eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd
Court | Court of Appeal (Singapore) |
Judge | Andrew Phang Boon Leong JA |
Judgment Date | 25 March 2013 |
Neutral Citation | [2013] SGCA 27 |
Citation | [2013] SGCA 27 |
Defendant Counsel | Edwin Tong, Kristy Tan and Valerie Tay (Allen & Gledhill LLP) |
Published date | 28 March 2013 |
Plaintiff Counsel | Samuel Chacko, Christopher Yeo and Shi Jingxi (Legis Point LLC) |
Hearing Date | 26 November 2012 |
Docket Number | Civil Appeal No 84 of 2012 |
Date | 25 March 2013 |
Subject Matter | Contractual terms,Contract |
This is an appeal against the decision of the High Court Judge (“the Judge”) in
eSys Technologies Pte Ltd (“the Appellant”) is engaged in the business of distributing computer hardware and in particular hard disk drives. Its founder is Vikas Goel (“Mr Goel”), who is also a 99.999% shareholder and managing director of the company. The Appellant’s commercial relationship with Seagate Technology (“Seagate”), a US-based multinational company which designs, manufactures and markets hard drives, was critical to its business. In particular, the Appellant relied heavily on its distributorship agreements with Seagate as 40% of its sales comprised Seagate products.
On 6 November 2006, Seagate decided to terminate its worldwide distributorship agreement with the Appellant and filed a public announcement with the US Securities and Exchange Commission (“the SEC Announcement”) to this effect. The SEC announcement alleged that:
The SEC announcement not only had a crippling effect on the Appellant’s bottom-line but also seriously damaged its commercial reputation. In particular, it raised alarm among the Appellant’s trade and bank creditors and prompted demands for the repayment of, or additional security for, outstanding loans amounting to a total of some US$50 million. In addition, the Appellant’s bank creditors cancelled some US$132 million of credit lines and its suppliers cancelled another US$90.5 million of credit lines. The cancellation of these various credit lines dried up the Appellant’s cashflow and threatened the company’s survival as a going concern as it was heavily dependent on credit to facilitate its trading operations. One of the bank creditors, KBC Bank (“KBC”), even spoke to the Appellant about KBC’s intentions to appoint a judicial manager.
Given the deluge of creditors’ demands, the key problem facing the Appellant was the fact that, as it was a trading company whose primary assets were inventories and receivables, it needed time to first realise its inventories and collect its receivables, in order to perform its repayment obligations. In the meantime, the Appellant required help to stave off the creditors’ demands and prevent them from commencing legal action.
In this connection, the Appellant’s legal advisors, Drew & Napier LLC, recommended nTan Corporate Advisory Pte Ltd (“the Respondent”). On 11 November 2006, an urgent meeting was arranged between Mr Goel and Nicky Tan (“Mr Tan”), Chief Executive Officer of the Respondent.
The Engagement LetterOn 14 November 2006, it was decided that the Appellant would engage the Respondent as an independent advisor. An agreement for the “appointment of independent advisor” was executed between the Appellant and the Respondent (“the Engagement Letter”).
The Engagement Letter was drafted by the Respondent and under the heading “Scope of Work” it listed the following material items (“the Scope of Work Clause”):
Scope of Work The board of directors of eSys [
ie , the Appellant] (“Board of Directors”) has resolved to and appointed us [ie , the Respondent] as independent advisor to eSys and its subsidiary and associate companies (together, the “Group”) to:...
...
…
In addition, under the heading “our fee arrangements”, it was set out that there would be two distinct component of fees due to the Respondent:
The TGVA is defined to be the sum total of the following (“the VAF Clause”):
Under paragraph 8 of Appendix A to the Engagement Letter, it was further provided that, even after termination of the engagement, the Respondent would continue to be entitled to any VAF earned if the Appellant adopted or implemented its advice relating to the scope of work within 36 months from the date of such termination.
Upon execution of the Engagement Letter, the Appellant placed a deposit of S$2 million (“the deposit”) with the Respondent. The Engagement Letter also provided that, at the end of the engagement, the balance of the deposit after setting off all fees and expenses would be returned to the Appellant.
Bank creditors’ meetingFollowing the Respondent’s engagement, it proceeded to organise a meeting with the Appellant’s bank creditors. The purpose of the meeting was to convince the various bank creditors to agree to a standstill, pursuant to which the bank creditors would withhold their demands for repayments and give the Appellant more time to repay its debts (“the Bank Liabilities”). The Respondent thus undertook the preparation of the necessary materials for the bank creditors’ meeting with this goal in mind. In accordance with the advice from Mr Tan, the Appellant offered to appoint PricewaterhouseCoopers as the bank creditors’ financial advisor in order to boost the bank creditors’ confidence in the Appellant.
On 24 November 2006, the bank creditors’ meeting was held (“the Meeting”). Mr Tan chaired the Meeting and informed the bank creditors of the following:
The Meeting ended with the banks agreeing to meet among themselves on the following Tuesday (
As it turned out, even after 28 November 2006, none of the bank creditors commenced legal proceedings against the Appellant and the latter eventually managed to repay all its debts to its creditors by March 2007.
The Teledata TransactionThe other significant work allegedly done by the Respondent related to an investment by Teledata Informatics Ltd (“Teledata”) of approximately US$100 million in the Appellant (“the Teledata Transaction”). Earlier, on 10 November 2006, soon after Seagate terminated its worldwide distributorship agreements with the Appellant, a letter of interest was sent by Teledata indicating an interest on Teledata’s part to purchase 51% of the total paid up equity shares of the Appellant for a consideration of US$60 million (“the Direct Funding Structure”). In addition, Teledata would provide a loan of US$40 million to the Appellant as working capital.
According to Mr Tan, during his first meeting with Mr Goel on 11 November 2006, he had informed the latter that the Direct Funding Structure was not a good idea as it might give the bank creditors impetus to put the Appellant into liquidation so as to gain access to the fresh funds
On 25 November 2006, further discussions took place between Mr Goel and Mr Tan. On 29 November 2006, a Share Subscription Agreement (“the SSA”) was entered into by the Appellant, Mr Goel, and Teledata, essentially implementing the Holdco structure for the purposes of Teledata’s investment. The company eventually used as the holding company was Rainforest Trading Limited.
Mr Goel had had some specific concerns in relation to the Teledata Transaction. In particular:
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