Eltraco International Pte Ltd v Sennet Electrical Engineering Pte Ltd and Others

• Jurisdiction: Singapore
• Judge: MPH Rubin J
• Judgment Date: 26 February 2003
• Neutral Citation: [2003] SGHC 40
• Court: High Court (Singapore)
• Published date: 07 October 2003
• Year: 2003
• Plaintiff Counsel: Steven Lee (Chen Lee & Ng)
• Defendant Counsel: Ravi Chelliah and Lee Hwai Bin (ComLaw LLC),Lee Eng Beng and Hilbert Lee (Rajah & Tann),Eusoff Ali (Tan Rajah & Cheah)
• Citation: [2003] SGHC 40

Introductory

1 In these proceedings, the issue for determination revolved around the scope and operation of a scheme of arrangement put forward by the judicial manager of the plaintiffs and duly approved by the court, pursuant to s 210 (read with s 227X) of the Companies Act (Cap 50) (‘the Act’) in relation to the debts of the plaintiffs.

Background facts

2 The plaintiffs are the main contractors for a building project known as Pine Springs at 7B Balmoral Road (‘the project’). The eighth defendants, Pine View Holdings Pte Ltd are the owner-developers of the project (‘project owners’). The other seven defendants are some of the unsecured creditors, being nominated sub-contractors of the project to whom various amounts were due and outstanding from the plaintiffs.

3 The plaintiffs were placed under judicial management by an order of court dated 21 January 2000 in Originating Petition No 36 of 1999. Mr Chee Yoh Chuang (‘Chee’) and his colleague Lim Lee Meng were appointed joint and several judicial managers of the plaintiffs by the said order. At the time the plaintiffs were placed under judicial management, their accounts with the project owners were not finalised and had yet to be certified for payments by the project architects.

4 Following their appointment, the judicial managers, in exercise of their powers and functions convened a meeting of the creditors of the plaintiffs to consider and approve a scheme of arrangement with a view to avoiding the compulsory winding-up of the plaintiffs and restructuring and preserving all or part of the business of the plaintiffs as a going concern.

5 By an order of court dated 12 July 2000, Chee was one of the persons appointed by the court to act as chairman of the court-directed creditors’ meeting. Notices were published both in the English press as well as the Chinese media and the said meeting was duly convened on 11 August 2000.

6 As it transpired, 62 creditors (including the first to the seventh defendants) either personally or by proxy attended the meeting. A poll taken showed that the result was that the majority of the creditors, representing 86.5% in value voted in favour of the scheme of arrangement. The results of the poll tabulated in the affidavit of Chee were as follows:

Proposed scheme of arrangement Percentage	FOR		AGAINST
	No.	Amount(S$)	No.	Amount S$
	57	5,403,436.81	4	843,369.99
	93.4%	86.5%	6.6%	13.5%

7 The scheme which was accepted by the requisite majority of creditors contained amongst other things, the following proposals:

(a) The realisation from the Company’s assets (mainly accounts receivable from completed projects) after meeting the costs of realisation and administration shall be paid entirely to the creditors in the manner set out [in the scheme] (para 1.2)0;

(b) The claims of unsecured creditors shall be extinguished upon receipt of their entitlements under the said scheme (para 1.2.2);

(c) The judicial managers shall apply to the court for the discharge of the judicial management order immediately after the scheme is approved by the creditors (para 1.2.3); and

(d) Chee shall be the scheme administrator of the scheme (para 5.1) to:

(i) invite claims and adjudicate such claims; and

(ii) authorise payments to creditors in accordance with the scheme and to keep account of such payments (para 5.3 (i) and (ii)).

8 Paragraph 2 of the scheme dealt with the distribution mechanism. Under the heading ‘Creditors’ Entitlement’, it was provided therein as follows:

2.1 Preferential creditors

Preferential creditors as defined in Section 328 of the Companies Act (Cap 50) will be paid 100% of their claims admitted by the JMs/Administrator as and when funds are available.

2.2 Unsecured creditors

Unsecured creditors whose claims have been admitted by the JMs/Administrator shall be paid on a pro-rata basis within two weeks of receipt of payment provided the claims of the preferential creditors have been met in full. There shall be no payment and the funds shall be held by the JMs/Administrator to consolidate with future receipts if the sum is not sufficient to make a payment of at least 5%.

2.3 Contingent creditors

In the event the claims of the contingent creditors materialise, they shall be paid in the same manner as any other unsecured creditors. The JMs/Administrator shall make a provision for the contingent claims if same are not resolved at the time of payment to unsecured creditors.

2.4 Secured creditors

Secured creditors shall be paid out of the net proceeds from the sale of their security as and when the net sale proceeds are received. If assets are not sold at the time of payment, the secured creditors shall be paid based on the estimated shortfall if any, in the same manner as any other unsecured creditors.

The Scheme shall not in any way prejudice or affect the rights of the secured creditors.

9 In the event, by way of Originating Summons No 1017 of 2000, Chee applied to the court for the approval of the scheme duly passed at the meeting of creditors and thereafter obtained the court’s approval by an order of court dated 4 October 2000. Chee thenceforth became the scheme administrator.

10 The matter, however, took a turn when the plaintiffs received a letter dated 15 January 2002 from the project architects. The said letter read:

15 January 2002

…

PINE SPRINGS AT 7B BALMORAL ROAD FOR PINE VIEW HOLDINGS PTE LTD – Claims by Nominated Sub-Contractors/Suppliers (NSC/S) for Direct Payment

Please note that we have received claims from the NSC/S [nominated sub-contractors] that amounts certified for payment are still not paid by yourselves, and they are requesting for direct payment from the Employer.

Without prejudice to adjustment and increased entitlements in the final account, please find attached a copy of the NSC/S’ respective claims for direct payment.

The Employer is considering these claims and any direct payments are intended to proceed subject to any substantiated objections in accordance with the Contract, after 31 January 2002 (giving you 14 days’ notice to respond, as required under the Conditions of Contract).

You have already been notified separately of the ‘Allowance for Defects’ and Costs of Other Contractors’ Works through our respective Architect Directions and Certificates.

…

[Signed]

11 The scheme administrator replied to the architects on 25 January 2002. The said reply read:

25 January 2002

…

Pine Springs At 7B Balmoral Road For Pine View Holdings Pte Ltd

Claims By Nominated Sub-Contractors/Suppliers (NSC/S) For Direct Payment

We refer to your letter dated 15 January 2002 on the captioned subject.

As you are aware, the Company was placed in judicial management earlier. Currently, there is a Scheme of Arrangement between Eltraco International Pte Ltd ("the Company") and all it’s unsecured creditors. Under the circumstance, all payments due from the Employer should either be made to the Company and/or the Scheme Administrator. Please note that payments made by the Employer directly to the Company’s nominated sub-contractors ("NSCs") may be construed as undue preference payments. The Company and Scheme Administrator hereby reserve their rights to claim against the Employer and/or the NSCs for all payments made directly to the NSCs by the Employer.

…

[Signed]

12 The demand by the plaintiffs was apparently not viewed with favour by the project owners. On 29 January 2002, the project owners wrote to the architects in the following terms:

29^th January 2002

…

Re: Pine Springs at 7B Balmoral Road

Claims By Nominated Sub-Contractors/

Suppliers (NSCs) for Direct Payment

We refer to the above and to the letter to you dated 25^th January 2002 from Eltraco International Pte Ltd ("Eltraco") signed by Mr. Y C Chee as the Scheme Administrator of the Company.

We are of the view that any alleged scheme of arrangement between Eltraco and all its unsecured creditors does not impact our contractual rights under our main contract with Eltraco.

We are not privy to the scheme of arrangement and no official notice nor details of the scheme whatsoever were made available to us. Even if they were, it would not in our view, have impacted our contractual position.

Eltraco is also not currently under judicial management, and even if they were, the placement of Eltraco under judicial management would not impact our legal rights under the contract.

The Scheme Administrator has not forwarded any satisfactory or legally substantive reason as to why direct payments to NSCs legitimately made under contract conditions between Eltraco and ourselves pursuant to certifications by yourselves as Architects, amount to any form of undue preference.

We reiterate that direct payments made to the NSCs by the Employer are deemed to be payments made to the Contractor so long as NSCs’ claims have been duly certified by yourselves as Architects.

Unless Eltraco and/or the Scheme Administrator are able to substantiate or rationalise the position taken in their letter, we continue to reserve our right to effectuate direct payments in discharge of our obligations in accordance with the terms of the contract. We also reserve our right alternatively to make payment to Court if we deem such necessary for purposes of our own interest and convenience.

…

[Signed]

13 Disturbed by the stand taken by the project owners, the plaintiffs through their solicitors’ two letters dated 6 March 2002 informed the project owners as well as the other defendants, that any direct payment to the nominated sub-contractors by the project owners would be in contravention of the approved scheme of arrangement and would constitute an undue preference to one group of unsecured creditors. Notwithstanding the said communication, the architects, nevertheless, issued their final certificate on 22 June 2002, purportedly under clause 31(10) of the Conditions of Contract in respect of the project and further authorised the...