SINGAPORE'S highest court has issued a landmark ruling on the rights of liquidators to gain access to documents as they probe details of a corporate collapse.
Auditing giant PricewaterhouseCoopers (PwC) has failed in an appeal to stop access to documents by a liquidator investigating the failure of Singapore-listed China firm Celestial Nutrifoods.
The Court of Appeal in a rare judgment of this type clarified the court's powers to grant orders under the relevant provision of the Companies Act.
Lawyers say the ruling will strengthen corporate governance practice here.
"So far, there has been no pronouncement by this court on the (relevant) Section 285 although there have been four reported High Court cases," wrote Judge of Appeal Chao Hick Tin, on behalf of the top court, which included Chief Justice Sundaresh Menon and retired Chief Justice and now Senior Judge Chan Sek Keong.
"Times and attitudes have changed, and there is today a much stronger emphasis on corporate governance.The power under Section 285, if wielded judiciously, could promote corporate governance," he said in grounds released yesterday.
The court's ruling made clear that working documents of an auditor were liable to access by a liquidator seeking information about an insolvent company's affairs.
PwC had audited Celestial's financial statements from financial year 2004 until March 2010.
It had already supplied liquidator Yit Chee Wah with three large files with details such as limited company and subsidiary level information, year-end balances and minutes of meetings.
But Mr Yit sought access to PwC's working papers relating to Celestial's trade dealings, affairs and property - including those given to PwC by Celestial's subsidiaries in the British Virgin Islands (BVI) and China - along with other relevant primary records including bank statements, fixed asset registers and loan facility documents. The liquidator sought the documents so he could reconstruct Celestial's financial records and probe various suspicious transactions he had uncovered.
PwC lost in the High Court last year and a team of WongPartnership lawyers led by Senior Counsel (SC) Alvin Yeo appealed, urging the apex court to reverse the decision.
Drew & Napier lawyer Blossom Hing countered for the liquidator that the court should be slow in disturbing the exercise of discretion under S285, in the absence of a clear error of law or principle.
The court said the relevant provision is not peculiar to Singapore and is found elsewhere including Hong Kong and England.
It is "couched in general terms and should not be interpreted in a restrictive manner. It can be used to assist the liquidator in gathering information that would aid him in discharging his duties", said Judge of Appeal Chao, stressing the court's order must not be "wholly unreasonable, unnecessary or oppressive to the person(s) concerned".
SC Yeo argued PwC would not be able to provide the liquidator with useful information and documents as the suspicious documents that the liquidator was concerned with, including $16.8 million made to Power Charm Group, a BVI company, loans made to BVI subsidiaries by China Construction Bank and the auction of shares of the PRC subsidiaries, were all done in financial year 2010 and by then, PwC were no longer Celestial's auditors.
The court rejected the claims, pointing out PwC was likely to have with it documents that could shed light on the circumstances of the suspicious transactions. PwC had provided three files of documents which contained information that the liquidator had obtained from other sources.
The court was also not convinced that release of the documents sought would breach Chinese secrecy laws, pointing out PwC had not shown the documents contained state secrets, and as the firm was based outside China, it was unlikely they would possess state secrets.
Celestial, an investment holding company registered in Bermuda, had several subsidiaries in China. It was listed on the Singapore Exchange in 2004, but wound up in 2011, following its failure to redeem some $235 million in bonds sought by investors. It is understood that 10 boxes of files have been handed over to the liquidator following the court's ruling.