Deutsche Bank AG and Another v Asia Pulp & Paper Company Ltd

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 31 October 2002
• Neutral Citation: [2002] SGHC 257
• Court: High Court (Singapore)
• Year: 2002
• Published date: 28 March 2013
• Plaintiff Counsel: Alvin Yeo SC, Nishith K Shetty & N Ponniya (Wong Partnership)
• Defendant Counsel: Davinder Singh SC, Sushil Nair, Julian Kwek, Blossom Hing, Raymond Lam & Tan Boon Khai (Drew & Napier LLC)
• Citation: [2002] SGHC 257

Judgment

GROUNDS OF DECISION

1. At the conclusion of the hearing, I dismissed the above Petition (the Petition) filed jointly by Deutsche Bank AG [DB] and BNP Paribas [BNP] (hereinafter referred to collectively as the Petitioners) for the making of a judicial management order against Asia Pulp & Paper Ltd (APP), pursuant to s 227B of the Companies Act Cap 50. As the Petitioners have appealed against my decision (in Civil Appeal No. 95 of 2002), I shall expand upon my oral judgment delivered on 22 August 2002, and set out in full the reasons for my decision.

The background

2. APP is a public company incorporated in Singapore on 12 October 1994 and has its registered office in Jurong at No. 118, Pioneer Road, Singapore 639598. The company has an authorised capital in excess of US$3 billion with issued and paid-up shares of 1,151,653,612 comprising of preference ($1.00 each) and ordinary shares (US$0.50 each). APP's objects inter alia are as follows:-

a. to carry on the business of investment holding and to transact all kinds of investment business;

b. to invest the monies of the company in or otherwise to acquire and hold shares, stock, debentures, debenture stock, scrip, loans, bonds, obligations, notes, securities and investments issued or guaranteed by any company or trust constituted or carrying on business in any part of the world.

APP is essentially an investment holding company which in itself does not own any significant tangible assets or have any operations in Singapore. Its principal business is in the pulp and paper industry located elsewhere. APP serves as the holding company for the pulp, paper and packaging business of the Widjaja family of Indonesia, who are its majority shareholders through another company known as APP Global Limited. Through its subsidiaries which operate mills (in Indonesia and China) which manufacture the group's products, APP as a group is one of the largest producers of paper in the world and the largest in Asia, outside Japan; it claims to be one of the lowest cost producers of pulp and paper in the world. APP has under its umbrella, more than 150 companies incorporated in Indonesia, China, Malaysia, Mauritius, the Unites States and Singapore. The company derives its income (in part) from the management fees it charges its operating subsidiaries. I should point out that APP does not have direct interest as shareholders, in the operating subsidiaries. The company's interest in these subsidiaries is through its equity in intermediate holding companies. In Indonesia, APP has a holding company called PT Purinusa Ekapesada (Purinusa) which has four (4) major Indonesian subsidiaries: PT Indah Kiat, PT Pabrik Kertas Tjiwi Kimia Tbk (Tjiwi Kimia), PT Pindo Deli Pulp & Paper Mills (Pindo Deli) and PT Lontar Papyrus Pulp & Paper Industry. Indah Kiat and Tjiwi Kimia are quoted on the stock exchanges of Surabaya and Jakarta respectively. Purinusa however does not own any timber concessions or subsidiaries that supply the wood to the foregoing four (4) subsidiaries. The timber concessions in Sumatra and Riau Island instead belong essentially to two (2) companies PT Arara Abadi (Abadi) and PT Wirakarya Sakti (Sakti).

3. APP and its subsidiaries are part of a larger group of companies known as the Sinar Mas group, which is one of Indonesia's largest conglomerates, controlled by the Widjaja family. The Sinar Mas group of companies has diversified interests in palm oil, financial services and, timber and pulp/paper. The group even owned a bank PT Bank Internasional Indonesia Tbk, until it was placed under the control of Indonesian authorities in 1999. Abadi and Sakti (hereinafter referred to collectively as the wood companies) belong to the Sinar Mas group.

4. DB is a foreign bank incorporated in the Federal Republic of Germany with branches worldwide, including a Singapore branch located at No. 6 Shenton Way #15-08, DBS Building Tower 2, Singapore 068809.

5. Similarly, BNP is a foreign bank but incorporated in France, with branches worldwide including a Singapore branch located at No 20 Collyer Quay, Tung Centre, Singapore 049319.

6. Although it is a public company, APP is not listed on Singapore's stock exchange (the SGX). However, it does have one subsidiary Nippecraft Limited which is listed on the SGX; it has 15 other Singapore incorporated subsidiaries. APP was granted OHQ (operational headquarters) status by Singapore's Economic Development Board in 1995 for five (5) years which upon expiry, was extended for one (1) year up to 31 December 2000; the company did not apply for further extensions thereafter. APP's American Depository shares (ADS) were listed on the New York Stock Exchange until about 10 August 2001, when the shares were delisted after the price fell for 30 consecutive days below the minimum of US$1.00 required by the exchange; trading in the ADS had been suspended since 4 April 2001.

7. DB is and became, a creditor of APP in the following circumstances: APP's subsidiary APP International Finance (BVI) Ltd (APP-IF) had entered into a Master Agreement dated 19 March 1997 (the Master Agreement) with Bankers Trust International PLC (Bankers Trust) for currency 'swap' transactions. The Master Agreement was guaranteed by APP by a separate agreement of the same date (the Guarantee). The Master Agreement and the Guarantee are governed by New York law. Bankers Trust was taken over by DB and, by a Transfer Agreement dated 28 July 2000 made between DB's London branch and Bankers Trust (with the consent of APP-IF), the Master Agreement was novated to DB. By a separate letter also dated 28 July 2000 from Bankers Trust to DB's London branch, the rights of the former under the Guarantee were also assigned to DB, with APP's consent. As a result of APP-IF's failure to pay DB a sum of US$1,877,204.98 when it fell due on 13 October 2000, DB terminated the two (2) swap transactions dated 19 March and 8 August, 1997 under the Master Agreement. This resulted in APP-IF and thereby APP owing DB a total of US$216,814,659.09 as at 7 November 2000.

8. Negotiations took place between APP-IF, APP and DB which resulted in the signing of a Deed of Forbearance dated 22 November 2000 whereby APP-IF agreed to pay the sum owed to DB by instalments in the years 2000-2002, with such payments being guaranteed by APP. The Deed of Forbearance is governed by English Law. APP-IF failed to comply with the instalment payment plan apart from a sum of US$21,727,237.89 paid by a subsidiary of APP-IF (Hillside Trading Limited) on or about 22 November 2000. As at the date of filing this Petition, the sum owed to DB by APP-IF and or APP (excluding interest) approximated US$193m.

9. On 7 February 2001, DB served (through their solicitors) a statutory notice of demand on APP for the sum of US$28,780,253.32. Apparently no payment or satisfactory payment was made by APP pursuant to the demand.

10. BNP on its part is owed US$20m. BNP had participated in a syndicated loan facility of US$264m which was lent in two (2) tranches, tranche A was released to Indah Kiat International Finance Co. BV (the finance company) and tranche B to PT Indah Kiat Pulp & Paper (Indah Kiat); BNP had lent US$20m to the finance company. This loan was guaranteed by Indah Kiat. The term facility of US$264m was in turn guaranteed by APP, pursuant to a Deed of Guarantee dated 30 March 2000. The loan instruments and APP's guarantee are governed by English law.

11. The participating banks in the syndicate had appointed the Singapore branch of Fuji Bank Limited as their Agent to exercise their rights and powers etc under the facility. An event of default having arisen under the facility, Fuji Bank Ltd by its letter dated 27 March 2001 made on behalf of the participating banks, a demand for payment from Indah Kiat of all monies owing under the loans made in tranches A and B. This demand was followed by a second demand from Fuji Bank to APP (as the guarantor) on 2 April 2001, for repayment of all sums due and payable by Indah Kiat and the finance company (including the US$20m owed to BNP).

12. On 12 March 2001, APP issued a press release through its Chief Financial Officer Hendrik Tee (the press release) announcing a debt repayment standstill (the debt standstill); the announcement inter alia stated:

On the advice of our financial advisors, Credit Suisse First Boston (CSFS), we intend to immediately cease payment of interest and principal on all holding company debt and on debt issued by our subsidiaries and affiliates, the obligations of which are funded by such subsidiaries. In order to allow our operating subsidiaries to continue normal operations, we will be giving priority to servicing our suppliers and trade creditors.

………..we believe it is in the best long-term interest of the Company and its creditors and we plan to seek a consensual arrangement with our creditors. We understand that a number of our creditors have initiated efforts to organize themselves globally and also separately for the China operations. We welcome these efforts. We intend to discuss the standstill and the way forward separately with each of our China operating entities and non-China creditor groups. Appropriate approaches will need to be developed for the various creditor groups based upon the particulars of their respective situations. The Company and its financial advisor will be meeting with creditor representatives to discuss the restructuring process and means for conveying information to creditors.

Creditors of APP (including the Petitioners) cried foul on the company's unilateral declaration of a debt standstill. Indeed, the press release was one of the reasons given for the presentation of this Petition. I should add that APP now has the dubious honour of being the largest debtor (of about US$13.9 billion) in the emerging market as well as being the biggest debt defaulter in Asia. In Singapore, it has been sued by numerous...