to be void because it was made after the presentation of the winding-up petition.

The appeal required the court to keep in view the distinct statutory requirements governing undue preference as against fraudulent preference. The two doctrines address different mischief and carry different elements: undue preference is concerned with transactions that improperly favour one creditor over the general body of creditors in the run-up to insolvency, whereas the avoidance of dispositions made after the presentation of a winding-up petition protects the pari passu principle by rendering such dispositions void unless the court validates them. The application for a validation order was the mechanism by which the recipient sought to preserve a payment that would otherwise be caught by that rule.

The company in question was in liquidation, and the litigation pitted the interests of the general body of creditors, represented through the liquidation, against parties who had received payments or settlements before or after the petition. As counsel for the respondents, Tan Legend's role was to defend the position taken below on these preference and validation questions. The matter is a useful illustration of how the courts distinguish between the several avoidance provisions that operate in a winding up, and of the care required to identify which statutory gateway a particular impugned transaction falls within, since the requirements and consequences differ from one to the next.