Bulletin on Companies Amendment Bill 2018
Last week, the Companies (Amendment) Bill 2018 (the “Amendment Bill”) was read in parliament. The main thrust of the amendments announced by Ms. Indranee Rajah, S.C. Minister (Prime Minister’s Office) and Second Minister for Finance and Education, was to recognise “Shipowners’ Liens” over sub-freight and sub-charter hire as security (as charges) without the need for registration.
The Companies (Amendment) Act 2018 came into operation on 1 October 2018, effecting into law the statutory exemption of a shipowner’s lien from registration pursuant to Section 131 of the Companies Act. As mentioned in the article below, a shipowner’s lien would have been void against the liquidators and creditors of the company under the previous Section 131 of the Companies Act.
Section 131 of the Companies Act now exempts a shipowner’s lien created by a company, whether as a charge on book debts of the company or a floating charge on the undertaking or property of the company, from registration requirements under the Companies Act.
“Shipowner’s lien” is defined as a contractual lien on (a) sub-freights; (b) sub-hires; or (c) bill of lading freight, created under a charter (or sub-charter) of a ship for any amount due under the charter (or sub-charter).
Notwithstanding the exemption above, a shipowner’s lien created by a company before 1 October 2018 is still required to be registered under the Companies Act if as at 1 October 2018:
(a) an order for the winding up of the company has been made;
(b) a resolution has been passed for the voluntary winding up of the company; or
(c) a creditor of the company has acquired a proprietary right to or an interest in the subject matter of the lien.
These timely amendments will keep the maritime environment in Singapore business friendly and promotes Singapore’s attractiveness as a maritime and legal hub.”
In doing so, parliament has not only directly addressed the consternation of the maritime industry arising from the leading case of Diablo Fortune Inc in which our team at Incisive Law LLC represented the appellant, but also deftly rendered our maritime / insolvency regulations more attractive than Hong Kong.
As Minister recapped during the Second Reading Speech on 6 August 2018, the genesis and outcome of the Diablo Fortune Inc case were (in a nutshell) as follows:
“9. In 2017, the status of an unregistered Shipowner’s Lien vis-à-vis a liquidator of the charterer and its interaction with section 131 of the Companies Act was litigated in Singapore for the first time.
10. The High Court in Duncan, Cameron Lindsay v Diablo Fortune Inc recognised a Shipowner’s Lien as a charge that is required to be registered under section 131 of the Companies Act. In March 2018, the Court of Appeal affirmed the High Court’s decision.
11. As a consequence of non-registration under section 131, the lien in that case was not enforceable against the liquidator of the charterer and the shipowner who would otherwise have had the benefit of the lien, ranked together with the unsecured creditors of the charterer instead.”
In our view, in deciding the case of Diablo Fortune Inc, our Courts found themselves bound by sections 129 and 131 of the Companies Act which rendered a security in the nature of a charge that had not been registered before the charterer’s liquidation was concluded, void against the liquidators. This was notwithstanding the recognition that this requirement was inconsistent with longstanding practice of the Singapore maritime industry and may not be necessary in the shipping context since such lien clauses are part of standard charterparty forms so transacting parties would not be caught entirely off guard by a lack of registration.
Now, with the proposed legislative amendments:
1) Shipowners’ Liens (created on or after the date the amendments come into force) are exempted from registration;
2) Shipowners’ Liens (created on or after the date the amendments come into force) are still recognized as charges and will thus take priority over charges created subsequent to them, and also priority over unsecured creditors; and
3) Shipowners’ Liens created before the amendments will still benefit from a saving provision in the Amendment Bill which seeks to maintain the validity of the liens notwithstanding lack of registration under certain circumstances.
It can thus be said that Singapore is taking a much bigger and bolder step forward, distinguishing itself from other common law countries with a similarly significant maritime sector such as the United Kingdom and Hong Kong. Under English law, such liens would still have to be registered. The Hong Kong Companies Ordinance excuses such liens from registration by deeming them not in the nature of a charge.
Incisive Law is honoured to have been involved in a case which propelled such a statutory change within just one year after the last amendment of the Companies Act in 2017. We look forward to these amendments coming into force in the near future.
Please feel free to contact Edgar Chin at Edgar.Chin@incisivelaw.com should you have any questions.