The court ruled that specific performance cannot be ordered if the defendant is insolvent, as it risks violating statutory provisions and necessitating undue preference to creditors.

JUDGMENT

Ong Chee Kwan JC:

Introduction

[1] How does a company's insolvency affect the court's exercise of its discretion to grant specific performance? Can insolvency alone be sufficient to grant the specific reliefs? When would the reflective loss principle or the rule in prudential apply - is it limited only to the first-degree shareholder? Should the court take on the burden of supervising the order for specific performance where there is uncertainty in the obligation? These are the issues for determination in this judgment.

Background Facts

[2] The subject matters of this originating summons ('OS') are two agreements entered into by the plaintiff, the defendant and Papparich Malaysia Sdn Bhd ('PMSB').

[3] The two agreements are:

a. A share sale and subscription agreement dated 6 May 2014 ('SSA') where the plaintiff acquired:

(i) 4,474,697 ordinary shares in PMSB from the defendant who was at the time the holding company of PMSB for a total consideration of RM24 million; and

(ii) 325,303 new ordinary shares of RM1 each in PMSB at issued price of approximately RM18.44 per share at a total subscription consideration of RM6 million.

b. A shareholders agreement dated 6 May 2014 ("SHA") where the parties agree to operate PMSB as a holding company of the Malaysian Papparich group for the purpose of carrying on the business of restaurant operator and franchisor and to regulate the parties' relationship inter se.

[4] Both the SSA and the SHA contain positive obligations on the part of the defendant to repay or cause to be repaid inter-company advances owed by the defendant and its subsidiaries to PMSB and its subsidiaries.

[5] More specifically, cl 7.2 of the SHA and cl 5.1(b) and (c) of the SSA read as follows:

SHA

7.2 Related transactions: All amount owing (non trade) to Papparich Malaysia group of companies by the Vendor's subsidiaries shall be fully settled within thirty six (36) months from the date of this Agreement and all amount owing to Roti-Roti International Sdn Bhd by the Vendors shall be settled in full by October 2015 by way of repayment to Roti-Roti International Sdn Bhd.

SSA

5.1 The Vendor undertakes to Agathis that:

(a)...

(b) All amount owing (non trade) to Papparich Malaysia group of companies by the Vendors subsidiaries shall be fully settled within thirty six (36) months from the date of this Agreement; and

(c) All amount owing to Roti-Roti International Sdn Bhd ("Amount Owing") shall be settled in full by October 2015 by way of repayment to Roti-Roti International Sdn Bhd.

[6] The obligations of the defendant under cl 7.2 of the SHA and cl 5.2(b) and (c) of the SSA are substantively the same, namely, that the defendant undertakes to the plaintiff and PMSB that:

(i) The amounts due by the defendant's subsidiaries to 'Papparich Malaysia group of companies' shall be settled within 36 months from 6 May 2014;

(ii) The amount due by the defendant to Roti-Roti International Sdn Bhd shall be settled by October 2015.

[7] There is no dispute that the said clauses in SHA and SSA do not involve payment of any amounts to the plaintiff.

[8] The plaintiff contended that it has performed its obligations under the agreements but the defendant has breached its obligations under the said two clauses. The plaintiff therefore filed this OS seeking an order of specific performance of the two said clauses.

court's Analysis And Decision

[9] In the OS, the plaintiff is seeking for specific performance of cl 7.2 of the SHA and cl 5.1 (b) and (c) of the SSA '... by the defendant and its subsidiaries...' and for damages to be assessed.

[10] Since the subsidiaries are not parties to the SHA and the SSA, the order for specific performance, if any, can only be against the defendant requiring the defendant to meet its undertaking for the amounts owing to be settled.

[11] At the time of the hearing, the defendant was a company subjected to two winding-up petitions which were presented on 15 May 2020 and 22 May 2020. The latter winding-up petition was presented by the p