Re KS Energy Ltd and another matter

• Jurisdiction: Singapore
• Judge: Aedit Abdullah J
• Judgment Date: 18 September 2020
• Neutral Citation: [2020] SGHC 198
• Year: 2020
• Date: 18 September 2020
• Published date: 19 December 2020
• Hearing Date: 31 August 2020
• Subject Matter: Insolvency Law,Interim judicial management,Judicial management
• Plaintiff Counsel: Sarjit Singh Gill SC, Daniel Tan Shi Min (Daniel Chen Shimin) and Hoang Linh Trang (Shook Lin & Bok LLP)
• Defendant Counsel: Nair Suresh Sukumaran, Foo Li-Jen Nicole and Tan Tse Hsien, Bryan (Chen Shixian) (PK Wong & Nair LLC)
• Court: High Court (Singapore)
• Citation: [2020] SGHC 198
• Docket Number: Originating Summons No 825 of 2020 (Summons No 3576 of 2020) and Originating Summons No 827 of 2020 (Summons No 3577 of 2020)

Aedit Abdullah J: Introduction

These are brief grounds issued to assist interested parties as to the reasoning of the Court in granting an order for interim judicial managers to be appointed over both KS Energy Limited (“KSE”) and KS Drilling Pte. Ltd. (“KSD”) (collectively, the “companies) under s 92 of the Insolvency, Restructuring and Dissolution Act (Act 40 of 2018) (“IRDA”). In particular, I focus on my findings that the discretion conferred under s 92 of the IRDA is a broad one, and that the categories of cases for which interim judicial management (“IJM”) may be ordered are not closed.

Brief Background

KSE is a publicly listed company on the Main Board of the Singapore Exchange. It is an investment holding company for a group of subsidiaries and associated companies (the “KSE Group”). The KSE Group provides services to the global oil and gas industry, and its activities include capital equipment charter, drilling, and rigging management services. The Group’s principal revenue-generating businesses are in drilling and rigging, and these businesses are operated through KSD, a subsidiary. At all material times, the management of KSE and KSD was helmed by: Mr Kris Taenar Wiluan, as Chairman of the KS Companies and CEO of KSE; Mr Richard James Wiluan, as an Executive Director of KSE and CEO of KSD; and Mr Samuel Paul Oliver Carew-Jones, as an Executive Director and CFO of KSE.

Mr Richard Wiluan is the son of Mr Kris Wiluan, while Mr Samuel Carew-Jones is Mr Kris Wiluan’s son-in-law. Mr Kris Wiluan and Mr Richard Wiluan hold 65.59% of all issued shares in KSE.

The applicant bank has, over the past decade, extended several loan facilities to the KSE Group. These loan facilities are such that the applicant holds about 61.14% of KSE’s total liabilities, and 86.14% of KSD’s total liabilities. These facilities are said to include, inter alia, the following: A term loan dated 27 July 2010 (as amended and restated by, among other documents, a deed of amendment and restatement dated 18 January 2019) for up to US$282,283,332.20 granted by the applicant to KSD (the “Jumbo loan”); and A further bridging loan of S$5,000,000 granted by the applicant pursuant to a letter of offer dated 1 February 2017 (as amended by a supplemental letter dated 22 January 2019) to KSD (the “Bridging loan”).

KSE executed a deed of guarantee dated 27 July 2010 (amended by, among other things, a supplemental deed of guarantee dated 25 September 2015) in respect of the Jumbo loan for up to US$150,000,000, as well as a further deed of guarantee dated 9 September 2017 in respect of the Bridging loan for up to S$5,000,000. It is alleged that under the terms of the deeds of guarantee referred to, KSE agreed to pay on demand and as a primary obligation all sums due and payable by KSD to the applicant. In addition to the guarantees, the KSE Group’s cash accounts are charged to the applicant.

It is not contested that between 2016 and 2019, the KSE Group faced financial difficulties. The bank did not object to several comprehensive restructurings of the group’s debts and obligations, and allowed for, inter alia, a) a 12-month debt moratorium on all principal and interest repayments under the Jumbo loan between 1 August 2018 and 31 July 2019, b) substantial reduction of interest margins, and c) extension of payment periods with lower principal instalments. Notwithstanding these measures, the group continues to face financial difficulty. In 2018, KSD and its subsidiaries recognised a loss after tax of US$74.9 million, and the larger KSE Group reported a loss after tax of US$53.9 million. In 2019, the reported loss after tax for the KSE Group nearly doubled to US$104.4 million, while KSD recognised a loss before tax of US$40.7 million in its unaudited financial statements for that financial year. These difficulties have been exacerbated by the market conditions in the global oil and gas sector in 2020, as well as by the Covid-19 pandemic.

Compounding the KSE Group’s difficulties, Mr Kris Wiluan was charged with 112 charges on 5 August 2020 for engaging in false trading and market rigging of KSE shares. Mr Kris Wiluan has since resigned from the management positions referred to at [2(a)] above, and those roles have been filled by his son, Mr Richard Wiluan.

Given the circumstances outlined, the applicant has lost confidence in the management of KSE and KSD. It alleges that the KSE Group continues to suffer heavy losses, and has withdrawn support moving forward. The applicant also alleges that KSD is burning through slightly over US$1,000,000 per month in manpower and maintenance costs associated with its fleet of rigs. In light of all the details outlined above, the applicant seeks that KSE and KSD are placed under judicial management. Summonses 3576 and 3577 of 2020 deal specifically with the applicant’s application for IJM to be ordered over KSE and KSD respectively.

Having heard parties, I ordered that the companies be placed under IJM pending the hearing of the substantive applications for judicial management.

Interim Judicial Management

The applicant argued that IJM should be ordered on four bases: First, the companies are “hopelessly insolvent” and will not be able to repay their debts while the current management remains in place; Second, the bank has lost all trust in the management helmed by the Wiluan family; Third, the companies are faced with an urgent cash crunch and are burning through moneys at an “alarming rate”; Fourth, placing the companies under IJM would allow one or more of the statutory...