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Singapore Court of Appeal guidance in relation to endeavour obligations and dealing with assets of foreign companies being wound up in Singapore

Endeavour obligations

Some parties use the terms "reasonable endeavours", "all reasonable endeavours" and "best endeavours" interchangeably, while others use each term with a different intent.

However, following the decision of the Singapore Court of Appeal (the SCA) in KS Energy Services Ltd v BR Energy (M) Sdn Bhd,1 parties should note that each term may be interpreted differently. The guidance provided by the SCA should be taken into consideration when drafting agreements to ensure that the parties' intentions are correctly captured.

Following the SCA decision, it is not possible to assume that "reasonable endeavours" and "all reasonable endeavours" will be interpreted the same way. In particular, the SCA has stated that if the term "reasonable endeavours" is used then the obligor need only take one reasonable course of action and does not have to exhaust all options. However, an "all reasonable endeavours" clause would be more onerous. In such a situation, the obligor would be required to take "all those reasonable steps which a prudent and determined man, acting in the interests of the obligee and anxious to procure the contractually-stipulated outcome within the available time" would take.

In relation to "best endeavours" and "all reasonable endeavours", the SCA held that they would be interpreted in the same manner – even if they were used in different clauses in the same agreement – unless the parties specified in the agreement how the standard to be applied to the terms differed and what steps were required to fulfil each type of "endeavour" obligation.

Liquidation of Foreign Companies – Ringfencing Provisions

A recent decision by the SCA in Beluga Chartering v Beluga Projects2 considered whether the liquidators of a foreign company which did not carry on business in Singapore had to pay off all locally incurred debts and liabilities before remitting the foreign company's assets in Singapore back to the principal place of liquidation in Germany.

The key issue related to the application of s377(3)(c) of the Companies Act (s377(3)(c)) which establishes a scheme for any local assets to be applied first to satisfy debts and liabilities incurred in Singapore before any residual amount is remitted to the foreign liquidator. The question was whether s377(3)(c) applied to a foreign company that was in liquidation even though it was not registered under s368 of the Companies Act (s368) and had not established a place of business or carried on business in Singapore.

The Court of Appeal held that s365 of the Companies Act (s365) operated as a condition precedent to the application of the provisions under Division 2 of Part XI of the Companies Act, including s377(3)(c). Adopting a purposive interpretation of s365, a company would fall within the scope of this section if it was registered under s368 or was liable to register under s368 because it intended to establish a place of business or commence carrying on business in Singapore. Since the company in question was not registered in Singapore, and had not established a place of business or commenced carrying on business in Singapore, s377(3)(c) did not apply to its liquidators.

The SCA also held that the traditional common law position gives the court a general power to order the remittal of realised assets to the principal place of liquidation. However, the court would not have the power to authorise the local liquidator to ignore the statutory insolvency scheme so as to deprive creditors proving in a local liquidation of their statutory rights under that scheme. On the facts of the case, the Singapore liquidators were directed to remit the assets of the foreign company to the German liquidator without satisfying the judgment debt owed to Singapore creditors. The SCA also made interesting observations on assisting foreign winding-up proceedings. While noting that Singapore courts were not bound by any stay of legal proceedings that flow from a foreign winding-up order in the absence of local winding-up proceedings, the SCA stated that Singapore courts may still assist in foreign liquidation proceedings by exercising their inherent discretion to stay proceedings. However, the manner in which a Singapore court chooses to regulate its own proceedings to assist foreign winding-up proceedings will depend on the particular circumstances before it.