Re IM Skaugen SE and other matters

• Court: High Court (Singapore)
• Judge: Kannan Ramesh J
• Judgment Date: 27 November 2018
• Neutral Citation: [2018] SGHC 259
• Citation: [2018] SGHC 259
• Published date: 21 March 2019
• Plaintiff Counsel: Balakrishnan Ashok Kumar, Tay Kang-Rui Darius, Lee Lieyong Sean and Koh Wei Lun (BlackOak LLC) (instructed counsel) / Lauren Tang (Virtus Law LLP) (instructing counsel)
• Defendant Counsel: and Daniel Tan (WongPartnership LLP),Cassandra Goh (Allen & Gledhill LLP),Ong Tun Wei Danny, Yam Wern-Jhien and Tay Shi Ing (Rajah & Tann Singapore LLP),Tan Hui Tsing (Gurbani & Co.),David Chan, Zhang Yiting and Daryl Fong (Shook Lin & Bok LLP),Alexander Yeo (Allen & Gledhill LLP)
• Docket Number: Originating Summonses No 673—675 of 2018
• Hearing Date: 27 June 2018,28 June 2018
• Date: 27 November 2018
• Subject Matter: Schemes of arrangement,Companies,Moratorium under s 211B Companies Act

Kannan Ramesh J: Introduction

Originating Summonses No 673, 674 and 675 of 2018 were filed by IM Skaugen SE (“IM Skaugen”) and its subsidiaries SMIPL Pte Ltd (“SMIPL”) and IMSPL Pte Ltd (“IMSPL”) (collectively, the “applicants”) respectively for moratorium relief pursuant to s 211B(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). OS 673 and 675 were opposed by MAN Energy Solutions SE (previously known as MAN Diesel & Turbo SE) (“MAN”). MAN was a creditor of IMSPL, but not a creditor of IM Skaugen and SMIPL.

The applications brought into sharp focus the approach that the court should take when dealing with applications for relief under s 211B(1) of the Act by related companies that are seeking breathing space to develop a group restructuring plan. Each company seeks a moratorium on an individual basis either to formulate a compromise or arrangement to propose to its creditors for consideration, or having proposed a compromise or arrangement, time for the creditors to consider, and negotiate revisions to the same. Notwithstanding that the separate legal personality of each company requires separate applications to be made, each compromise or arrangement is intertwined with and interdependent on the others, and forms part of a master restructuring plan – the group restructuring plan – that paves the way for the rehabilitation of the group as a whole, or that part of it that is sought to be rehabilitated. This is a reflection of the economic reality that the group functions as an economic unit with varying levels of economic integration amongst its constituent entities, notwithstanding the separate legal personality of each entity. A scenario such as this raises important questions on the interpretation of ss 211B(4)(a) and 211B(4)(b) of the Act, and how the court should weigh creditor support and resistance when faced with an application for relief under s 211B(1).

After considering the submissions of the parties, I granted the applicants moratorium relief. The substantive portions of the moratorium orders made in relation to OS 673 to 675, which were broadly identical in terms, were as follows: Pursuant to s 211B of the Act, for a period of three months from 28 June 2018: No resolution shall be passed for a winding up of the applicants; No appointment shall be made of any receiver or manager over any property or undertaking of the applicants; No proceeding, whether before a court, arbitral tribunal or administrative agency, and whether current, pending or threatened against the applicants, shall be commenced or continued against the applicants (other than proceedings under s 211B or ss 210, 211D, 211G, 211H, or 212) except with the leave of the court and subject to such terms as the court may impose; No execution, distress, or other legal process against any property of the applicants shall be commenced, continued, or levied, except with the leave of the court and subject to such terms as the court may impose; No step to enforce any security over any property of the applicants, nor any step to repossess any goods held by the applicants under any chattels leasing agreement, hire-purchase agreement or retention of title agreement, shall be taken except with the leave of the court and subject to such terms as the court may impose; No right of re-entry or forfeiture under any leases in respect of any premises occupied by the applicants (including any enforcement pursuant to ss 18 or 18A of the Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed)) shall be enforced, except with the leave of the court and subject to such terms as the court may impose; and Notwithstanding order (a)(iii) above, MAN and IMSPL shall be granted leave to commence or continue the proceedings in HC/OS 731/2017 (“OS 731”), including any interlocutory order in, and appeal arising from, OS 731 (including but not limited to HC/SUM 2612/2018 (“SUM 2612”)) but MAN shall not enforce any judgment or arbitration award during the period in which the moratorium remains in force.

On the conditions accompanying the moratoria, I made the following orders pursuant to s 211B(6) of the Act: If the applicants acquire or dispose of any significant property or grants security over any significant property, such information relating to the acquisition, disposal or grant of security shall be submitted to the court not later than 14 days after the date of the acquisition, disposal or grant of security; The applicants shall provide to the court the following information relating to the applicants’ financial affairs within two weeks from the date of the order: Audited annual financial reports of the applicants for the financial years 2014, 2015 and 2016; Unaudited annual financial reports of the applicants for the financial year 2017; Latest management accounts of the applicants as at 31 May 2018. The applicants shall provide to the court the following information relating to the applicants’ financial affairs by the earlier of eight weeks from the day this order is made or when the applicants apply for leave to hold a meeting of the creditors and/or members of the applicants pursuant to s 210(1) of the Act: A report on the valuation of the applicants’ significant asset, which shall be a report providing an estimate of the net proceeds recoverable by the applicants under the MAN Assignment Agreements as defined in paragraph 28 of the first affidavit of Bente Karin Flo filed in OS 673 on 31 May 2018.

MAN has appealed against the order granting the moratorium in OS 675, ie relating to IMSPL. However, as noted earlier, OS 673 to 675 were applications for moratorium relief by related entities in order to propose a compromise or arrangement to their respective creditors as part of a group restructuring plan. Individual applications were necessitated given the separate legal status of each entity, and consequently its separate community of creditors. However, as the compromise or arrangement proposed or intended to be proposed under each of the three applications was a piece of a single tapestry represented by the group restructuring plan, it would be only looking at part of the picture if one were to consider OS 675 in isolation. These are therefore grounds of decision for all three applications.

It should be noted that since the filing of MAN’s appeal on 27 July 2018, the moratorium orders have lapsed on 28 September 2018, which was three months from the date of the orders I made. The applicants have not filed applications for further extension of the moratoria as their restructuring efforts have failed. There were pending winding-up applications against IMSPL and SMIPL in HC/CWU 236/2018 (“CWU 236”) and HC/CWU 243/2018 respectively that had been stayed by the moratoria that had been ordered. Given that the moratoria had lapsed, on 16 November 2018 I heard the winding-up applications brought against IMSPL and SMIPL, and granted the winding-up orders sought. This state of affairs which took place after the hearing of the moratorium applications is elaborated on at [96]–[100] below. As a result of the winding-up order made against IMSPL, MAN’s appeal against my order in OS 675 has been stayed, unless of course leave of court is obtained.

Background facts and procedural history

IM Skaugen is a holding company incorporated in Norway. It has several wholly-owned subsidiaries including SMIPL, IMSPL, and Somargas II Pte Ltd (“Somargas”), collectively known as the IMS Group. A chart identifying the entities in the IMS Group can be found at Annex A. The IMS Group owned and operated a pool of multigas carriers and vessels which were Singapore flagged. IMSPL is incorporated in Singapore, and was registered with the Maritime and Port Authority of Singapore as an Approved International Shipping (“AIS”) enterprise from 2005 to 2015. Subsequently, SMIPL and several other entities in the IMS Group became the vessel-owning companies, and they applied for renewal of the AIS status in place of IMSPL, obtaining such approval on 19 January 2015.

The IMS Group has faced dire financial straits in recent times. As such, the applicants sought moratorium relief under s 211B(1) of the Act for breathing space, to allow IMSPL and SMIPL to propose a compromise or arrangement to their respective creditors, and to allow the creditors of IM Skaugen time to consider the compromise or arrangement which had been proposed. The applicants sought a six-month moratorium from the date of the application (31 May 2018), ie six months inclusive of the automatic 30-day moratorium that would apply under s 211B(8) upon filing a s 211B(1) application (“the Automatic Stay”). In addition, the applicants sought the appointment of Mr Morits Skaugen, CEO of IM Skaugen, as the IMS Group’s foreign representative.

MAN, a German company under the Volkswagen group of companies, is in the business of providing marine engines and turbomachinery. It opposed OS 675 on the basis that it was the principal creditor of IMSPL. MAN also opposed OS 673 even though it was not a creditor of IM Skaugen, apparently because it had an interest in IMSPL’s assets, which had been purportedly dissipated by way of assignment from IMSPL to IM Skaugen. MAN had no locus standi to oppose OS 674 as it was not a creditor of SMIPL.

Although IMSPL did dispute the validity of MAN’s debt, it was not a matter of serious dispute that MAN was to be treated as a creditor of IMSPL for the purpose of the application in OS 675. MAN was a creditor by reason of an arbitration award dated 4 April 2017 that it had obtained in its favour against IMSPL (“the Award”), in the sum of around €2m. MAN had commenced arbitration proceedings in 2014 against IMSPL for, inter alia, damages in respect of wrongful avoidance of a sale and purchase contract for two-stroke engines. The arbitration was seated in Denmark and administered by the Danish Institute of Arbitration (Case No E-2230)....