Re HTL International Holdings Pte Ltd

• Jurisdiction: Singapore
• Judge: Aedit Abdullah J
• Judgment Date: 15 April 2021
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 425 of 2020 (Summons No 3963 of 2020)

Re HTL International Holdings Pte Ltd

[2021] SGHC 86

Aedit Abdullah J

Originating Summons No 425 of 2020 (Summons No 3963 of 2020)

General Division of the High Court

Companies — Receiver and manager —Judicial management order —Protection of interests of creditors and members —Unfair prejudice —Judicial managers choosing between two competing offers for same asset —Judicial managers selling asset to one offeror instead of another —Whether judicial managers' decision to prefer sale to one offeror instead of the other caused prejudice to shareholder of company —Whether prejudice caused, if any, was unfair —Section 227R(1) Companies Act (Cap 50, 2006 Rev Ed)

Held, dismissing the application:

(1) The plain words of s 227R CA required the applicant to show that: (a) the act complained of had caused prejudice to the interests of the company's creditors or members generally or part thereof, and (b) this prejudice was “unfair”. There had to be something more than bare prejudice: at [29].

(2) Unfair prejudice could arise where the judicial managers' decision caused unequal or differential treatment. However, even if a decision caused unequal or differential treatment, that decision would not be second-guessed or revisited by the court unless the pain to the applicant was wholly unrequired, or the judicial managers' decision was not at all commercially justifiable, that was, the pain caused to one was out of whack with the reward to others. Judicial managers were justified in weighing the interests of creditors more than that of the members or shareholders: at [30].

(3) Unfair prejudice could also arise where the judicial managers' unfair conduct had affected everyone within a class. A sale at an undervalue would prejudice all creditors, and could constitute unfair prejudice if the decision to sell that asset was not logical (ie, perverse). However, a sale at an undervalue alone would not necessarily show any perversity, and the court would not generally look behind the judicial managers' determination, unless there was something particularly lacking on the surface: at [31].

(4) As a general rule, the court would not interfere with the decision of the judicial managers unless it could be shown that the judicial managers had committed plainly wrongful conduct, had been conspicuously unfair or had been perverse. The various alternative phrases in use did not detract from this formulation: at [32] and [43].

(5) As for the orders that might be made by the court, the court had broad powers under s 227R(2) CA, which were not circumscribed to the grant of forward-looking orders: at [42].

(6) In the present case, the JMs' decision to prefer a sale to Golden Hill Capital instead of Man Wah did not cause prejudice to the Shareholders in terms of diminished shareholder returns. The JMs had good reason to find that Golden Hill Capital's offer was at least comparable or equal to Man Wah's, if not better. In any event, there was nothing plainly wrongful, conspicuously unfair or perverse in the JMs' decision to sell the Asset to Golden Hill Capital. The sale was in the interests of the creditors and shareholders as a whole, especially given the circumstances, such as the pressures coming up against the Company's subsidiaries and the limited time available. The JMs had also given fair consideration to both offers: at [47] and [83].

Case(s) referred to

BLV Realty Organization Ltd v Batten [2009] EWHC 2994 (Ch) (folld)

Charnley Davies Ltd (No 2), Re [1990] BCLC 760 (folld)

Dynasty Line Ltd v Sukamto Sia [2014] 3 SLR 277 (folld)

Four Private Investment Funds v Lomas [2009] 1 BCLC 161 (folld)

Hockin v Marsden [2014] 2 BCLC 531 (folld)

Lehman Bros Australia Ltd v MacNamara [2021] Ch 1; [2020] 3 WLR 147 (folld)

Meem SL Ltd, Re; Goel v Grant[2018] Bus LR 393 (folld)

Parakou Shipping Pte Ltd v Liu Cheng Chan [2017] SGHC 15 (folld)

Progen Engineering Pte Ltd, Liquidators of v Progen Holdings Ltd [2010] 4 SLR 1089 (folld)

Facts

The “Company” was a holding company of a group of corporations involved in the furniture trade. The Company was initially put into interim judicial management in May 2020, and then judicial management in July 2020. On 28 May 2020, the interim judicial managers, on behalf of the Company, entered into a share purchase agreement with Golden Hill Capital Pte Ltd (“Golden Hill Capital”), under which Golden Hill Capital would purchase the Company's shares in its subsidiaries (the “Asset”). On 19 August 2020, Man Wah Holdings Ltd (“Man Wah”) made an offer to purchase the Asset. The judicial managers (“JMs”) of the Company then invited Golden Hill Capital and Man Wah to provide “anything further” it wished to communicate in relation to their offers. Golden Hill Capital and Man Wah submitted their revised offers on 31 August 2020.

The JMs informed the court on 7 September 2020 that they decided to sell the Asset to Golden Hill Capital. As Man Wah was the preferred buyer of the Company's sole shareholder, Ideal Homes International Ltd, which was in turn wholly owned by Yihua Lifestyle Technology Co Ltd (collectively, the “Shareholders”), the Shareholders brought an application under s 227R Companies Act (Cap 50, 2006 Rev Ed) (“CA”) to set aside the sale of the Asset to Golden Hill Capital, and to direct the JMs to accept Man Wah's offer.

Legislation referred to

Companies Act (Cap 50, 2006 Rev Ed) ss 227R(1), 227R(2), 227R(3), 227R(4) (consd); ss 210, 211I, 227G(5), 227R, 227R(1)(a), 227R(1)(b)

Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018) ss 99(5), 115, 115(1)(a), 115(1)(b)

Insolvency Act 1986 (c 45) (UK) s 27, Schedule B1 para 74

Pillai Pradeep G, Lin Shuling Joycelyn, Wong Shi Rui Jonas, Lek Hao Kai (PRP Law LLC) for the applicant;

Tan Tee Jim SC, Gan Theng Chong, Melissa Ng, Vanessa Claire Koh (Lee & Lee) (instructed), Sharon Chong, Amanda Chen, Nandhu, Renee Sim (RHTLaw Asia LLP) for the non-party shareholders;

Harpreet Singh Nehal SC, Jordan Tan, Victor Leong (Audent Chambers LLC) (instructed), Cheng Wai Yuen Mark, Chew Xiang, Ho Zi Wei, Tan Tian Hui (Rajah & Tann Singapore LLP) for the non-parties Mr Phua Yong Tat, Mr Phua Yong Sin and Golden Hill Capital Pte Ltd.

15 April 2021

Aedit Abdullah J:

Introduction

1 The issue here concerned when the court should, under s 227R of the Companies Act (Cap 50, 2006 Rev Ed) (“CA”), now s 115 of the Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018) (“IRDA”), intervene in and displace the decision and discretion exercised by judicial managers (“JMs”) in choosing to sell assets of a company to one party rather than another. On the facts, there was nothing showing that the decision of the JMs was plainly wrongful, conspicuously unfair or perverse. Thus, it could not be said that the JMs' decision was unfairly prejudicial to the shareholders of the company. The application to set aside the JMs' decision was therefore refused.

Background facts

2 HTL International Holdings Pte Ltd (the “Company”), a holding company of a group of corporations involved in the furniture trade (the “HTL Group”), was initially put into interim judicial management in May 2020, and then judicial management in July 2020. The two persons appointed as interim judicial managers (“IJMs”) previously continued on as JMs, with the addition of a third JM. The Company's sole shareholder, Ideal Homes International Ltd, was in turn wholly owned by Yihua Lifestyle Technology Co Ltd (collectively, the “Shareholders”).

3 Before the Company was placed under judicial management, the Company wholly owned 15 subsidiaries and one indirect subsidiary. After the interim judicial management order was made, the IJMs, on behalf of the Company, entered into a share purchase agreement (“SPA”) with Golden Hill Capital Pte Ltd (“Golden Hill Capital”) on 28 May 2020, under which Golden Hill Capital would purchase the Company's interests in its subsidiaries for US$80m. To facilitate the transfer of the Company's shares in all these subsidiaries, the IJMs carried out an internal restructuring by consolidating the Company's overseas subsidiaries under a new wholly-owned subsidiary of the Company, HTL Capital Pte Ltd (“HTLC”).

4 After the internal restructuring, the Company owned two subsidiaries: HTLC and HTL Manufacturing Pte Ltd (“HTLM”). HTLM was the main operating subsidiary from which most of the revenue in HTL Group was generated. HTLM would contract with the other subsidiaries in the HTL Group, particularly those in China, for manufacturing and supplying furniture. Post-restructuring, the object was to transfer the Company's shares in HTLM and HTLC (collectively, the “Asset”) to Golden Hill Capital on the completion date.

5 Subsequently, on 19 August 2020, there was an offer from Man Wah Holdings Ltd (“Man Wah”) to purchase the Asset (“Man Wah's 19 August Offer”). Man Wah subsequently clarified its offer via an e-mail dated 20 August 2020 (“Man Wah's 20 August Clarification”).

6 On 24 August 2020, the JMs invited Golden Hill Capital and Man Wah to provide “anything further” it wished to communicate in relation to their offers by 26 August 2020. Upon Man Wah's request, the JMs pushed back this deadline to 31 August 2020. Golden Hill Capital and Man Wah submitted their final, revised offers by that deadline, and the JMs sold the Asset to Golden Hill Capital on 7 September 2020.

7 As Man Wah was the Shareholders' preferred buyer, the Shareholders brought this application to set aside the sale of the Asset to Golden Hill Capital, and to direct the JMs to accept Man Wah's offer. Man Wah had an interest in the outcome, but remained off the stage as it had no standing.

Golden Hill Capital and its offer on 31 August 2020

8 The final offer from Golden Hill Capital on 31 August 2020 (“Golden Hill Capital's Final Offer”) was...