Re: Empire Capital Resources Pte Ltd

• Jurisdiction: Singapore
• Judge: Aedit Abdullah J
• Judgment Date: 19 February 2018
• Neutral Citation: [2018] SGHC 36
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 392 of 2017
• Published date: 07 May 2019
• Year: 2018
• Hearing Date: 06 November 2017,18 January 2018,08 November 2017
• Plaintiff Counsel: Nair Suresh Sukumaran, Foo Li-Jen Nicole and Tan Tse Hsien, Bryan (Chen Shixian) (Nair & Co LLC)
• Defendant Counsel: Philip Jeyaretnam SC (instructed counsel) (Dentons Rodyk & Davidson LLP), Andrew Chan, Alexander Yeo and Jo Tay (Allen & Gledhill LLP)
• Subject Matter: Companies,Schemes of arrangement
• Citation: [2018] SGHC 36

Aedit Abdullah J: Introduction

By this application, leave is sought under s 210 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”) to convene a meeting of creditors to consider a proposed scheme of arrangement (“the proposed scheme”). A number of points of opposition are taken up by the objecting creditors Pathfinder Strategic Credit LP and BC Investment LLC (“the Noteholders”), including that the proposed scheme falls outside the ambit of s 210 as it involves the improper release of claims against third parties; that there has been insufficient disclosure; and that the creditors should be grouped in more than one class for voting. I have concluded that the scheme meeting may be convened, but with two classes of voters.

Background

Related companies to the Applicant previously sought leave to convene meetings of creditors to approve schemes of arrangement. These efforts however came to naught. The present application, the latest attempt, is opposed by creditors who had also previously opposed the earlier applications.

Two note programmes were obtained by the Berau Group. The first was the issuance of US$450,000,000 by Berau Capital Resources Pte Ltd (“BCR”), with 12.5% guaranteed senior secured notes due 8 July 2015 (“the 2015 Notes”). The second was the issuance of US$500,000,000 by PT Berau Coal Energy Tbk (“BCE”), with 7.25% guaranteed senior secured notes due 13 March 2017 (“the 2017 Notes”). Empire Capital Resources Pte Ltd (“the Applicant”) was a guarantor of the 2015 Notes and 2017 Notes (collectively, “the Existing Notes”).¹

Previous proceedings

Prior to the 2015 Notes falling due, on 6 July 2015, BCR commenced OS 630/2015 for a moratorium under s 210(10) of the Companies Act (“the First Moratorium”) as BCR was unable to make the required payments. The First Moratorium was granted and allowed negotiations between Pathfinder Strategic Credit LP and other members of a former ad hoc committee of noteholders (“the Ad Hoc Committee”) on a potential restructuring of the Existing Notes.² On 3 March 2016, the court dismissed BCR’s application in HC/SUM 84/2016 for an extension of the First Moratorium.³

On 1 June 2016, OS 550/2016 and OS 551/2016 were filed by BCR and BCE respectively. BCR applied to be placed under judicial management while BCE applied for a moratorium under s 210(10) of the Companies Act.⁴ On 2 November 2016, OS 550/2016 and OS 551/2016 were withdrawn.⁵

On 11 November 2016, BCR filed OS 1175/2016 and BCE filed OS 1180/2016 under s 210(1) of the Companies Act. Under these proceedings, BCR and BCE respectively proposed schemes of arrangement to restructure the notes that had been issued by them (“the 2016 proposed schemes”).⁶

On 9 April 2017, BCR and BCE withdrew OS 1175/2016 and OS 1180/2016 respectively and the Applicant commenced the present proceedings under s 210 of the Companies Act for leave to convene a meeting of creditors to consider the proposed scheme.⁷

The proposed scheme

Under the proposed scheme, the liabilities of the Applicant and that of related entities including BCE and BCR under the Existing Notes could be discharged. In exchange for the discharge of liabilities, new notes will be issued to the existing noteholders by PT Berau Coal and guaranteed by BCE (“the New Notes”). Noteholders who do not accept the proposal by the stipulated deadline will not be given interests in the New Notes, unless they subsequently so accept before a second stipulated date.⁸

Unlike the 2016 proposed schemes, there will be no reverse Dutch auction, and the New Notes will not be subordinated. The New Notes will attract interests of LIBOR plus 1% per annum, with a tenor of 10 years.⁹

It is contemplated that secondary proceedings will be instituted under Chapter 15 in the US if the proposed scheme is approved.¹⁰

The Applicant’s case Relevant considerations at this stage of the proceedings

The Applicant argues that leave should be granted for a creditors’ meeting to be convened to consider the proposed scheme. It is emphasised that the present application is only the first stage. While composition of the voting classes is a relevant consideration, the court does not consider the merits and fairness of the scheme, as the court is only concerned with the court’s jurisdiction to sanction the scheme if it proceeds: The Royal Bank of Scotland NV v TT International Ltd [2012] 2 SLR 213 (“TT International (No 1)”)¹¹.

Several of the Noteholders’ objections relate to matters which are not before the court at this stage: supposed breaches of contractual obligations and court orders by the Berau Group, the unfairness of the proposed scheme and the prejudice to the Noteholders in respect of the action brought in New York.¹²

Structure of proposed scheme

The Applicant further argues that the inclusion of guarantors in schemes of arrangement, as in the proposed scheme, is not uncommon and cites the case of Daewoo Singapore Pte Ltd v CEL Tractors [2001] 2 SLR(R) 791 (“Daewoo Singapore”) as an example. The related companies are integral because they are principal debtors in relation to the Existing Notes. The Applicant is not a mere guarantor, but is a principal debtor under the indentures, and can be sued for the full sum in both sets of notes. The proposed third-party releases are ancillary and coextensive. The joint obligors guarantee the Applicant’s liability as the Applicant guarantees theirs. In any event, Re Lehman Brothers International (Europe) (No 2) [2009] EWCA Civ 1161 (“Re Lehman Brothers”) cited by the Noteholders did not rule that it was a requirement that the third-party liability must be ancillary to the arrangement between the company and its creditors. All that it decided was that third-party claims could be released if such a claim recovered the same loss as a claim between the company and its creditors. There is sufficient connection in the present circumstances.¹³

Any claim against the third parties would result in claims against the Applicant because of subrogation.¹⁴

As for the Noteholders’ argument that there is no genuine give and take in the proposed scheme, this is really an argument that fresh funding is not being provided. This is untrue as new notes would be issued, with a 54.5% return.¹⁵ The Noteholders’ argument that there is an expropriation of the rights of the creditors in the proposed scheme is also merely a repetition of its argument that there is no real give and take in the proposed scheme.¹⁶

In addition, contrary to the Noteholders’ submission, no security and hence no proprietary rights, are involved here. A distinction is drawn between being secured creditors and beneficiaries under a trust: Re Lehman Brothers. The existence of security does not alter the noteholders’ positon as creditors.¹⁷

The Noteholders’ argument that Indonesian law alternatives to a scheme have not been properly examined is not material at this stage.¹⁸

None of the points raised by the Noteholders touch the court’s jurisdiction and are not relevant at this state.

No abuse was committed by the Applicant. Instead, it was the Noteholders who committed abuse.¹⁹

Classification

With regard to the appropriate classification of creditors, the Applicant argues that a single voting class is sufficient.²⁰

Financial disclosure

Sufficient financial disclosure has been made. What constitutes material non-disclosure is to be considered in relation to classification, the likelihood of success of the meeting or possible abuse: Re Punj Lloyd Pte Ltd [2015] SGHC 321 (“Punj Lloyd”). The Noteholders complaints concerning inadequate disclosure are irrelevant to the question of classification. In addition, in the present case, there is no indication of a blocking majority against the proposed scheme. The Noteholders rely on Re Econ Corp Ltd [2004] 1 SLR(R) 273 (“Re Econ Corp”) but that was a sanction case. In any event, the Berau Group has given as much information as possible without breaching Indonesian laws. As for the Noteholder’s argument that the information disclosed is unreliable, the observations in Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd [2003] 3 SLR(R) 629 (“Wah Yuen”) relied upon by the Noteholders were concerned with the sanction stage. Further, Re Heron International NV [1994] 1 BCLC 667 (“Re Heron”) highlights that the information required to be disclosed even at the sanction stage is dependent on the specific facts, and inequality of information is not necessarily fatal. Information relating to commercial viability of the scheme is relevant as the sanction sage, as in TT International (No 1), but not at the leave stage, as in the present case. The Noteholder’s argument that the Applicant should provide greater detail on the possible alternatives to the proposed scheme is also unrealistic. ²¹

As for the argument that it should be made clear whether or not the authors of a position assessment prepared for the Applicant on the fairness of the scheme (“the Position Assessment”) are prepared to accept responsibility for that assessment, there is no requirement for this to be given, and the authors have in any event given a clear assessment. In relation to the purported deficiencies in the Position Assessment highlighted by the Noteholders’ expert, the applicant is happy to put the Noteholders’ experts’ reports before the creditors. Notwithstanding, the Applicant’s position is that mistakes were made by the Noteholders’ expert in various respects.²²

Moratorium

A moratorium is required to ensure the Berau Group is protected from hostile litigation until the meeting is held. The Applicant also submitted that the court has an inherent jurisdiction to grant a moratorium that extends to proceedings outside Singapore, citing Pacific Andes Resources Development Ltd [2016] SGHC 210 (“Pacific Andes”). In addition, under s 211B of the Companies Act, the moratorium granted by...