Re DSG Asia Holdings Pte Ltd

• Jurisdiction: Singapore
• Judge: Aedit Abdullah J
• Judgment Date: 13 September 2021
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 429 of 2021

Re DSG Asia Holdings Pte Ltd

[2021] SGHC 209

Aedit Abdullah J

Originating Summons No 429 of 2021

General Division of the High Court

Companies — Schemes of arrangement — Classification — Analytical framework to be applied — Whether interest as potential investor relevant to classification and rendered it unable to consult with other creditors with view to their common interest — Section 71 Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018)

Companies — Schemes of arrangement — Disclosure — Related creditors' claims assigned to potential investor — Whether purchase price of debt sale was information necessary to enable creditors to make informed decision on whether to agree to scheme — Section 71 Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018)

Held, dismissing the appeal:

(1) The application turned on two issues: the adequacy of the Applicant's disclosure and the classification of Allington for the purpose of the voting requirements. Under s 71(3)(a) of the IRDA, each creditor had to be provided with all information necessary to enable the creditor to make an informed decision on whether to agree to the compromise or arrangement. Under s 71(3)(d), the court had to be satisfied that, had a creditors' meeting been summoned to approve the compromise or arrangement, the voting requirements in ss 210(3AB)(a)–210(3AB)(b) of the Companies Act would have been met: at [15] and [18].

(2) As s 71 of the IRDA was a derogation from s 210 of the Companies Act, the case law regarding s 210 of the Companies Act should apply except where s 71 required otherwise. An application under s 71 of the IRDA was an application for sanction of a scheme on an expedited basis, avoiding actual meetings. The two-stage process under s 210 of the Companies Act of obtaining leave to convene meetings and obtaining sanction after the meetings was compressed into one stage of obtaining sanction. The expedition and procedural simplicity granted by the s 71 framework should therefore generally be used only for clear cases of agreement to pre-arranged schemes. Where a major creditor objected or the scheme company had difficulty providing information, that would be a strong signal that the s 71 process should not be utilised and was probably unavailable, and the normal procedure in s 210 of the Companies Act should be used: at [21], [26] and [27].

(3) Section 71 of the IRDA required only that a clear case of agreement to the scheme be established. The applicant had to show a clear case that there had been proper disclosure as well as fulfilment of the voting requirements, which in turn entailed proper classification of creditors: at [31].

(4) The disclosure requirement in s 71(3)(a) of the IRDA reflected the principle that a scheme company had to disclose all material information to the scheme creditors to enable them to make informed decisions on whether to support the scheme. The purchase price was information necessary to enable creditors to make an informed decision on whether to agree to the New Scheme. The Applicant should have disclosed the purchase price so that creditors could assess the Debt Sale and Allington's resulting participation in the New Scheme for themselves. It would be reasonable for any of the creditors to consider whether the treatment of Allington under the New Scheme would, in light of the purchase price that Allington paid, be fair in comparison to the treatment of that creditor. The Applicant's inadequate disclosure provided sufficient reason to dismiss the application: at [34], [38], [39] and [43].

(5) The failure to fulfil the voting requirements was another reason to dismiss the application. The determination of whether the statutory majority requirements were met turned on classification. The requirements for proper classification were carried over from the case law on s 210 of the Companies Act: at [43] and [44].

(6) Like each of the Original Schemes, the New Scheme had one class of creditors: the unsecured creditors of the Original Debtors, whose claims the Applicant had assumed under the deed poll. If Allington was placed in a separate class for the purpose of the notional voting, as submitted by OCBC, the statutory majority requirements would not be met: only about 64% in value of the other unsecured creditors voted in the vote solicitation in favour of the New Scheme: at [45] and [46].

(7) In deciding whether to approve a s 71 scheme, the analytical framework established for s 210 schemes applied with the necessary adaptations. First, in classifying the creditors to determine whether the notional voting outcomes would have satisfied the statutory majority requirements in ss 210(3AB)(a)–210(3AB)(b) of the Companies Act, the court would consider the creditors' rights. Second, if the statutory majority requirements would have been satisfied, the court in deciding whether to approve the scheme had to be satisfied, among other things, that the creditors whose votes were solicited for the purpose of the notional voting outcomes were fairly representative of the class of creditors to which they belonged. As with s 210 schemes, the creditors' private interests were relevant to this inquiry: at [52] and [53].

(8) In determining the classification of creditors, the court would look at the scheme not in isolation but in the context of the restructuring as a whole. The court would consider any rights conferred or to be conferred in other agreements that were provided for under the terms of the scheme or were conditional on the scheme. If the rights were technically not conditional on the scheme being implemented, but they were commercially part of the same transaction and were highly unlikely to be conferred unless the scheme were implemented, they were relevant to classification. In contrast, the court did not consider rights that were genuinely independent of the scheme and restructuring in a realistic commercial sense: at [58].

(9) Allington's rights under the Term Sheet affected its classification. The envisaged investment, that was, Allington's acquisition of DSGL as a clean shell listed on the mainboard of the Singapore Exchange Securities Trading Ltd, was effectively conditional on the New Scheme being approved and implemented. Its interest as a potential investor was also significant enough to render Allington unable to consult with the other unsecured creditors with a view to their common interest: at [60].

(10) The bona fides of the application was also relevant, and an implied requirement as a matter of general principle. The Original Singapore Scheme was not put forward to the court for sanction because of the independent assessor's adjudication of the value of OCBC's claims and because of OCBC's opposition to the Original Singapore Scheme. The Applicant's pre-pack application therefore naturally attracted the question whether it was an attempt to sidestep OCBC's opposition. As the court did not consider that there was sufficient evidence that the voting outcome was engineered to obtain the court's sanction, the court made no finding of any lack of bona fides: at [65] and [66].

(11) The DSG Group's use of the deed poll structure was not in itself a basis for declining to approve the New Scheme, and would have passed muster if agreement to the New Scheme had in fact been obtained. Importantly, the scheme manager had explored alternatives to the New Scheme, including refinancing and sale of the DSG Group's business, and found them practicably unachievable and not feasible. Further, an insolvent liquidation of the Original Debtors would, according to the scheme manager's analysis, result in lower recovery compared with what was expected under the New Scheme: at [68] and [73].

Case(s) referred to

ACN 004 987 866 Pty Ltd, Re (2003) 21 ACLC 1474 (refd)

AI Scheme Ltd, Re [2015] EWHC 1233 (Ch) (refd)

Ansett Australia Ltd, Re [2006] 56 ACSR 718 (refd)

Codere Finance 2 (UK) Ltd, Re [2020] EWHC 2441 (Ch) (refd)

Gategroup Guarantee Ltd, Re [2021] EWHC 304 (Ch) (refd)

Hawk Insurance Co Ltd, Re [2001] 2 BCLC 480 (refd)

Noble Group Ltd (No 1), Re [2019] 2 BCLC 505 (refd)

Oriental Insurance Co Ltd, The v Reliance National Asia Re Pte Ltd [2008] 3 SLR(R) 121; [2008] 3 SLR 121 (refd)

Owens Corning, Re 419 F 3d 195 (3rd Cir, 2005) (refd)

Royal Bank of Scotland NV, The v TT International Ltd [2012] 2 SLR 213, CA (folld)

Royal Bank of Scotland NV, The v TT International Ltd [2012] 4 SLR 1182, CA (folld)

SK Engineering & Construction Co Ltd v Conchubar Aromatics Ltd [2017] 2 SLR 898 (refd)

Stemcor Trade Finance Ltd, Re [2016] BCC 194 (refd)

Sunbird Business Services Ltd, Re [2020] Bus LR 2371, HC (Eng) (refd)

Sunbird Business Services Ltd, Re [2020] EWHC 2860 (Ch), HC (Eng) (refd)

Tan Cheng Bock v AG [2017] 2 SLR 850 (refd)

Telewest Communications plc (No 1), Re [2005] 1 BCLC 752 (refd)

UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin (2001) 4 HKCFAR 358 (refd)

Virgin Atlantic Airways Ltd, Re [2020] EWHC 2376 (Ch) (refd)

Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd [2003] 3 SLR(R) 629; [2003] 3 SLR 629 (refd)

Facts

The applicant (“Applicant”) was part of a group of nine companies in Singapore and Malaysia (“DSG Group”), of which Design Studio Group Ltd (“DGSL”) was the ultimate holding company. In October 2020, DSG Group promoted to their creditors nine schemes which were inter-conditional (the “Original Schemes”) involving the nine companies (the “Original Debtors”). These consisted of six schemes for the DSG Group's six companies in Singapore (the “Original Singapore Scheme”) and three schemes for its three companies in Malaysia. The Singapore and Malaysia courts granted liberty to convene creditors' meetings to consider the Original Schemes.

The Original Singapore Scheme meetings were convened in January 2021. Based on the voting amount of the creditors' claims as adjudicated by the scheme chairman (the “Original...