Is a Claim Against a Bankrupt for Breach of Fiduciary Duty a Provable Debt in Bankruptcy?

In Re: Xerxes J Medora [2024] SGHC 196, the Singapore Court considered a novel question on the administration of bankruptcy estates: is a claim against a bankrupt for breach of fiduciary duty a provable debt in bankruptcy?

The bankrupt, THM, was the director and owner of a number of companies, including POA. POA’s liquidators lodged a proof of debt in THM’s bankruptcy for a sum representing the transfer of money that THM had allegedly procured in breach of his fiduciary duties to POA. The Private Trustee in THM’s bankruptcy assessed that POA had indeed established a clear case of breach of fiduciary duty against THM, and was thus prepared to accept the proof of debt subject to the Court’s direction on certain issues, including the key question that was the subject of this application: whether POA’s proof of debt against THM in respect of its claim for breach of fiduciary duty could be accepted by the Private Trustee under the proof of debt process in THM’s bankruptcy.

The Court split this question into two issues:

(a)       whether a claim for breach of fiduciary duty is a provable debt in bankruptcy; and

(b)       if so, when a claim for breach of fiduciary duty can be resolved within the proof of debt regime.

The Court held that a claim for breach of fiduciary duty is a provable debt in bankruptcy. A claim for breach of fiduciary duty should be recognised as an unliquidated claim arising by reason of a breach of trust under section 87(3) of the Bankruptcy Act by reading “breach of trust” in an expansionary manner.

As to whether a claim for breach of fiduciary duty ought to be resolved within the proof of debt regime, the Court expressed the view that the complexity of the claim was an important factor, and that the principles governing applications for leave to commence an action against a bankrupt or company in insolvent liquidation would be relevant. Further, the issue of whether a claim should be resolved through the proof of debt regime was a matter that would be, in the first instance, for the officeholder to assess and determine; the Court would generally be disinclined to interfere with the officeholder’s decision-making.

The Court thus held that in principle, there was no objection for POA’s claim against THM for breach of fiduciary duty to be accepted under the proof of debt process in THM’s bankruptcy. Claims of this type are within the ambit of provable debts in bankruptcy. However, the Court made no decision or direction on the specific issue of whether the Private Trustee should accept POA’s proof of debt; that was a matter for the Private Trustee to decide in the first instance.

The Private Trustee was represented by Chew Xiang from the Restructuring & Insolvency Practice and Naomi Lim from the China-Related Investment Dispute Resolution Practice.