The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
JudgeChan Sek Keong CJ
Judgment Date21 April 2008
Neutral Citation[2008] SGCA 18
Citation[2008] SGCA 18
SubjectCivil Procedure,Failure to file proof of debt in time,Factors that court considers in deciding whether to grant extension of time,Creditor's claim deemed zero,Established principles governing schemes of arrangement,Schemes of arrangement,Whether extension of time should be granted to creditor to file proof of debt,Extension of time,Whether creditor seeking extension of time to be blamed for failure to file proof of debt in time,Whether court having jurisdiction to grant extension of time under O 3 r 4 Rules of Court (Cap 322, R 5, 2006 Rev Ed) to creditor to file its proof of debt after court sanctioned scheme,Legislative history and purpose of s 210 Companies Act (Cap 50, 2006 Rev Ed),Whether extension of time to file proof of debt a matter of procedure or material alteration of scheme,Nature of schemes of arrangement,Whether prejudice caused to company, other parties to scheme or creditor seeking extension of time,Whether scheme of arrangement operating as statutory contract or order of court,Whether court having jurisdiction to grant extension of time under O 3 r 4 Rules of Court (Cap 322, R 5, 2006 Rev Ed) or s 392(4)(d) Companies Act (Cap 50, 2006 Rev Ed) to creditor to file proof of debt after court sanctioned scheme,Companies,Extension of time for filing proof of debt in relation to schemes of arrangement
Defendant CounselBalakrishnan Ashok Kumar, Kevin Kwek and Margaret Ling (Allen & Gledhill LLP)
Docket NumberCivil Appeal No 136 of 2007
Plaintiff CounselN Sreenivasan and Palaniappan Sundararaj (Straits Law Practice LLC)
Publication Date23 April 2008
Date21 April 2008

21 April 2008

V K Rajah JA (delivering the grounds of decision of the court):

Introduction

1 This appeal raised an interesting but rather narrow point of law, viz, whether the court retains a residual jurisdiction to extend the time for a creditor to file its proof of debt after the court has approved a scheme of arrangement pursuant to s 210 of the Companies Act (Cap 50, 2006 Rev Ed). The judge in the court below (“the Judge”) answered this question in the negative (see Re Reliance National Asia Re Pte Ltd [2008] 1 SLR 569 (“the GD”) at [2]). She then dismissed the application of the appellant, Oriental Insurance Co Ltd (“Oriental”), for a three-week extension of time to file its proof of debt pursuant to the scheme of compromise and arrangement entered into between the respondent, Reliance National Asia Re Pte Ltd (“Reliance”), and its creditors including Oriental (“the Scheme”).

2 The Judge’s decision effectively meant that Oriental was prevented from recovering any portion of its outstanding claim of approximately US$20m from Reliance. Oriental appealed against the Judge’s decision. We allowed Oriental’s appeal and now give the detailed reasons for our decision.

The facts

Events leading up to the Scheme

3 Reliance was incorporated locally in July 1996 and was in the business of undertaking general insurance. At its inception, Reliance was a fully-owned subsidiary of Reliance Insurance Company (“RIC”), a company incorporated in the US. RIC ran into financial difficulties in 2000, and its financial frailty affected Reliance’s operations, rendering it no longer feasible for Reliance to continue business. As a consequence, Reliance’s management decided that the best commercial option would be to enter into a voluntary run-off of the company. This was initiated in April 2001 (see the GD at [3]).

4 Subsequently, Whittington Investment Guernsey Ltd (“WIG”) acquired the entire share capital of Reliance sometime in 2004. As the run-off proved to be both costly and time-consuming, Reliance, under its new ownership, decided that the most efficient and effective method of settlement with its creditors would be the implementation of a solvent scheme of arrangement (in the form of the Scheme) under s 210 of the Companies Act. Whittington Asia Pacific Pte Ltd, a company alleged by Oriental (and which appears) to be a wholly-owned subsidiary of WIG, was duty appointed as the scheme manager having conduct of the Scheme (“the Scheme Manager”). It appears from para 1.7 of the explanatory statement to the Scheme (“the Explanatory Statement”), which is reproduced at [7] below, that the acquisition of Reliance by WIG in 2004 was motivated by business considerations, namely, an expedient conclusion of the run-off by means of the Scheme. According to Reliance, the Scheme would have the advantage of concluding the run-off of Reliance’s business much earlier than would be the case if the run-off were to continue until all claims from Reliance’s creditors (referred to as “Scheme Creditors” in these grounds of decision) had materialised and had been agreed to and paid in the normal course of business (see the GD at [4]).

5 To implement the Scheme, Reliance sent a letter dated 18 November 2005 to all the Scheme Creditors, including Oriental (an insurance company incorporated in India and wholly-owned by the Indian government), informing them about and seeking their support of the Scheme. The letter was sent to Oriental’s general address at A-25/27, Asaf Ali Road, New Delhi 110002, India (“the General Address”).

6 Pursuant to s 210(1) of the Companies Act, Reliance applied on 19 May 2006 to the High Court for permission to convene a creditors’ meeting. By an order of court dated 2 June 2006, a meeting of the Scheme Creditors (“the Court Meeting”) was ordered to be convened to consider whether the Scheme should be approved. On 16 June 2006, Reliance sent the notice of the Court Meeting (which was to be held on 26 September 2006), the Explanatory Statement and the documents setting out the terms and conditions of the Scheme (“the Scheme of Compromise and Arrangement”) to Oriental at the General Address. The proxy form, voting form and a specimen proof of debt form were also bound together with the above documents (collectively, all the documents sent to the Scheme Creditors, including Oriental, will be referred to as “the Scheme Documents”). It was not disputed that Oriental received the Scheme Documents (see the GD at [7]).

Key provisions of the Scheme Documents

7 For the purposes of this appeal, we think it would be helpful to set out some of the salient provisions of the Scheme Documents, particularly those relating to the purpose of the Scheme, the filing of proofs of debt by Scheme Creditors and the payment of Scheme Creditors’ claims (“Scheme Claims”). Paragraph 1.7 of the Explanatory Statement explained that the objectives of the Scheme were to conclude the run-off of Reliance’s business earlier than would be the case if the run-off were to continue until all Scheme Claims had materialised and had been agreed to and paid, as well as to make full payment to all the Scheme Creditors:

1.7 REASONS FOR SCHEME AND FOR SCHEME CREDITORS TO APPROVE THE SCHEME

The Company [ie, Reliance] does not expect the run-off of the Company’s business to be completed for many years and as a result believes that a Scheme of Arrangement should be the most efficient and effective method of making full payments to Scheme Creditors in the shortest practicable time. A Scheme will have the effect of concluding the run-off of the Company’s business earlier than would be the case if it were to continue until all claims had materialised and had been agreed and paid in the normal course.

The aim of the acquisition of the Company by WIG was for WIG to conclude the run-off by use of a solvent scheme of arrangement, which is intended to cover all creditors of the Company. If the Company were unable to promote the Scheme, the costs of maintaining the run-off would be disproportionate and it is likely that the Company would explore other alternative methods of putting a close to the Company’s business, such as by a solvent liquidation.

[emphasis added]

Similarly, cl 2.1 of the Scheme of Compromise and Arrangement emphasised:

The primary purpose of the Scheme is to conclude the run-off of the Company’s business earlier than it would have been [concluded] in the normal course by accelerating where necessary and providing a mechanism for payment of all Scheme Claims. To achieve such purpose, the Scheme establishes mechanisms by which all Scheme Claims (present and future) shall be ascertained and thereupon paid in full. [emphasis added]

8 In relation to the Scheme’s objective of paying all the Scheme Creditors in full, para 1.6 of the Explanatory Statement set out the financial position of Reliance and explained that, based on the company’s audited accounts as at 31 December 2005, Reliance had sufficient assets to meet all the Scheme Claims:

1.6 FINANCIAL POSITION OF THE COMPANY

1.6.1 The audited balance sheet of the Company for the year ended 31 December 2005 shows the Company to be solvent with assets of S$36,861,203 and liabilities of S$28,062,270, with a net asset value of S$8,798,933. ...

1.6.2 The net asset value as at 31 December 2004 was S$11,390,701, while the net asset value as at 31 December 2005 was S$8,798,933. There has been no material change in the financial position of the Company since 31 December 2005.

1.6.3 Out of the total assets of S$36,861,203 (for the year ended 31 December 2005), the Company has cash and investments of S$27,208,416, and insurance and reinsurance assets worth S$8,361,398.

1.6.4 Out of the total liabilities of S$28,062,270 (for the year ended 31 December 2005), the Company estimates that S$730,595 are non Scheme Liabilities. The Scheme Liabilities as at 31 December 2005 amount to S$27,331,675, of which, S$3,423,465 represents outstanding claims (agreed but as yet unpaid), S$16,061,000 represents loss reserves and Incurred But Not Reported (“IBNR”) claims, and S$7,847,210 represents amounts owing to retrocessionaires.

[emphasis added]

As Reliance (as at 31 December 2005) had assets of $36,861,203 and liabilities of $28,062,270, of which an estimated $27,331,675 consisted of “Scheme Liabilities”, the Scheme was (and remains) a solvent scheme of arrangement whereby all the Scheme Creditors would be paid in full. In fact, para 1.7 of the Explanatory Statement (see [7] above) unequivocally described the Scheme as “a solvent scheme of arrangement, which [was] intended to cover all creditors of the Company” [emphasis added].

9 As for how and when payments under the Scheme were to be effected, para 2.2.1 of the Explanatory Statement provided as follows:

2.2.1 Payment under the Scheme

(a) The Company shall pay or procure to be paid to each Scheme Creditor, who has delivered a Proof of Debt to the Scheme Manager at the Specified Address on or before 14 May 2007, an amount in the Reference Currency equal to [its] Approved Scheme Claim. Payment to the Scheme Creditors in respect of their Approved Scheme Claims shall only be made by the Company after all Scheme Claims have been determined by the Scheme Manager and all Disputed Claims have been adjudicated by the Independent Adjudicator. …

(b) In the event that any Scheme Creditor fails to submit a Proof of Debt to the Scheme Manager at the Specified Address by the Claims Cut-Off [D]ate, that Scheme Creditor shall not be entitled to any payment of his Scheme Claim with effect from the Claims Cut-Off Date, and:

(i) the Company shall be completely and absolutely released and discharged from all claims, obligations and liabilities (whether actual, contingent or otherwise) and indebtedness (whether as principal debtor or surety) of the Company to that Scheme Creditor whatsoever and howsoever arising out of or in connection with any and all agreements, transactions, dealings and...

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