Aavanti Offshore Pte Ltd (in creditors' voluntary liquidation) v Bab Al Khail General Trading and another
| Jurisdiction | Singapore |
| Judge | Aedit Abdullah J |
| Judgment Date | 31 March 2020 |
| Neutral Citation | [2020] SGHC 50 |
| Court | High Court (Singapore) |
| Docket Number | Originating Summons No 698 of 2019 |
| Year | 2020 |
| Published date | 04 April 2020 |
| Hearing Date | 25 November 2019 |
| Plaintiff Counsel | Leo Cheng Suan and Tay Hui Yuan, Denise (Infinitus Law Corporation) |
| Defendant Counsel | Chacko Samuel, Charmaine Chan-Richard and Sharmila Sanjeevi (Legis Point LLC),Cheng Yu Ning Teri, Kirpalani Rakesh Gopal and Oen Weng Yew Timothy (Drew & Napier LLC) |
| Subject Matter | Credit and security,Charges |
| Citation | [2020] SGHC 50 |
The liquidators of Aavanti Offshore Pte Ltd (“the liquidators”), who is the applicant in this Originating Summons, sought various orders, directions and declarations relating to the validity of certain security interests that the applicant had granted over its assets, as well as the validity of debit notes issued to the applicant’s subsidiary. The two respondents, creditors of the applicant, take different positions on these various matters sought.
The applicant is a Singaporean company currently in liquidation,1 which owns about 95% of the share capital in PT Palm Lestari Makmur (“PT Palm”), a company incorporated in Indonesia.2 The shares of PT Palm are key assets of the applicant.3 The 1st respondent is Bab Al Khail General Trading (“BAB”), a United Arab Emirates entity.4 The 2nd respondent, Aavanti Industries Pte Ltd (“AIPL”), is a Singaporean company which is now in liquidation after having gone through judicial management for some time.5 AIPL is the sole shareholder of the applicant,6 and had the same sole director as the applicant.7
BackgroundIn June 2012, the applicant entered into a Convertible Loan Agreement (“CLA”) with Sawit Plantations Pte Ltd (“Sawit”).8 Under the CLA, Sawit made available to the applicant a loan facility of up to US$10,000,000.9 The applicant subsequently drew a total of US$9,885,000 from this facility.10 Clauses 7.6 and 9.1 of the CLA contained putative arrangements for the applicant to grant security in favour of Sawit.11 These clauses are the subject of the dispute and are discussed in greater detail below.
Subsequently, Sawit entered into an Assignment Agreement (“AA”) with BAB under which Sawit unconditionally and irrevocably assigned to BAB all amounts due and payable by the applicant to Sawit under the CLA and “all Sawit’s rights, title and interest” under the CLA.12 BAB gave the applicant notice of this assignment.13
Around 12 February 2018, the applicant passed a resolution to place itself in provisional liquidation.14 About a week after, BAB issued a letter of demand to the applicant, stating that the applicant had breached their obligations under the CLA by failing to pay the annual interest owed to BAB, and hence that BAB could “immediately exercise the pledge on… all assets of [the applicant]”.15 Pursuant to the AA, BAB then lodged a proof of debt against the applicant for the sum of US$13,202,051.40 against the applicant,16 representing the drawdown from the loan facility, inclusive of interest and subject to additional interest.17
The liquidators were appointed in March 2018.18 BAB wrote to the applicant demanding that the liquidators execute the necessary security documents to perfect BAB’s entitlement to security over the applicant’s assets, including the shares of PT Palm that the applicant owns.19
The liquidators obtained legal advice on the validity of the entitlement to security claimed by BAB.20 They were advised to execute the security documents to give effect to the entitlement to security.21 BAB and AIPL’s consent was sought for the liquidators to proceed to give effect to BAB’s erstwhile entitlement to the security pursuant to the CLA, in order to resolve the matter expediently.22 BAB agreed,23 but AIPL objected and disputed BAB’s entitlement to the security.24
While under judicial management, AIPL issued two debit notes (“Debit Notes”) to PT Palm for a total sum of US$455,000.25 The Debit Notes were described as “Being management fees for the following period: December 2010 to July 2017” and “Being management fees for the following period: January 2018”.26
BAB subsequently wrote to the applicant, raising concerns as to whether the Debit Notes were justified.27 PT Palm also wrote to AIPL, rejecting the validity of the Debit Notes.28 Thereafter, BAB wrote to the applicant requesting that the latter apply to court to determine the validity of the Debit Notes.29
The parties’ cases The applicant’s case The liquidators applied to court pursuant to s 310(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”), seeking the following:30
In relation to BAB’s entitlement to security, the legal opinion given to the liquidators concluded that the debt under the CLA was validly attached, the CLA was validly assigned from Sawit to BAB, and that BAB’s entitlement to security was enforceable, with the debt due to BAB having priority to unsecured debts. 31
The liquidators could not verify the proof of debt of the Debit Notes.32 They claimed standing to apply for declarations in respect of these notes. They also argued that determination of the validity of the Debit Notes was necessary as recognition of the Debit Notes would affect the value of the applicant’s shares in PT Palm, and thus on the realisable value of such shares.33 They further contended that pursuant to s 269(1) of the Companies Act, affairs pertaining to the shares in PT Palm were within the applicant’s custody and/ or control, as the applicant is PT Palm’s majority shareholder.34 By letter, PT Palm agreed to submit to the court’s findings in this application.35
The liquidators were purportedly prepared to proceed on the basis of the legal opinion that they had obtained. They argue that they were compelled to take out the present application as AIPL disagreed with BAB’s entitlement to security while BAB disputed the validity of the Debit Notes.36
BAB’s caseBAB argues that the applicant is obliged to encumber its assets in favour of BAB, and that the court should order the execution of the necessary security documents. Clause 9.1 of the CLA purportedly makes clear that parties intended for the applicant to confer on BAB the beneficial interest in all of the applicant’s assets as security for the loan.37 If the security documents are not executed now, the applicant would have unfairly obtained a windfall at BAB’s expense.38 Ordering execution of the security documents is not an unfair preference as it occurs after the commencement of winding up, which is outside the prohibited period,39 and it is not a void disposition under s 259 Companies Act as BAB already had beneficial title to the assets.40 The security interest is not void for lack of registration under s 131 of the Companies Act as it is not a charge, but merely an entitlement to security.41
BAB also contends that the court should grant a declaration that the Debit Notes are void or invalid as the applicant is the proper party to apply to determine the validity of the Debit Notes for several reasons. First, as AIPL is in liquidation, PT Palm can only commence proceedings against AIPL with leave of court.42 Moreover, the sole director of PT Palm cannot be found and/ or is uncooperative.43 On the other hand, the applicant is the majority shareholder of PT Palm and thus has an interest in PT Palm’s assets.44 The proceedings will also have an impact on the PT Palm shares, which are the main assets of the applicant, as the Debit Notes (if valid) will diminish the value of such shares.45 Finally, AIPL has not itself commenced proceedings against PT Palm to recover the sum allegedly due and owing under the Debit Notes.46
BAB further submits that PT Palm had, through its solicitors, agreed to be bound by the decision of this court in relation to the Debit Notes.47
BAB highlights PT Palm’s confirmation that there was no valid basis for the Debit Notes to have been issued, and contends that AIPL has failed to produce any credible evidence to substantiate the Debit Notes.48
AIPL’s caseAIPL argues that the applicant does not owe BAB any security interest since no security documents were executed.49 Since parties did not intend for cl 9.1 of the CLA to create an immediate security interest, cl 9.1 itself does not create any equitable security interest.50 Even if the CLA is intended to create or does create an equitable security interest, the equitable security interest created is a floating charge which is void against the applicant for lack of registration under s 131 of the Companies Act.51 There has also been an inordinate delay in enforcing any such equitable security and the equitable doctrine of laches disentitles BAB from the benefit of any such equitable security interest created.52
Further, AIPL maintains that the Debit Notes are valid. It contends that the proper party to dispute the Debit Notes is PT Palm and not the applicant and/or BAB, who are not parties to the Debit Notes.53 In any case, the Debit Notes are valid and enforceable as they are based on an understanding reached at a meeting on 21 December 2017 between one Mr Perumal s/o Samikavandan (“Mr Perumal”) on PT Palm’s behalf, and the judicial managers of AIPL.54 Pursuant to this understanding, PT Palm would reimburse AIPL for paying Mr Perumal and Mr Edmond Perera’s (“Mr Perera”) salaries on its behalf.55
Issues to be determined The issues to be decided are as follows:
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...SLR(R) 112 (“Karaha Bodas”) and Aavanti Offshore Pte Ltd (in creditors’ voluntary liquidation) v Bab Al Khail General Trading and another [2020] SGHC 50 (“Aavanti”). We are of the view that Karaha Bodas and Aavanti merely reflect a general proposition that any person whose interests might b......