eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd

JudgeAndrew Phang Boon Leong JA
Judgment Date25 March 2013
Neutral Citation[2013] SGCA 27
Plaintiff CounselSamuel Chacko, Christopher Yeo and Shi Jingxi (Legis Point LLC)
Docket NumberCivil Appeal No 84 of 2012
Date25 March 2013
Hearing Date26 November 2012
Subject MatterContractual terms,Contract
Citation[2013] SGCA 27
Defendant CounselEdwin Tong, Kristy Tan and Valerie Tay (Allen & Gledhill LLP)
CourtCourt of Appeal (Singapore)
Published date28 March 2013
Andrew Phang Boon Leong JA (delivering the judgment of the court): Introduction

This is an appeal against the decision of the High Court Judge (“the Judge”) in eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd [2012] SGHC 136 (“the Judgment”). It raises, in the main, issues of contractual interpretation of crucial terms between a financially distressed company and a corporate finance and restructuring expert.

The factual background

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 Appellant had committed material breaches of its distribution agreements with Seagate; The Appellant had refused to allow Seagate to perform a contractual audit of its sales records to confirm the accuracy of its rebate claims; The Appellant’s officials had indicated that an audit would reveal irregularities in the Appellant’s compliance with the terms of Seagate’s sales incentive programs and other unspecified irregularities; Some US$50 million was owed by the Appellant to Seagate; and Seagate fully intended to pursue its contractual audit rights and claims against the Appellant.

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 Letter

On 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:


advise and assist the Group in reviewing and developing strategic options with the objective of enhancing value to all stakeholders; advise and assist the Group, as appropriate, on suitable options to restructure its operational activities and financial arrangements;


advise and assist the Group in identifying and securing potential investors;

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: Time costs fee, out of pocket expenses (including fees of any experts or professionals) and such other fees as may be provided for in any addendum to the Engagement Letter (“Time Cost Fees”); A Value Added Fee (“VAF”) computed at 5% of the Total Gross Value Added (“TGVA”).

The TGVA is defined to be the sum total of the following (“the VAF Clause”): Value of the Group’s liabilities written off, extinguished, avoided or restructured; Fair value of new assets injected and recovered by the Group; Value of new equity and/or debt raised by the Group; and Any other value add agreed with [the Appellant] and the Group. [emphasis added]

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’ meeting

Following 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 current financial status of the Appellant; There were potential investors in the Appellant; The nature of the Appellant’s business and that it would be in the banks’ best interest to hold off their demands against the Appellant; The Appellant was in the midst of formulating a repayment plan which it was estimated would be ready in two weeks; No creditor would be paid in preference to others; and The Appellant was prepared to file an application under s 210(10) of the Companies Act (Cap 50, 2006 Rev Ed), if necessary.

The Meeting ended with the banks agreeing to meet among themselves on the following Tuesday (ie, 28 November 2006). It was resolved that until then none of the banks would commence legal proceedings against the Appellant to recover the Bank Liabilities.

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 Transaction

The 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 via a pari passu distribution. Instead, Mr Tan advised that the Appellant should be restructured so that it became wholly owned by a special purpose vehicle holding company (“Holdco”), with the new monies being received by Holdco, and then extended to the Appellant via a conditional secured loan.

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: He was concerned to exclude the value of a piece of land in India owned by eSys India, the Appellant’s subsidiary, from the Teledata deal. This was later effected through the eSys India Transfer Structure; and He was also keen to receive a cash payout of US$5 million from the Teledata deal but Teledata was unwilling to pay him an additional sum of money, over...

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12 cases
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    ...of the [Limitation Act]” (at [32]). However, as observed by this court in eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd [2013] 2 SLR 1200 (“eSys”), doubt appears to have been cast on the position in De Beers (CA) in OMG Holdings Pte Ltd v Pos Ad Sdn Bhd [2012] 4 SLR 231 (“OMG ......
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7 books & journal articles
  • Contract Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2013, December 2013
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    • Singapore Academy of Law Journal No. 2014, December 2014
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    ...(2009) 10 SAL Ann Rev 433 at 452, para 21.61. 22.60 The Court of Appeal in eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd[2013] 2 SLR 1200 (‘eSys’) affirmed the proposition in Cytec, but also took notice of this potential conflict, albeit also in the context of a contractual cl......
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