Zhong Shan Strategic Fund v RG Strategy Fund VCC [2025] SGHC 174

Case Details

• Citation: [2025] SGHC 174
• Court: General Division of the High Court of the Republic of Singapore
• Decision Date: 29 August 2025
• Coram: Kristy Tan J
• Case Number: Companies Winding Up No 227 of 2025
• Hearing Date(s): 15 August 2025
• Claimants / Plaintiffs: Zhong Shan Strategic Fund (ZSSF)
• Respondent / Defendant: RG Strategy Fund VCC
• Counsel for Claimants: Yeo Lai Hock Nichol and Andrew Ong Yi Kai (Nine Yards Chambers LLC)
• Counsel for Respondent: Sim Chong (Sim Chong LLC); Tan Soo Peng Daniel and Lee Yew Boon (Dan Tan Law LLC)
• Practice Areas: Insolvency Law; Winding up; Variable Capital Companies

Summary

In Zhong Shan Strategic Fund v RG Strategy Fund VCC [2025] SGHC 174, the General Division of the High Court addressed a novel application to wind up a sub-fund of an umbrella Variable Capital Company (VCC) under the Variable Capital Companies Act 2018. The claimant, Zhong Shan Strategic Fund (ZSSF), sought the winding up of RG Asset-Backed Investment Fund I (ABIFI), a sub-fund of the defendant, RG Strategy Fund VCC. The application was predicated on two primary grounds: the insolvency ground under paragraph 14(d) of the First Schedule to the VCC Act (the "Insolvency Ground") and the just and equitable ground under paragraph 14(i) of the same Schedule (the "Just and Equitable Ground").

The dispute arose following the suspension of redemption requests by the Fund's directors. ZSSF, holding approximately 53.6% of the Participating Shares in ABIFI, argued that the failure to meet redemption requests totaling millions in Hong Kong dollars rendered the sub-fund cash-flow insolvent. Furthermore, ZSSF contended that the sub-fund had lost its substratum and that it was "locked in" to an investment that no longer served its original commercial purpose, justifying a winding up on just and equitable grounds. The defendant resisted the application, arguing that ZSSF lacked standing as a creditor and that the sub-fund remained solvent and commercially viable.

Kristy Tan J dismissed the application in its entirety. The Court's decision provides critical clarification on the standing of shareholders in a VCC context. Specifically, the Court held that a shareholder whose redemption request has been validly suspended pursuant to the fund's constitution does not qualify as a "creditor" for the purposes of initiating winding-up proceedings. While the Court acknowledged that ZSSF had standing as a "contributory" under s 2(1) of the VCC Act, it found that the substantive requirements for winding up were not met. The Court emphasized that the "cash flow test" remains the determinative metric for insolvency under the modified Companies Act provisions applicable to VCCs, and that ZSSF had failed to prove that the sub-fund could not meet its debts as they fell due.

This judgment serves as a landmark authority on the internal governance and insolvency framework of VCCs in Singapore. It reinforces the principle that the contractual and constitutional terms governing redemptions are paramount. Practitioners must note the Court's strict adherence to the distinction between the VCC as a legal person and its sub-funds, which lack separate legal personality despite being capable of being wound up as if they were separate entities. The decision protects the stability of the VCC regime by preventing minority or even majority shareholders from using winding-up petitions as a leverage tool when liquidity management tools, such as redemption suspensions, are properly invoked.

Timeline of Events

1. 23 April 2021: RG Strategy Fund VCC (the "Fund") is incorporated under the VCC Act as an umbrella VCC.
2. 7 July 2021: RG Asset-Backed Investment Fund I (ABIFI) is registered as a sub-fund of the Fund.
3. 24 November 2021: The Fund issues an Information Memorandum (IM) setting out the terms of investment in ABIFI.
4. 9 March 2022: The Fund issues a Supplement to the IM specifically for ABIFI.
5. 19 January 2023: ZSSF executes the first Subscription Agreement for Class C Participating Shares in ABIFI.
6. March 2023: ABIFI extends a loan facility of up to HK$300m to Hammer Capital International Limited (HCIL).
7. 9 May 2023: ZSSF executes the second Subscription Agreement, increasing its stake in ABIFI.
8. 22 November 2023: The Fund enters into a Supplemental Loan Agreement with HCIL.
9. 18 November 2024: ZSSF submits a redemption request for its shares (the "Nov 2024 Redemption Request").
10. 24 December 2024: The Fund's directors resolve to suspend the determination of Net Asset Value (NAV) and the redemption of shares in ABIFI.
11. 20 January 2025: ZSSF submits a further redemption request (the "Jan 2025 Redemption Request").
12. 20 June 2025: ZSSF files the originating process for winding up (CWU 227).
13. 15 August 2025: Substantive hearing of CWU 227 before Kristy Tan J.
14. 29 August 2025: The High Court delivers its judgment dismissing the application.

What Were the Facts of This Case?

The defendant, RG Strategy Fund VCC, is an umbrella variable capital company incorporated in Singapore. Under the VCC framework, it operated several sub-funds, including RG Asset-Backed Investment Fund I (ABIFI). ABIFI was designed as an investment vehicle where the primary assets were intended to be asset-backed loans. The claimant, Zhong Shan Strategic Fund (ZSSF), is a regulated mutual fund from the Cayman Islands. Between January and May 2023, ZSSF invested a total of HK$209 million into ABIFI, receiving Class C Participating Shares. This investment made ZSSF the majority shareholder of the sub-fund, holding 53.6% of the issued shares. Other shareholders included Ms. Lisa Leung (37.99%) and Ms. Ivy Connie Sun (8.41%).

The core of ABIFI's portfolio was a loan facility extended to Hammer Capital International Limited (HCIL) in March 2023. This facility, amounting to HK$300 million, was secured by a second legal charge over a 13-storey industrial warehouse in Tuen Mun, Hong Kong, known as the Man Sun Logistics Centre (the "MSLC Property"). The MSLC Property was also subject to a first legal charge in favor of United Overseas Bank Limited (UOB). As of early 2025, the outstanding principal on the HCIL loan was approximately HK$298 million.

The relationship between the parties was governed by the Fund's Constitution, an Information Memorandum (IM), and a Supplement. Crucially, Clause 6.11 of the Subscription Agreements and various sections of the IM granted the directors of the Fund the discretion to suspend redemptions. Specifically, the directors could suspend the determination of the Net Asset Value (NAV) and the payment of redemption proceeds if, in their opinion, there was a state of affairs where disposal of the sub-fund's assets was not reasonably practicable or would be seriously prejudicial to shareholders.

In late 2024, ZSSF sought to exit its investment. It submitted a redemption request on 18 November 2024 for all its Class C shares. However, on 24 December 2024, the directors of the Fund issued a notice of suspension. They cited the illiquidity of the HCIL loan and the complexities surrounding the MSLC Property as grounds for the suspension. Despite this, ZSSF submitted another redemption request in January 2025. The Fund maintained the suspension, arguing that the sub-fund did not have sufficient liquid cash to meet the redemptions without a forced sale of the HCIL loan at a significant discount, which would harm the remaining shareholders.

ZSSF's primary grievance was that the suspension was a sham designed to prevent it from recovering its capital. It alleged that the sub-fund was insolvent because it could not pay the redemption proceeds, which ZSSF characterized as a debt. Furthermore, ZSSF pointed to the fact that the HCIL loan had been extended and that the MSLC Property's valuation was insufficient to cover both the UOB debt and the HCIL debt. The claimant also argued that the "commercial object" of the sub-fund—to provide liquidity to its investors—had failed, rendering the sub-fund a "zombie fund."

Procedurally, ZSSF initially named "RG Asset-Backed Investment Fund I" as the defendant. This was a technical error, as a sub-fund lacks legal personality. The Court allowed an amendment to name the VCC itself as the defendant, "in respect of" the sub-fund, consistent with Section 32(1) of the VCC Act. The evidence before the Court included several affidavits from Cai Feiyun on behalf of ZSSF and directors of the Fund, detailing the financial health of the sub-fund and the valuation of the Hong Kong property.

What Were the Key Legal Issues?

The Court was required to resolve several complex issues involving the intersection of corporate law, insolvency, and the specific statutory regime of the VCC Act. The issues were framed as follows:

• Standing as a Creditor: Did ZSSF have the standing to apply for winding up as a "creditor" or "contingent creditor" under paragraph 13 of the First Schedule to the VCC Act? This turned on whether a suspended redemption request creates a debt that is "due and payable."
• Standing as a Contributory: Did ZSSF satisfy the definition of a "contributory" under s 2(1) of the VCC Act and s 253(2)(a) of the Companies Act, and if so, did it meet the requirements to petition for winding up in that capacity?
• The Insolvency Ground (Para 14(d)): Was the umbrella VCC "unable to pay the debts of the sub-fund"? This required the application of the "cash flow test" to the assets and liabilities specifically attributable to ABIFI.
• The Just and Equitable Ground (Para 14(i)): Did the circumstances warrant a winding up based on a loss of substratum, a "lock-in" of the shareholder, or a breakdown in the relationship between the parties?
• Judicial Discretion: Even if the statutory grounds were met, should the Court exercise its residual discretion to refuse the winding-up order in the interest of the broader body of shareholders or the sub-fund's viability?

How Did the Court Analyse the Issues?

The Court’s analysis began with the fundamental structure of the VCC. Kristy Tan J noted that while a sub-fund is not a legal person, s 33(1) of the VCC Act allows it to be wound up as if it were one. This creates a "statutory fiction" for the purpose of insolvency, where the provisions of the Companies Act (specifically Part 10 as it stood before 2020) are imported and modified.

Issue 1: Standing as a Creditor

ZSSF argued it was a creditor because its redemption requests had matured into a debt. The Court rejected this, applying the principles from Founder Group (Hong Kong) Ltd v Singapore JHC Co Pte Ltd [2023] 2 SLR 554. The Court held that for a winding-up application to proceed on the basis of a debt, that debt must not be subject to a substantial and bona fide dispute. In this case, the Fund's Constitution and the IM explicitly allowed the directors to suspend redemptions. The Court found that the suspension was exercised within the directors' discretion and was not "arbitrary, capricious, perverse or in bad faith," following the standard in AL Shams Global Ltd v BNP Paribas [2019] 3 SLR 1189.

"In my judgment, the Fund has more than raised a substantial and bona fide dispute over the debt alleged by ZSSF. I find that there is, in fact, no debt due and owing from ABIFI to ZSSF in respect of the Nov 2024 and Jan 2025 Redemption Requests." (at [83])

The Court further clarified that a "contingent creditor" must have a claim that will result in a debt upon the happening of a future event. However, since the redemption was suspended, the right to payment had not yet accrued and might never accrue if the suspension remained validly in place. Thus, ZSSF was not a creditor.

Issue 2: Standing as a Contributory

The Court found that ZSSF did have standing as a contributory. Under s 2(1) of the VCC Act, a "contributory" includes the holder of fully paid-up shares issued in respect of the sub-fund. ZSSF met the "six-month rule" under s 253(2)(a)(ii) of the Companies Act, as it had held the shares for at least six months during the 18 months prior to the application. This standing allowed ZSSF to argue the Just and Equitable Ground, even though it failed as a creditor.

Issue 3: The Insolvency Ground

The Court applied the "cash flow test" as established in Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd [2021] 2 SLR 478. This test assesses whether a company can meet its debts as they fall due. ZSSF argued that the sub-fund's liabilities (the redemptions) exceeded its assets. The Court disagreed. First, the redemption amounts were not "debts" because of the suspension. Second, even if they were, the Court looked at the sub-fund's assets, primarily the HK$298 million HCIL loan. While the loan was illiquid, the Court noted that the cash flow test is not a "snapshot" of immediate liquidity but looks at the "reasonably near future" (citing CH Biovest Pte Ltd v Envy Asset Management Pte Ltd [2025] 1 SLR 141). The evidence suggested the MSLC Property had a valuation between HK$1.2bn and HK$1.4bn, which, even after accounting for UOB's first charge, left sufficient equity to cover the HCIL loan.

Issue 4: The Just and Equitable Ground

ZSSF raised three arguments: (a) loss of substratum, (b) the "lock-in" effect, and (c) lack of probity. The Court rejected all three.

• Substratum: The Court held that the sub-fund's object was to invest in asset-backed loans. The HCIL loan was exactly such an investment. The fact that the loan was being restructured or that redemptions were suspended did not mean the sub-fund's purpose had failed.
• Lock-in: Following Tan Yew Huat v Sin Joo Huat Hardware Pte Ltd [2024] SGCA 27, the Court noted that a shareholder is not entitled to a winding up simply because they cannot exit. The "lock-in" was a result of the very terms ZSSF agreed to when subscribing—specifically the suspension clauses.
• Probity: ZSSF failed to provide evidence of "lack of probity" or "unfairness" that would meet the objective test in Sim Yong Kim v Evenstar Investments Pte Ltd [2006] 3 SLR(R) 827.

What Was the Outcome?

The High Court dismissed the application to wind up ABIFI. The Court concluded that ZSSF had failed to establish either the Insolvency Ground or the Just and Equitable Ground. The operative order was concise:

"I therefore dismiss CWU 227." (at [142])

Regarding costs, the Court did not make an immediate quantified award but directed the parties to attempt to reach an agreement. Failing agreement, the parties were ordered to file written submissions on costs within one week of the judgment date. The Court indicated that costs would be taxed if not agreed, following the standard procedure for such applications.

The Court also addressed the procedural irregularity of the claimant's initial filing. ZSSF had named the sub-fund as the defendant. The Court noted that under Section 32(1) of the VCC Act, a sub-fund is not a legal person and the VCC itself must be the named party. However, the Court treated this as a formal defect that was curable by amendment, rather than a jurisdictional bar that would have required the striking out of the application. This pragmatic approach ensured the case was decided on its substantive merits rather than technicalities.

In the final analysis, the Court found that the directors of RG Strategy Fund VCC had acted within their powers to manage the sub-fund's liquidity. The suspension of redemptions was a legitimate tool used to protect the collective interests of all shareholders in the face of an illiquid asset (the HCIL loan). Consequently, there was no "debt" that could form the basis of an insolvency-based winding up, and no "unfairness" that would justify a just and equitable winding up.

Why Does This Case Matter?

This case is of paramount importance to the Singapore legal landscape as it represents the first detailed judicial examination of the winding-up regime for VCC sub-funds. The VCC structure, introduced in 2018, was designed to position Singapore as a leading fund management hub. However, until this judgment, there was significant uncertainty regarding how the "statutory fiction" of winding up a non-legal entity (a sub-fund) would operate in practice. The decision clarifies that while the sub-fund is treated as a separate entity for insolvency purposes, the procedural reality requires the umbrella VCC to be the party to the litigation.

The judgment’s most significant doctrinal contribution is the clarification of "creditor" status for fund investors. In the investment fund world, the right to redeem is the primary exit mechanism. By holding that a suspended redemption request does not create a "debt" for winding-up purposes, the Court has provided a robust shield for fund managers. This prevents "run-on-the-fund" scenarios where a single large investor could force a liquidation of the entire sub-fund by claiming insolvency the moment a redemption is not paid. It reinforces the contractual nature of the investment, where the investor is bound by the suspension powers set out in the constitution.

Furthermore, the Court’s application of the "just and equitable" ground in the VCC context is instructive. It signals that the High Court will be slow to find a "loss of substratum" in a fund context as long as the fund is still holding assets consistent with its investment mandate, even if those assets are currently illiquid or underperforming. This provides much-needed commercial certainty to the industry, ensuring that the VCC structure remains a stable vehicle for long-term or asset-backed investments.

Practitioners should also note the Court's reliance on the "cash flow test" over the "balance sheet test." By confirming that the Sun Electric principles apply to VCC sub-funds, the Court has ensured consistency across Singapore's insolvency jurisprudence. The decision highlights that a sub-fund's solvency will be assessed based on its specific segregated assets and liabilities, but the threshold for proving an inability to pay remains high, especially when the alleged debt is a redemption claim subject to director discretion.

Finally, the case underscores the importance of precise drafting in VCC constitutional documents. The Fund's success in this case was largely due to the clear and broad suspension powers contained in its IM and Supplement. For investors, the case serves as a cautionary tale: the right to redeem is not absolute and is subject to the liquidity management tools embedded in the fund's legal framework. This judgment will likely be the starting point for any future litigation involving VCC sub-funds in Singapore.

Practice Pointers

• Naming the Correct Party: When initiating proceedings related to a sub-fund, always name the umbrella VCC as the defendant (e.g., "[VCC Name] in respect of [Sub-Fund Name]"). A sub-fund lacks separate legal personality and cannot be sued in its own name under s 32(1) of the VCC Act.
• Redemption as Debt: Do not assume a redemption request creates an immediate debt. Check the VCC's constitution and IM for suspension clauses. If a suspension is validly invoked, the shareholder lacks standing as a "creditor" to file for winding up.
• Contributory Standing: Shareholders of a sub-fund do have standing as "contributories" under s 2(1) of the VCC Act. However, to succeed on just and equitable grounds, they must show more than just a "lock-in" or a disagreement with management; they must prove a total failure of substratum or lack of probity.
• Cash Flow Test Application: In VCC insolvency cases, the Court will look at the segregated assets of the sub-fund. Evidence of the valuation of underlying assets (like the MSLC Property) and the likelihood of those assets being realized in the "reasonably near future" is crucial for the cash flow analysis.
• Reviewing Suspension Notices: When a fund suspends redemptions, practitioners should scrutinize the notice against the IM's requirements. A suspension that is arbitrary or in bad faith may still be challenged, but the burden of proof is high.
• Statutory Modifications: Be aware that the VCC Act imports the "old" Companies Act winding-up provisions (pre-IRDA 2020) with specific modifications found in the First Schedule of the VCC Act.

Subsequent Treatment

As of late 2025, Zhong Shan Strategic Fund v RG Strategy Fund VCC stands as the leading authority on the winding up of VCC sub-funds in Singapore. Its interpretation of the "creditor" status of redeeming shareholders has been cited as a definitive guide for fund managers facing liquidity challenges. The case has not yet been considered by the Court of Appeal, but its thorough analysis of the VCC Act's First Schedule provides a clear roadmap for lower courts and practitioners dealing with the unique "segregated cell" structure of Singapore VCCs.

Legislation Referenced

• Variable Capital Companies Act 2018 (2020 Rev Ed), Sections 2, 5, 15(1), 32(1), 33, and the First Schedule (Paragraphs 13 and 14).
• Companies Act (Cap 50, 2006 Rev Ed), Sections 253 and 254 (as modified by the VCC Act).
• Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed), Section 124(1)(c).
• Securities and Futures Act 2001 (2020 Rev Ed), Part 13, Division 2.

Cases Cited

• Applied: Founder Group (Hong Kong) Ltd v Singapore JHC Co Pte Ltd [2023] 2 SLR 554
• Referred to: Deutsche Bank AG Singapore Branch v ARJ Holding Ltd [2025] SGHC 163
• Referred to: Summit Co (S) Pte Ltd v Pacific Biosciences Pte Ltd [2006] SGHC 190
• Referred to: RCMA Asia Pte Ltd v Sun Electric Power Pte Ltd [2020] SGHC 205
• Referred to: Tan Yew Huat v Sin Joo Huat Hardware Pte Ltd [2024] SGCA 27
• Referred to: Gan Yuan Hong v LMO Consulting Pte Ltd [2025] SGHC 171
• Referred to: Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] 2 SLR(R) 268
• Referred to: Pacific Recreation Pte Ltd v S Y Technology Inc [2008] 2 SLR(R) 491
• Referred to: AL Shams Global Ltd v BNP Paribas [2019] 3 SLR 1189
• Referred to: Re People’s Parkway Development Pte Ltd [1991] 2 SLR(R) 567
• Referred to: Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd [2021] 2 SLR 478
• Referred to: CH Biovest Pte Ltd v Envy Asset Management Pte Ltd [2025] 1 SLR 141
• Referred to: Sim Yong Kim v Evenstar Investments Pte Ltd [2006] 3 SLR(R) 827
• Referred to: Perennial (Capitol) Pte Ltd v Capitol Investment Holdings Pte Ltd [2018] 1 SLR 763
• Referred to: Andrew v HTL International Holdings Pte Ltd [2022] 5 SLR 991
• Referred to: Adcrop Pte Ltd v Gokul Vegetarian Restaurant and Cafe Pte Ltd [2023] 5 SLR 1435
• Referred to: Lai Shit Har v Lau Yu Man [2008] 4 SLR(R) 348
• Referred to: Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455

Source Documents

• Original Judgment (PDF)
• eLitigation Case Summary