Re Econ Corp Ltd

JudgeLai Siu Chiu J
Judgment Date24 November 2003
Neutral Citation[2003] SGHC 288
Docket NumberOriginating Summons No 653 of 2000
Date24 November 2003
Published date24 December 2003
Plaintiff CounselMichael Hwang SC (as counsel), Foo Maw Shen (Yeo Wee Kiong Law Corp) and Chong Shiao Hann (Ang and Partners)
Citation[2003] SGHC 288
Defendant CounselAlvin Yeo SC with Nishith Shetty and Tan Yi Tyng (Wong Partnership),Timothy Tan (Asia Legal LLC),Andrew Chan (Allen and Gledhill),Winston Kwek with Sharon Goh (Rajah and Tann),Kuah Boon Theng (Legal Clinic LLC)
CourtHigh Court (Singapore)
Subject MatterWhether company's conduct lacked transparency,Section 210 Companies Act (Cap 50, 1994 Rev Ed),Approval by court,Schemes of arrangement,Companies

The background

1 Econ Corporation Limited (the Company) is a public company. It was incorporated on 1 April 1975 under its original name Econ Piling Pte Ltd and changed to its present name on 25 September 2000, when it converted to a public company limited by shares.

2 The Company is a wholly owned subsidiary of a public company listed on the main board of the Stock Exchange of Singapore Limited (SGX), namely Econ International Limited (EIL). EIL owns more than 40 associates and or subsidiaries. The parent company and its numerous subsidiaries and associates are commonly referred to as the Econ group. The principal business of the Company is that of general contracting; it spearheads the engineering and construction arm within the Econ group and accounts for 87% of the group's turnover.

3 The Company holds an unlimited class A1 licence for both general building and civil engineering as well as an unlimited L6 licence for piling, awarded by the Building and Construction Authority of the Ministry of National Development. Over the years, the Company has undertaken numerous projects in the public and private sectors including water reclamation works and MRT (mass transit railway) lines for government bodies and other employers. As at November 2002, the Company was ranked the second largest local contractor. The Company's current directors are Chew Tiong Kheng, Joseph Sin and Geoffrey Yeoh Seng Huat. These three (3) persons also hold directorships in EIL (together with Heng Chiang Meng and Michael Hwang) as well as in other companies within the Econ group. According to information disclosed in the Explanatory Statement which accompanied the scheme of arrangement documents presented to the Company's creditors on 27 May 2003, the chairman holds 38,597,000 shares or 6.96% in EIL. He is also a creditor of the Company for the sum of $314,000. Joseph Sin and Geoffrey Yeoh are also shareholders of EIL albeit holding considerably less shares (0.09% and 0.19% respectively) than the chairman.

4 The 1997 Asian financial and economic crisis had a severely adverse effect on the construction industry in Singapore as a whole, and on the Company in particular. The Company incurred significant losses on its projects in India and it faced cash flow problems in Singapore which were exacerbated by losses accumulated over the years, resulting in the Company's liabilities ($228m) exceeding its assets. Currently, the Company is facing demands from its trade and other creditors (such as banks) which it is unable to meet. I should add that EIL is in the same predicament. Proceedings have been commenced against the Company in the Subordinate Court and High Court by various creditors, arising out of its inability to meet its outstanding obligations.

5 On 9 April 2003, the Company held an emergency meeting with its bankers and other financial institutions, to discuss options to ensure the continued financial viability of the Company and the Econ group. Its main bank creditors unanimously agreed that the Company should seek protection from its creditors, to ensure that its efforts to restructure its debts would not be thwarted.

6 At a subsequent meeting held on 10 April 2003 with members of the informal steering committee that had been established (from amongst its principal creditors) to represent the Company's creditor banks/financial institutions, those present agreed on the salient features that should be incorporated in the proposed restructuring scheme for the Company's debts.

7 The Company applied to court on 25 April 2003 for leave to present a scheme of arrangement of debts, under s 210(10) of the Companies Act Cap 50 (the Act). Rubin J refused to grant the application as he was of the view that the Company had not set out any details of the scheme it intended to propose to creditors. However, the Company was granted leave to make a further application.

8 Subsequently, with the assistance of KPMG Business Advisory Pte Ltd (KPMG), the Company drew up a preliminary scheme to be proposed to its creditors as follows:-

(i) payment of cash of $5,000 to each creditor or 3% of an approved claim whichever is higher;

(ii) issuance of 7 year redeemable loan stock up to 25% of the approved claim of each participating creditor;

(iii) issue of EIL shares up to 72% of the approved claim of each participating creditor, subject to the approval of the relevant authorities.

(Hereinafter the above scheme will be referred to as "the original scheme").

9 On 2 May 2003, the Company applied to court for leave to convene a meeting for the creditors to consider and if deemed fit, to approve the original scheme. Kan J granted the Company leave on 7 May 2003 to convene a meeting pursuant to s 210(10) of the Act, which he directed must be held on or before 18 June 2003; he further granted a stay of all proceedings against the Company.

10 On 27 May 2003, the Company tendered a formal scheme of arrangement to its unsecured creditors (with an Explanatory Statement) in which some changes were made to the original scheme; participating creditors would now receive the following:-

(i) cash of $4,000 or 3% of the participating creditor's approved claim whichever is the higher, with payment being stretched over 24 months from the effective date of sanction by the court;

(ii) redeemable stock comprising 15% of their approved claim within 3 months from the effective date, to be redeemed at the end of 3 years;

(iii) EIL shares at $0.09¢ per share up to 47% of the approved claim amount within 12 months from the effective date.

(Hereinafter the above scheme will be referred to as "the revised scheme").

11 The Company filed notice of a meeting on 17 May 2003 and on 17 June 2003 it convened a meeting (the meeting) of its unsecured creditors, to consider the revised scheme. Of the 967 creditors who were present at the meeting, 858 voted in favour and 96 voted against, the revised scheme. The value of the admitted claims of those who voted in favour was $176,902,724.87 or 89%. I should point out that the actual scheme approved by the Company's supporting creditors departed somewhat from the revised scheme. The terms of the approved scheme read as follows:-

(i) creditors whose claims were less than or equal to $4,000 would be paid in full within 12 months whereas other creditors would be paid the equivalent of 3% of their claims within 24 months;

(ii) loan stocks redeemable in 3 years amounting to 15% of the participating creditors' claims will be issued within 3 months after the scheme is sanctioned by the court. However, if the cash flow does not allow for redemption of loan stocks, the shortfall will be met by the issuance of EIL shares;

(iii) creditors will be issued with EIL shares (within 12 months of the scheme becoming effective) amounting to 47% of their claims at a value of S$0.09¢ per share (after a share value reduction exercise to bring EIL's share value to S$0.01¢ per share) in consideration for which the participating creditors would irrevocably and absolutely assign their rights in respect of 82% of their claims to EIL. The shares issued would be subject to a moratorium on trading over a staggered period (up to 12 months).

(Hereinafter the above scheme shall be referred to as the "approved scheme", the full details [together with the minutes of the meeting] are to be found in the 2nd and 3rd affidavits filed by Geoffrey Yeoh on 26 June and 15 July, 2003 respectively).

12 As the percentage (89%) of approving creditors far exceeded the 75% requirement under s 210(3) of the Act, the Company applied to court by way of summons in chambers 3935 of 2003 (the application) on 26 June 2003 for inter alia, sanction of the scheme. After one adjournment (which I granted at the Company's request to enable it to file a reply to opposing creditors' affidavits), the application came on for hearing again before me. Lengthy arguments were canvassed by the Company as to why the application should be granted and, by opposing creditors as to why it should not. The Company inter alia, accused the opposing creditors of being 'sour grapes' and having hidden agendas whilst the opposing creditors alleged that the Company's conduct as well as the approved scheme, lacked bona fides and transparency and, certain creditors who attended the meeting should have been separately classed from other unsecured creditors. Suffice it to say, it was one of the most hotly contested applications of this nature that has come before this or any, court. I should also mention that after the meeting, five creditors (3 of whom were represented by Wong Partnership) who had supported the approved scheme changed their minds. These were: Goldbell Engineering Pte Ltd, Goldbell Leasing Pte Ltd, Chua Chuan Leong & Sons Pte Ltd, Degussa Pte Ltd and W.R. Grace Singapore Pte Ltd. Conversely, six (6) creditors who had initially opposed the scheme changed their minds after the meeting and decided to support the same; they were Allington Engineering & Trading Pte Ltd, C & P Marine Pte Ltd, Jack Huat Engineering & Construction Pte Ltd, Lim Kim Huat Building Construction Pte Ltd, MKH Building Construction Pte Ltd and Plus Link Environmental Pte Ltd.

The issues in dispute

13 The Company through its executive director Geoffrey Yeoh (Yeoh) filed seven (7) affidavits. Some of his affidavits were filed in support of the application while others were a response to affidavits filed by opposing creditors. I should point out that Yeoh's 5th affidavit was filed after the adjourned hearing with a direction by me that it should address the opposing creditors' complaint that there had been a lack of information specifically on three (3) issues, which formed the main bone of contention between the parties:-

(i) the losses incurred by EIL;

(ii) the transfer of the Company's machinery to Tat Hong Heavy Equipment Pte Ltd (Tat Hong);

(iii) the transfer of the Company's machinery to any other creditors/third parties...

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