Chew Eu Hock Construction Company Pte Ltd (under judicial management) v Central Provident Fund Board

• Jurisdiction: Singapore
• Judgment Date: 08 September 2003
• Date: 08 September 2003
• Docket Number: Originating Summons No 495 of 2003
• Court: High Court (Singapore)

Chew Eu Hock Construction Co Pte Ltd (under judicial management)

Plaintiff

and

Central Provident Fund Board

Defendant

[2003] SGHC 199

Lai Siu Chiu J

Originating Summons No 495 of 2003

High Court

Companies–Schemes of arrangement–Appropriate time to object to scheme of arrangement–Whether objections need to be raised before the court sanctions scheme of arrangement–Companies–Schemes of arrangement–Scheme providing that all claims of unsecured creditors be settled by conversion into shares of public listed company–Central Provident Fund Board rejecting scheme of arrangement after scheme becoming effective–Whether Central Provident Fund Board enjoys, at law, priority over the other unsecured creditors vis-à-vis approved scheme of arrangement

The plaintiff was a wholly-owned subsidiary of Chew Eu Hock Holdings Ltd (“CEH”), a public listed company. The plaintiff was placed under judicial management as part of CEH's debt and capital reduction exercise. Under the scheme of arrangement, CEH was to assume liability for the unsecured debts of the plaintiff to the extent and for the amount allowed by the judicial manager. CEH undertook to settle these claims by converting them into shares of par value $0.005 each in CEH. The plaintiff, by an order of court, convened a meeting of its unsecured creditors to approve this scheme. At the meeting, more than 96% in value of the creditors present and voting approved the scheme.

The defendants, Central Provident Fund (“CPF”) Board, were kept duly informed of the meeting. However, they did not attend the meeting. After the scheme became effective, the defendants rejected the shares issued on the basis that reg 4 of the Central Provident Fund Regulations (Cap 36, Rg 15, 2001 Rev Ed) (“the CPF Regulations”) prescribed that they could only accept cash to discharge the plaintiff's liability for CPF contributions. The plaintiff's judicial manager did not accept the defendants' position and filed this originating summons seeking relief. The issue that arose was whether the defendants, at law, enjoyed priority over other unsecured creditors vis-à-vis the approved scheme of arrangement of the plaintiff.

Held, allowing the application:

(1) There was no legislation that accorded CPF contributions priority in payment where a company was placed under judicial management and schemes of arrangement over the company's unsecured claims had been approved by its creditors and sanctioned by the court. Thus, judicial managers did not owe a duty to the defendants to ensure that CPF claims had priority of payment: at [24].

(2) The fact that other judicial managers had previously accorded priority of payment to CPF contributions did not mean that it was a statutory right. If it was the legislative intent that that was the position, then Parliament would need to amend the Companies Act to address this lacuna:at [30].

(3) Section 328 of the Companies Act only set out the priority in payment by liquidators in winding up cases. This provision was not applicable to a scheme of arrangement obtained under judicial management as it was not incorporated into s 227X (b): at [25].

(4) The court had the discretion under s 227X (b) to accord priority to the defendants' claim for CPF contributions. This discretion would not be exercised in the defendants' favour in this case as they had raised their objections to the scheme of arrangement too late. It would be unfair, unreasonable and prejudicial to the judicial manager, the new investors of the plaintiffs and to other creditors to accept the defendants' objections at such a late stage: at [25] and [26].

(5) The defendants should have objected to the scheme of arrangement before the court had sanctioned the scheme of arrangement. To hold otherwise would mean that, despite the court's approval, there could never be any certainty to the validity of the scheme of arrangement. This would result in great inconvenience to companies, creditors, shareholders and the community: at [27] and [29].

(6) Regulation 4 of the CPF Regulations did not provide that contributions had to be made in cash. In any case, the issuance of the shares in CEH was a temporary measure as the shares could be sold and converted into cash for the defendants: at [32].

Chief Commissioner of Pay-Roll Tax v Group Four Industries Pty Ltd (1984) 8 ACLR 973 (folld)

Eltraco International Pte Ltd v Sennet Electrical Engineering Pte Ltd [2003] SGHC 40 (folld)

Frick Australia Pty Ltd v Pen Pak Ocean Products Pty Ltd [1971] Qd R 286 (folld)

P N Electronic Pte Ltd v PP [1983-1984] SLR (R) 778; [1984-1985] SLR 529 (refd)

Ray Brooks Pty Ltd v New South Wales Grains Board (2002) 41 ACSR 631 (folld)

Soon Aik Marine & Engineering Pte Ltd v The Hoesheng [1987] SLR (R) 148; [1987] SLR 247 (refd)

UDL Holdings Ltd, Re [2002] 1 HKC 172 (folld)

Central Provident Fund Act (Cap 36, 2001 Rev Ed) ss 7, 12, 68

Central Provident Fund Regulations (Cap 36, Rg 15, 2001 Rev Ed) regs 4, 15 (4) (d)

Companies Act (Cap 50, 1994 Rev Ed) ss 210, 227M, 227X, 328

Patrick Ang & Lynette Lee (Rajah & Tann) for the plaintiff

Lim Fung Peen (John Tan & Chan) for the defendants.

Lai Siu Chiu J

The facts

1 Tay Swee Sze was appointed the interim judicial manager and then the judicial manager (“JM”) on the 7 November and 23 November 2001 respectively, in Originating Petition No 600027 of 2001 (“the OP”) which petition was presented by Chew Eu Hock Construction Co Private Limited (“the Company”). The appointment of the JM in the OP was for the following purposes:

(a) the approval under s 210 of the Companies Act (Cap 50) of a compromise or arrangement between the Company and any such person as mentioned in that section; and

(b) the survival of the Company, or the whole or part of its undertaking as a going concern.

The purpose in (a) was to take place in tandem with the capital and debt restructuring exercise of the Company's parent company Chew Eu Hock Holdings Ltd (“CEH”), which involved a reverse takeover of CEH by another group of companies.

2 The Company, which is in the construction and civil engineering business, had incurred net losses for the financial years ending 31 July 2000 and 31 July 2001, in the sums of $7.5m and $26.2m respectively. A further loss of $54.1m was incurred for the eight months between August 2001 and 31 March 2002. These losses resulted in the Company's net tangible assets being reduced to a negative figure prompting the OP...