Jurong Technologies Industrial Corp Ltd (under judicial management) v Coöperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank International, Singapore Branch)

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 09 December 2010
• Neutral Citation: [2010] SGHC 357
• Citation: [2010] SGHC 357
• Docket Number: Originating Summons No 733 of 2009
• Published date: 12 January 2011
• Hearing Date: 18 August 2010,13 September 2010,19 August 2010,20 August 2010,17 August 2010
• Plaintiff Counsel: Sarjit Singh Gill SC, Pradeep Pillai and Zhang Xiaowei (Shook Lin & Bok LLP)
• Date: 09 December 2010
• Defendant Counsel: Gregory Vijayendran, Sheela Devi, Neo Xiao Yan Charmaine (Rajah & Tann LLP)
• Court: High Court (Singapore)
• Subject Matter: Insolvency Law,Avoidance of transactions,Unfair preferences

Andrew Ang J: Introduction

In this action the plaintiff seeks to set aside and recover payments of US$529,720.31 and US$2,245,429.06 (“the Payment”) made by the plaintiff to the defendant on 22 December 2008 on the ground that the Payment constituted an undue preference under s 227T of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”).

The plaintiff is an investment holding company with a wholly-owned principal operating subsidiary, Jurong Hi-Tech Industries Pte Ltd (“JHTI”). Most business operations were conducted in the name of JHTI. The defendant granted banking facilities to both JHTI and the plaintiff (collectively referred to as “the Companies”) jointly and severally. The Companies were placed under judicial management by orders of court dated 20 February 2009. Tam Chee Chong (“Tam”) was one of the two persons appointed the joint and several judicial managers of the Companies (“the Judicial Managers”).

Factual background

The facts that form the background to this action were largely undisputed and can be briefly stated. The plaintiff procured banking facilities from several banks, including ABN AMRO NV, Bank of Tokyo-Mitsubishi UFJ (“BTMU”), DBS Bank Ltd (“DBS”), Malayan Banking Berhad (“Maybank”), Oversea-Chinese Banking Corporation Ltd (“OCBC”), RHB Bank Berhad (“RHB”) and United Overseas Bank Ltd (“UOB”). The plaintiff’s facilities with these banks were unsecured, but each bank was given a negative pledge and a pari passu undertaking. As most of the business operations of the Companies were conducted in the name of JHTI, other than BTMU, Maybank and RHB which had granted facilities solely to the plaintiff, all the other banks granted facilities to the Companies jointly and severally.

Sometime in September 2004, the defendant approached the plaintiff with an offer of credit facilities. Yeo Peck Heng (“Yeo”), a director of the Companies, told the defendant about the plaintiff’s unsecured facilities with other banks as well as the negative pledge and pari passu undertaking that each of the banks had been given. By a letter dated 20 September 2004, the defendant offered credit facilities to the plaintiff on a similar basis, incorporating a negative pledge and a pari passu clause. These original credit facilities were subject to several addenda and revisions issued by the defendant over the years, with the last revision letter issued jointly to the Companies on 22 January 2008.

Sometime in early 2007, the defendant offered to provide account receivables financing (“AR Financing”) to JHTI. The defendant and JHTI entered into a Master Receivables Purchase Agreement dated 15 February 2007, which was followed by an addendum dated 12 November 2007.

In March 2008, Ms Lin Li Fang (“Ms Lin”) took over as chairperson of the plaintiff’s group of companies (“the Group”). She was concerned about the high debt level of the Group and sought to monetise the assets of the Group to pay down the outstanding bank loans. The directors of the plaintiff, including Ms Lin and Yeo, gave similar presentations to the defendant and each of the other banks separately. During the presentations, they stated that some of the Companies’ assets would be sold to pay down the bank loans. These assets included the Electronic Manufacturing Services (“EMS”) business, shares in MAP Technology Holdings Ltd (“MAP Shares”) and shares in Min Aik Technology Co Ltd (“Min Aik Shares”).

In July 2008, the plaintiff’s general manager, Ang Ah Bah (“Ang”) told Ms Lin that Richard Lee Seow Hong (“Lee”), the relationship manager for the Companies’ accounts with the defendant, had told him that the defendant no longer wished to continue the AR Financing arrangement with JHTI. Although Ms Lin was concerned that the defendant might terminate the AR Financing facility and demand immediate repayment, in fact, no action was taken by the defendant. A month later, in August 2008, Ang informed Ms Lin that Lee had told him that the defendant wanted to concentrate on the agricultural sector and cease financing the telecommunications and electronic sectors (which the Companies were involved in). Again, the defendant did not take immediate action and continued to provide financing, including against invoices presented by the Companies.

Subsequently, at a dinner meeting on 22 September 2008, Lee informed Ms Lin that the defendant wished to exit from the non-core markets (ie, the telecommunications and electronics sectors) and that it intended to end its relationship with the Companies in an orderly fashion. Ms Lin then requested that the defendant reduce or cancel the banking facilities gradually and allow the Companies to pay according to the maturity dates of those facilities.

It bears noting that Ms Lin and Lee have had a long business relationship, having known each other personally since the early 1980s when Lee was working in Overseas Union Bank. After he moved to OCBC, he was tasked to handle the plaintiff’s accounts as OCBC was aware of his good relationship with Ms Lin. When he subsequently joined the defendant, he continued to act as the relationship manager for the Companies’ accounts with the defendant. According to Lee, during his tenure with OCBC, he would visit the plaintiff’s office once a week. He intensified the frequency of visits to twice a week when he joined the defendant in order to deepen the relationship, as the defendant was a relatively new banker. He often spoke to Ms Lin during those visits and Ms Lin felt obligated towards the defendant and him as she believed that they were very “supportive” of the Companies.

Between September and November 2008, the plaintiff faced increasing difficulties paying overdue loans and other facilities and these were left largely unpaid. On 11 September 2008, the defendant requested that the Companies reduce the amount of invoices sent for discounting to avoid exceeding the AR Financing facility’s limit of US$20m. After the limit was reached by the end of September 2008, no further invoices were sent to the defendant for discounting. Besides the defendant, other banks such as ABN AMRO, DBS, KBC, Maybank and UOB were pressing the Companies to repay their overdue loans and other facilities, but the Companies were unable to make payment in full, only making payments in the ordinary course of business from trade receivables or by drawing on credit lines. The Companies then told their bank creditors, including the defendant, that they would pay down their loans and facilities using the proceeds from the sale of the MAP Shares, the Min Aik Shares and the EMS business to the Global Emerging Markets Group (“GEM”).

At around the same time, the Companies’ trade creditors were also demanding payment of invoices from the Companies.

The Companies first defaulted on their facilities with the defendant on 7 October 2008 when they failed to pay over receivables that would have been paid by Motorola Electronics to JHTI on that date. Besides this, JHTI failed to make payment on other amounts, including invoices under the AR Financing facility and trade bills, which had fallen due for payment in early October 2008. When the Companies failed to settle trust receipts which were due on 16 October 2008, the defendant forced-debited JHTI’s current account, causing it to be overdrawn.

Between October and December 2008, Lee sent e-mail chasers and made telephone calls to the Companies’ directors requesting for payment. He also met with the plaintiff’s representatives at the plaintiff’s premises to discuss repayment of the amounts due to the defendant. According to the defendant, Lee and Ms Lin had reached a verbal agreement on a schedule of repayment that was recorded in a letter dated 13 November 2008 from the defendant to the Companies (“the First Letter”). The defendant took the position that the First Letter had purported to cancel the facilities extended to the Companies and had included a formal demand for all amounts due and owing under the various facilities extended to the Companies. Ms Lin’s evidence, however, was that she was not aware of any verbal agreement with Lee. She also did not recall having seen the First Letter, which the Judicial Managers could not find among the books and records of the Companies.

During one of his telephone calls sometime in November 2008, Lee asked Ms Lin whether the MAP Shares could be placed in an escrow account with the defendant, but Ms Lin told him that this could not be done and that the loans due to the defendant could be repaid instead from the sale proceeds of the Min Aik Shares. Later that month, Lee told Ms Lin that the defendant wanted the Min Aik Shares to be placed in an escrow account with the defendant to ensure that the sale proceeds of those shares would be paid to the defendant.

On 17 November 2008, the defendant issued a letter to JHTI demanding payment of the unpaid receivables under the AR Financing facility.

On 23 November 2008, Ms Lin signed and issued a letter under which the plaintiff undertook to set up an escrow account with the defendant to hold the Min Aik Shares and credit the sale proceeds of the Min Aik Shares directly to the escrow account. Despite the contents of that letter, no escrow account was opened with the defendant and the Min Aik Shares were not placed in any such escrow account.

According to the defendant, on 25 November 2008, a meeting took place between the Companies’ principal representatives (including Ms Lin), Lee, the defendant’s general manager Goh Chong Theng (“Goh”) and the defendant’s chief credit analyst Tan Wah Yam (“Tan”). At that meeting, Goh demanded that the Companies take immediate action to prepare the appropriate documentation to ensure that the proceeds from the sale of the Min Aik Shares be paid to the defendant. While Ms Lin’s evidence in this regard was that she did not recall this meeting on 25 November 2008, the plaintiff is prepared to accept that...