Re Conchubar Aromatics Ltd and another matter

• Jurisdiction: Singapore
• Judge: Aedit Abdullah JC
• Judgment Date: 20 December 2016
• Neutral Citation: [2016] SGHC 279
• Plaintiff Counsel: Andy Lem, Chia Tze Yung Justin, Jaclyn Leong and Kok Yee Keong (Harry Elias Partnership LLP
• Docket Number: Originating Summons Nos 153 and 154 of 2016
• Date: 20 December 2016
• Hearing Date: 29 August 2016,06 October 2016
• Subject Matter: Companies,Schemes of arrangement
• Published date: 05 September 2017
• Defendant Counsel: Debby Lim and Jamal Siddique (Shook Lin & Bok LLP)
• Court: High Court (Singapore)
• Citation: [2016] SGHC 279
• Year: 2016

Aedit Abdullah JC: Introduction

By way of Originating Summons No 153 and 154 of 2016, Conchubar Aromatics Ltd and UVM Investment Corporation (“Conchubar” and “UVM” respectively and “the Applicants” collectively) sought the court’s leave for them to each convene a meeting of their respective creditors for the purpose of considering and approving a proposed scheme of arrangement (the “proposed Scheme”), pursuant to s 210 of the Companies Act (Cap 50, 2006 Rev Ed). I granted leave for the Applicants to convene the said meetings on 18 March 2016. The meetings took place on 19 May 2016. On 29 August 2016, the Applicants were again before me to seek the court’s approval of the proposed Scheme, as required under s 210(3AB)(c) of the Companies Act. The applications were opposed by SK Engineering and Construction Co. Ltd ("SKEC"), a creditor of the Applicants.

Background

Conchubar was a company incorporated in the Cayman Islands on 20 August 2010. It had no underlying business and its primary asset was a six per cent shareholding in Jurong Aromatics Corporation Pte Ltd ("JAC") which it owned indirectly; Conchubar held 26.7 per cent of the shareholding in SK E&C Jurong Investment Pte Ltd ("SKECJI") which held 75 per cent of the shareholding in SK International Investment Singapore Pte Ltd ("SKIIS"), and SKIIS in turn held 30 per cent of the shareholding in JAC. UVM Investment Corporation was a company incorporated in the British Virgin Islands on 30 September 2009. Like Conchubar, UVM had no underlying business and its primary asset was a 5.1 per cent direct shareholding in JAC.

JAC was incorporated in Singapore on 30 May 2005 as a joint venture vehicle to own a project for the development, project financing, construction and operation of an integrated condensate splitter and aromatics complex on Jurong Island that would process condensate (a type of light crude oil) and produce aromatic products and oil products. Delays in the construction of the plant caused JAC substantial difficulties, and the company was put into receivership on 28 September 2015. However, construction of the plant had since completed and it was operational at the time of the hearing before me on 29 August 2016.

In late 2015, Jurong Energy International Pte Ltd ("JEI"), a special purpose vehicle incorporated on 13 July 2015 by the founding investors of JAC, UVM and Conchubar, submitted to the receivers and managers (“R&M”) of JAC a restructuring proposal (the "JEI Proposal"). Under this proposal, JEI would inject some US$550million into JAC in the form of equity, shareholder's loan and feedstock, in return for 60 per cent shareholding in JAC. The aim was that the injection of funds would enable JAC to fully repay debts which it owed to a syndicate of secured finance parties (“the Senior Lenders”). The Senior Lenders held share charges over some 95 per cent of JAC’s shares.

The Applicant’s proposed Scheme was contingent upon the R&M’s acceptance of the JEI Proposal. The key elements of the proposed Scheme were as follows: If the R&M accepts the JEI Proposal, and subject to obtaining the appropriate waivers and consents, JEI will purchase the Applicants' shares in JAC. In return, the Applicants will receive JEI shares or JEI convertible bonds of the same or higher value as the Applicants' shares in JAC as will be determined by third-party valuation. The said JEI shares or JEI convertible bonds will then be distributed pari passu to the Applicants' creditors. On the other hand, if the R&M does not accept the JEI Proposal or if one year has passed from the date of commencement of the proposed Scheme (“the trigger event”), whichever is earlier, a failsafe payment would kick in whereby UVM will pay US$300,000 and Conchubar will pay U$650,000 to their respective creditors on a pari passu basis. The sums are to be paid over 24 months, in four equal instalments every six months. The outstanding debt owed to the creditors will correspondingly be reduced by the amount of failsafe payments made. The failsafe payments will be guaranteed by Orient Time Capital Ltd, a company incorporated in the British Virgin Islands on 6 May 2010. Within 30 days of the trigger event, the Applicants will give notice to their respective creditors as to whether they intend to propose a new scheme. If the Applicants intend to propose a new scheme, they will have liberty to convene the respective creditors' meetings for the voting on the new scheme within 60 days. The new scheme, if successfully approved, will supersede the originally proposed scheme.

Conchubar and UVM each convened a meeting of their respective creditors to vote on the proposed Scheme on 19 May 2016 (“the Scheme Meetings”). The voting results were as follows: Creditors of Conchubar

Creditor	Total Proof of Debts (US$)	Vote For	Vote Against
Conchubar Chemicals Ltd (“Chemicals”)	50,000,000.00	65.5%
Universal Petrochem Corp. Ltd (“Universal”)	10,599,174.00	13.9%
Estanil Assets Ltd (“Estanil”)	1,150,912.00	1.5%
SKEC	14,527,732.33		19.0%
Total	76,277,818.33	81.0%	19.0%

Creditors of UVM

Creditor	Total Proof of Debts (US$)	Vote For	Vote Against
MacNair Group Inc (“MacNair”)	28,000,000.00	86.8%
Shefford Investment Holdings Ltd (“Shefford”)	317,651.00	-
Emirates Resources Inc (“Emirates”)	136,462.00	0.4%
SKEC	4,129,333.57		12.8%
Total	32,583,446.57	87.2%	12.8%

With respect to the creditors of Conchubar, the basis of Chemicals’ claim against the company was a Corporate Guarantee Agreement dated 25 August 2010 under which Conchubar guaranteed a loan of US$50 million made by Chemicals to SKECJI, which SKECJI used to subscribe to JAC shares (see [2] above). SKECJI defaulted on the loan and on 25 August 2015, Chemicals demanded Conchubar's immediate payment of the guaranteed sum. Universal and Estanil became creditors of Conchubar when on 30 April 2015, Chemicals separately assigned to them portions of its claim against Conchubar. The claim assigned to Universal was US$10,422,000 while that to Estanil was US$1,131,673. SKEC was a judgment creditor of Conchubar.

As for the creditors of UVM, the basis of MacNair’s claim against the company was a loan of US$28 million which it granted to UVM for UVM's equity investment in JAC shares. In conjunction with this loan, MacNair, UVM and Bonquest Chemical Limited ("Bonquest") (sole shareholder of UVM) entered into a Convertible Bond Agreement (“CBA”) dated 31 March 2011, for MacNair to subscribe for convertible bonds in UVM in the sum of US$28 million. This constituted approximately 99.82% of the issued share capital of UVM upon conversion. Further, Bonquest granted a charge to MacNair over all its rights, title and interest in Bonquest's shares in UVM. Emirates became a creditor of UVM when on 30 April 2015, MacNair assigned to it a portion (US$134,181.00) of its claim against UVM. SKEC was also a judgment creditor of UVM. The remaining creditor, Shefford, did not vote on the proposed Scheme since its proof of debts was submitted after the deadline set by the Scheme Manager, and the appointed liquidators of Shefford attended the meeting on 19 May 2016 only as an observer.

Relevant Parties’ Positions

The Applicants urged the court to sanction the proposed Scheme as all the requirements had been met. No allegations had been made that the Scheme Meetings were improperly constituted or that the voting process was improper. The requisite statutory majority set out under s 210(3AB) of the Companies Act had been achieved, ie a majority in number representing 75 per cent in value of the creditors had voted in favour of the proposed Scheme in both cases with respect to Conchubar and UVM. The Applicants maintained that the creditors who had voted in favour of the proposed Scheme were not related to Conchubar or UVM, and that even if they were related, no discount ought to be applied to their votes. The proposed Scheme was also not a scheme which no reasonable creditor would agree to.

SKEC, on the other hand, argued that all the creditors that had voted in favour of the proposed Scheme at the Scheme Meetings were related to Conchubar or UVM; Chemicals was related to Conchubar, while MacNair was related to UVM. Universal, Estanil and Emirates were also related parties by virtue that their claims against Conchubar or UVM were assigned from Chemicals or MacNair. SKEC thus urged the court to completely disregard the votes of all of the said creditors, ie to apply a discount of 100 per cent to all of their votes. Further, SKEC contended that the proposed Scheme was bad for lack of certainty and that its intended outcomes were unattainable. SKEC also alleged that the Applicants had not acted bona fide and had acted dishonestly, in engineering the voting outcome by orchestrating the assignment of portions of the debts they owed to related creditors (Chemicals and MacNair) to friendly entities in order to secure the requisites statutory majority of 75 per cent in value and 50 per cent in number during the Scheme meetings.

The proposed Scheme Manager opined that it was possible that Chemicals might be related to Conchubar because they shared a common sole shareholder, Conchubar Infrastructure Fund ("Fund"), and also a common director, Mr Pardeep Dhir ("Pardeep"), who was also a director of the Fund.

The R&M of JAC indicated that the JEI Proposal, in its present terms, was not acceptable to them. They were, however, prepared to consider future proposals from JEI.

BNP Paribas (Singapore Branch) acted as the Security Agent of the Senior Lenders. The Security Agent noted that the proposed Scheme contemplated that the Applicants would sell their shares in JAC to JEI. However, the...