Re Lin Securities (Pte)

CourtHigh Court (Singapore)
Judgment Date21 March 1988
Docket NumberOriginating Summons No 1250 of
Date21 March 1988

[1988] SGHC 24

High Court

Chao Hick Tin JC

Originating Summons No 1250 of 1986

Re Lin Securities (Pte) Ltd
Chi Man Kwong Peter and others
Asia Commercial Bank and others

Helen Yeo (Chor Pee & Co) for the plaintiffs

Scott Thillagaratnam (Khattar Wong & Partners) for the first and seventh defendants

Davinder Singh and Mohan Pillay (Drew & Napier) for the second, tenth, 11th, 13th and 15th defendants

Sarbit Singh and Chye Kit Min (Lim & Lim) for the third defendant

Ng Chai Ngee (Chan Cher Boon & Partners) for the fourth defendant

Woo Bih Li and Anthony Lee (Allen & Gledhill) for the fifth, 14th, 19th and 20th defendants

Timothy Lloyd QC and Sarjit Singh Gill (Shook Lin & Bok) for the sixth and 16th defendants

Sarjit Singh Gill (Shook Lin & Bok) for the 12th defendant

Randhir Ram Chandra (Haridass Ho & Partners) for the eighth defendant

Molly Lim and Indranee Rajah (Wong Yoong Tan & Molly Lim) for the ninth defendant

Florence Chew (Ruth Chia & Co) for the 17th defendant

David Hew and Koh Ee Lin (Tang & Tan) for the 18th defendant

Shantini Ramachandran (Chung & Co) for the 21st defendant.

Amargh Shoes, Re [1984] BCLC 405 (refd)

Benjamin Cope & Sons Limited, In re [1914] 1 Ch 800 (refd)

Brightlife Ltd, In re [1987] Ch 200; [1986] 3 All ER 673 (folld)

CL Nye Ltd, In re [1971] Ch 442 (folld)

Colonial Bank v Whinney (1885) 30 Ch D 261 (folld)

Evans v Rival Granite Quarries Limited [1910] 2 KB 979 (folld)

Governments Stock & Other Securities Investment Co Ltd, The v Manila Rly Co Ltd [1897] AC 81 (folld)

Hamilton Young & Co, In re [1905] 2 KB 772 (distd)

Harrold v Plenty [1901] 2 Ch 314 (folld)

Hoare v British Columbia Development Association [1912] WN 235 (refd)

Illingworth v Houldsworth [1904] AC 355 (folld)

James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 (folld)

Keenan Bros Ltd, In re [1986] BCLC 242 (refd)

L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 (folld)

Lemon v Austin Friars Investment Trust Ltd [1926] Ch 1 (refd)

Mechanisations (Eaglescliffe) Ltd, In re [1966] Ch 20 (folld)

Mercantile Bank of India Ltd v Chartered Bank of India, Australia & China, and Strauss & Co Ltd [1937] 1 All ER 231 (folld)

National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 (folld)

Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53; [1934] All ER Rep 237 (refd)

Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237 (folld)

Rumble v Heygate (1870) 18 WR 749 (refd)

Wait, In re [1927] 1 Ch 606 (refd)

Yolland, Husson & Birkett Limited, In re [1908] 1 Ch 152 (folld)

Yorkshire Woolcombers Association Limited, In re [1903] 2 Ch 284 (folld)

Companies Act (Cap 50, 1985 Rev Ed) ss 131 (1), 131 (3) (g), 134 (2)

Credit and Security–Charges–Letters of hypothecation–Meaning of “hypothecation”–Whether shares could be hypothecated–Whether letters of hypothecation created a charge–Definition of charge–Whether charge created was fixed charge or floating charge

Lin Securities (Pte) Ltd (“the company”) was a stockbroking company, to which a number of banks extended credit facilities. In consideration therefore, the company issued in favour of each bank one or more letters of hypothecation (“LOHs”) which purported to charge in favour of the banks shares in the company's possession. The shares purportedly subject to the charge were stated in the daily certificates furnished by the company to the banks. The daily certificate did not require that the specific securities be identified. These LOHs were registered by the banks with the Registry of Companies.

An ex parte interim injunction was subsequently obtained by the banks for delivery up of the shares charged under the LOHs. The plaintiffs were liquidators of the company. The present application was made to seek directions principally on two issues: (a) whether the LOHs created a charge by the company; and if so, (b) whether it comprised a fixed or floating charge. The plaintiffs also contended that shares could not be hypothecated.

Held, holding that the LOHs created a floating charge:

(1) Hypothecation was a form of equitable charge, in which property was charged with the amount of a debt but neither ownership nor possession passed to the creditor. There was no reason why shares, which were chose in action and a kind of property, could not be hypothecated: at [16] to [18].

(2) No particular form of words was necessary for the purpose of creating a charge. Any written instrument showing the parties' intention that a security should be created would suffice although it contained no general words of a charge. It was enough that the parties made it plain by the language used that it was their intention to create a charge. There was no doubt in the instant case that each of the respective LOHs created a charge: at [19] to [22].

(3) A charge on all the property of a company, both present and future, would generally create a floating charge. The crucial thing was that what was charged had to be some elements of the business itself of the debtor company as a going concern: at [24] and [25].

(4) Whether an instrument created a fixed or a floating charge did not necessarily depend on the label given to it or a particular set of words used by the parties. The effect of the LOH should not be determined wholly within the four corners of the document. It had to be viewed in the context of the surrounding circumstances of the transaction. In particular, the court was entitled to take judicial notice of what the business of the company involved and how this business was conducted. In this regard, the facts indicated that the arrangement with the banks left the company free to substitute the shares listed in the daily certificates, essentially allowing the company to trade in the shares. This was inconsistent with a fixed charge: at [31], [43] to [45], [52], [55] and [58].

(5) The LOH had the characteristics of a floating charge. First, it created a charge over a class of assets - all present and future shares - in the possession of the company. Second, the shares which were the subject of the charge were in the course of business of the company changing from time to time. Third, the company was permitted to carry on its business in the ordinary way of buying and selling shares. However, it did not follow that the absence of one or more of these usual features or the presence of others will necessarily prevent a charge from being categorised as “floating”: at [56] and [57].

(6) The failure to register the daily certificates was of no consequence as the document which created the floating charge was the LOH which had been registered. In addition, under s 134 (2) of the Companies Act (Cap 50, 1985 Rev Ed), where a certification of registration had been granted, the certificate was conclusive evidence of compliance with the requirements of the statute. Hence, any omission to register the daily certificate would not invalidate the LOH: at [64], [68] and [70].

(7) Crystallisation of the floating charge took place when the company for all intents and purposes ceased to carry on its normal business of stockbroking: at [73] to [75].

Judgment reserved.

Chao Hick Tin JC

1 The plaintiffs were appointed by an order of court dated 18 July 1986 made in Companies Winding Up No 183/1986 as the liquidators of Lin Securities (Pte) Ltd (hereinafter called “the company”). The present application by the plaintiffs is to seek the direction and determination of the court in relation to certain questions that arose in the course of discharging their functions.

2 The company was registered on 30 April 1976 as a private exempt company limited by shares. Prior to 28 February 1986, the date on which the liquidators were first appointed as provisional liquidators of the company, its business was that of stockbroking. At that time the company had credit facilities from 21 banks, and they are the 21 defendants in these proceedings. In consideration of the credit facilities extended, the company gave to each bank a letter of hypothecation (“LOH”). In many instances, more than one such letter were given to the same bank where the latter granted to the company additional facilities. Altogether, 60 such letters of hypothecation were issued and they were all registered by the banks with the Registry of Companies.

3 The words used and the clauses in these LOHs were not all identical. Mrs Yeo, counsel for the liquidators, listed the LOHs under five categories.

4 Between 24 and 28 February 1986, 18 suits were instituted by the banks (except the fourth, 20th and 21st defendants) against the company. An ex parte interim injunction was obtained by the banks for delivery up of the shares charged under those LOHs and for restraining the company from disposing them.

5 At the commencement of the hearing of this originating summons before me, all the parties agreed to a reformulation of the issues that should be decided by the court in place of those prayed for in the originating summons. The parties had also agreed that, in view of the constraints of time, arguments at this stage should be confined to the first set of agreed issues which is as follows:

Existence, nature and effect of security

  1. (a) Do all or any, and if so which, of the security documents relied on by each bank create or constitute a charge by the company?

  2. (b) If so, what assets are affected by the charges?

  3. (c) What is the nature of the charge? In particular, is it a fixed or a floating charge?

  4. (d) Did the NIL certificate issued on 25 February 1986 have any, and if so, what effect?

6 The main submission, in so far as the defendants were concerned, was made by Mr Lloyd, who appeared for the sixth and 16th defendants. He argued that the LOH created a fixed charge. With the exceptions of the fourth and 21st defendants, counsel...

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