Re CEL Tractors Pte Ltd

• Jurisdiction: Singapore
• Judge: Kan Ting Chiu J
• Judgment Date: 14 April 2001
• Neutral Citation: [2001] SGHC 72
• Docket Number: Originating Summons No 600261 of
• Date: 14 April 2001
• Year: 2001
• Published date: 19 September 2003
• Plaintiff Counsel: Vinodh Coomaraswamy and David Chan (Shook Lin & Bok)
• Citation: [2001] SGHC 72
• Defendant Counsel: Tan Cheng Han and Tan Cheng Yew (Tan Cheng Yew & Partners)
• Court: High Court (Singapore)
• Subject Matter: Position when one creditor objects to scheme,Whether scheme can discharge liabilities of guarantors of debtors,s 210 Companies Act (Cap 50, 1994 Ed),Schemes of arrangement,Companies,Approval by the court

: The application before the court was made by CEL Tractors Pte Ltd (`the company`) to approve the scheme of arrangement under s 210 of the Companies Act (Cap 50, 1994 Ed).

Section 210(1) and (3) provide that:

(1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them or between the company and its members or any class of them, the Court may, on the application in a summary way of the company or of any creditor or member of the company, or, in the case of a company being wound up, of the liquidator, order a meeting of the creditors or class of creditors or of the members of the company or class of members to be summoned in such manner as the Court directs.

and

(3) If a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members present and voting either in person or by proxy at the meeting or the adjourned meeting agrees to any compromise or arrangement, the compromise or arrangement shall, if approved by order of the Court, be binding on all the creditors or class of creditors or on the members or class of members, as the case may be, and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company.

The scheme had been considered at a meeting between the company and some of its creditors when it was accepted by a majority of 88.89% of the creditors (8 of 9 creditors) holding 95.62% of the debt ($16,328,825 of $17,076,274).

The sole objecting creditor was Daewoo Singapore Pte Ltd (`Daewoo`). Daewoo claimed against the company the sum of $747,449. Daewoo also had a claim against Lim Chee Seng, a director of the company under a guarantee he gave to Daewoo in connection with the company`s indebtedness to Daewoo. All the other creditors also held guarantees for the debts owing to them.

Daewoo opposed the scheme because it would discharge the guarantee. Clause 4.3.1 of the scheme provides that

Upon the Company fulfilling its obligations under Clause 4.1.1.1 and Clause 4.1.1.2, (a) the Bank Creditors shall fully and completely discharge all and any of its rights under the Deed of Debenture and the Creditors` Mortgage, and save for Keppel TatLee Bank Limited, shall fully and completely release each and every Bank Guarantor from his obligations under any and each Bank Guarantee, and (b) Daewoo Singapore Pte Ltd shall fully and completely release the Daewoo Guarantor from his obligations under the Daewoo Guarantee.

At the hearing counsel for Daewoo stated that his clients were not against the whole scheme, but they wanted it to be approved with a proviso that the arrangement shall not affect the Daewoo guarantee.

He submitted that a scheme cannot affect the rights of parties other than the creditors and the debtor company. He cited several Australian authorities in support of the proposition. The cases dealt with arrangements under s 181 of the Companies Act 1961 and other Australian provisions which are similar to s 210(1) and (3).

Most of the cases cited traced back to Hill v Anderson Meat Industries [1971] NSWLR 868. The brief facts of this case are that five subsidiaries of the defendant company (hereinafter referred to as `Anderson`) were affected by schemes of arrangement whereby their creditors discharged the subsidiaries from their debts in consideration of Anderson making a payment to the scheme trustee. There were no express provisions in the schemes which discharged the guarantees. Some of the subsidiaries` debts were guaranteed by Anderson. The plaintiff Mrs Hill was a creditor who voted against the scheme, and she contended that Anderson was liable to pay her under the guarantee.

The matter came on before Street J. The judge referred with approval to Dixon J`s pronouncement in McDonald v Dennys Lascelles [1933] 48 CLR 457that although as a general principle, the extinction of a principal obligation necessarily induces the extinction of the surety`s obligation, the principle does not extend to a discharge of the principal debtor`s personal liability by operation of law when the discharge is for the purpose of liquidating his affairs or transforming the rights of the creditor against him into rights against or in respect of his assets.

Street J went on to find for Mrs Hill on the basis that

Where ... a scheme of arrangement is propounded in connection with the affairs of an insolvent company, then the court`s approval under s. 181 will give to the scheme a statutory operation upon the relationship between the debtor company and its creditors, and so far as concerns a guarantor, in the absence of any special provision in the guarantee agreement, the guarantor`s liability subsists ...

When the matter went on appeal ([1972] 2 NSWLR 704) the Court of Appeal affirmed it. Jacobs P and Hope JA in their judgments stated that the guarantee would remain in force even if Mrs Hill had voted in favour of the scheme.

In another case Re Glendale Land Development [1982] 7 ACLR 171, McLelland J came to a similar conclusion by another approach. He held that an arrangement cannot affect third party rights and liabilities because

(t)he only effect of approval by the court of an arrangement ... is to render the arrangement binding as between the creditors or relevant class thereof or members or relevant class thereof on the one hand, and the company (and if in the course of being wound up, the liquidator and contributories) on the other hand. A scheme of arrangement cannot thereby be rendered binding as between, eg, the members on the one hand and an outsider on the other. In Isles v Daily Mail Newspaper [1912] 14 CLR 193 at 204-5, Isaacs J made a similar point in an analogous

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