Re Swiber Holdings Ltd and another matter

• Jurisdiction: Singapore
• Judge: Kannan Ramesh J
• Judgment Date: 16 August 2018
• Neutral Citation: [2018] SGHC 180
• Plaintiff Counsel: Sim Kwan Kiat, Wilson Zhu and Quek Teck Liang (Rajah & Tann Singapore LLP)
• Date: 03 November 2017
• Year: 2018
• Hearing Date: 27 October 2017,08 September 2017,13 October 2017,03 November 2017
• Subject Matter: Receiver and manager,Companies,Judicial management order
• Docket Number: Originating Summonses Nos 767 and 768 of 2016 (Summonses Nos 3426 and 3427 of 2017)
• Defendant Counsel: Muzhaffar Omar (Wong & Leow LLC),Mabel Tan (Virtus Law LLP),Andrew Teo (Allen & Gledhill LLP),Kenneth Lim and Wong Pei Ting (Allen & Gledhill LLP),Keith Tnee, Geraint Kang, Siaw Hui and Pang Hui Min (Tan Kok Quan Partnership),Geraldine Yeong Kai Jun (Dentons Rodyk & Davidson LLP) as young amicus curiae.,Sonia Chan (JLC Advisors LLP),Probin Dass and Charles Lim (Shook Lin & Bok LLP)
• Court: High Court (Singapore)
• Citation: [2018] SGHC 180
• Published date: 22 August 2018

Kannan Ramesh J:

A company is placed under judicial management. The judicial managers summon a meeting of the creditors. Under reg 74 of the Companies Regulations (Cap 50, Rg 1, 1990 Rev Ed) (“the Regulations”), a “secured creditor” who does not surrender its security may only vote in respect of the unsecured element (if any) of its claim. Yet who is a secured creditor for the purpose of reg 74? More precisely, is a creditor who holds a security over the property of a third party instead of the property of the company (a “third-party security”) a secured creditor for the purpose of reg 74? Further, where the judicial managers call a meeting for the approval of a scheme of arrangement, may such a creditor vote for the full value of its claim? Finally, how does the analysis change, if at all, where the creditor has realised the security after lodging the proof of debt? Must the creditor update the proof of debt to reduce its claim against the company?

These interconnected questions were the subject of these applications by the judicial managers of Swiber Holdings Ltd (“SHL”) and Swiber Offshore Construction Pte Ltd (“SOC”) for directions from the court. Given the novelty of the issues at hand, I appointed a young amicus curiae, Ms Geraldine Yeong Kai Jun (“Ms Yeong”), to address me on them. On 3 November 2017, after hearing counsel, I gave the relevant directions and delivered brief grounds of decision. Given the importance of the issues and their full ventilation before me by the admirable work of counsel, I now deliver my full grounds of decision.

Background

SHL is the holding company of a group of companies (“the Group”) that provides international offshore construction and support services for oil and gas field development. It is listed on the mainboard of the Stock Exchange of Singapore. SOC is the main operational entity in the Group, and is wholly owned by SHL. I will refer to SHL and SOC collectively as “the Companies”.

The Companies provided corporate guarantees to financial institutions for banking facilities extended to subsidiaries of the Companies. The facilities were secured against assets owned by the subsidiaries (rather than assets owned by the Companies). For example, SHL provided guarantees to United Overseas Bank Limited (“UOB”) in consideration of UOB extending facilities to Swiber Atlantis Pte Ltd (“SAPL”) and Tuscan Offshore Pte Ltd (“TOPL”), SHL’s subsidiaries. The facilities were secured against assets of SAPL and TOPL.

In 2015, the Group’s financial situation began to deteriorate following a downturn in the oil and gas industry precipitated by a plunge in oil prices. The Companies then became unable to pay their debts as and when they fell due.

On 29 July 2016, SHL and SOC applied by Originating Summonses Nos 767 and 768 of 2016 (“OS 767” and “OS 768”) respectively to be placed under judicial management. On 6 October 2016, I granted the applications.

The applications

On 25 July 2017, the judicial managers of the Companies (“the Judicial Managers”) applied by Summonses Nos 3426 and 3427 of 2017 in OS 767 and OS 768 (“the Summonses”) respectively for directions on the following issues: whether creditors of the Companies holding third-party securities should be regarded as secured creditors under reg 74 of the Regulations; and if such creditors should not be regarded as secured creditors under reg 74: whether such creditors may vote for the full value of their claims without deducting the value of their third-party securities, for the purpose of reg 74; and whether such creditors are required to deduct the value of third-party securities for the purpose of voting in potential schemes of arrangement under s 210 read with s 227X of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”).

In the supporting affidavit for the Summonses, Mr Bob Yap Cheng Ghee (“Mr Yap”), one of the Judicial Managers, stated that the Judicial Managers were adjudicating proofs of debt filed by creditors of the Companies, to determine the voting rights of the creditors in respect of the statement of proposals which were being prepared pursuant to s 227M of the Act. The Judicial Managers had received proofs of debt from creditors who had claims against subsidiaries of the Companies secured against the subsidiaries’ assets. The creditors also had parallel claims against the Companies based on corporate guarantees issued in respect of the subsidiaries’ indebtedness (see [4] above), and had accordingly filed proofs of debt with the Judicial Managers.

Mr Yap deposed that there was a lack of clarity as to whether creditors of the Companies who held securities from their subsidiaries were entitled to vote for the full value of their claims in creditors’ meetings summoned by the Judicial Managers to consider the statement of proposals. The same issue would arise if the Judicial Managers proposed a scheme of arrangement: a question would arise over whether, for the purposes of voting, the value of third party securities should be deducted from the value of claims by creditors who held such securities. Given the lack of clarity regarding these issues, the Judicial Managers applied for directions on these matters from the court.

The issues

These applications raised the following three issues: First, is a creditor who holds a third-party security a “secured creditor” for the purpose of reg 74 of the Regulations; and if not, is the creditor entitled to vote for the full value of its claim without deducting the value of the third-party security (“the 1st Issue”)? Second, is a creditor required to deduct the value of a third-party security for the purpose of voting in potential schemes of arrangement under s 210 read with s 227X of the Act (“the 2nd Issue”)? Third, how does the analysis change, if at all, where the creditor has realised the security after lodging the proof of debt (“the 3rd Issue”)?

At the outset, before addressing these issues, I distinguish two scenarios where a creditor holds a third-party security: In the first scenario, the creditor’s claim against the company is secured against the property of a third party. In the second scenario, the creditor’s claim against the company is not secured against the property of a third party. However, the creditor has a parallel claim against a third party which is secured against the property of the latter.

Strictly speaking, this case involved the second scenario because it was the underlying claims against the Companies’ subsidiaries, and not the claims against the Companies based on the corporate guarantees, which were secured. Therefore, on the facts, the answers to the 1st and 2nd Issues were plain: the relevant creditors holding third-party securities were not secured creditors and were thus entitled to vote for the full value of their claims, whether for the purpose of approving the statement of proposals or a scheme of arrangement. However, since the parties and the amicus focused on the first scenario in their submissions, I will address it in discussing the 1st and 2nd Issues below.

The 1st Issue The parties’ submissions

The Judicial Managers submitted that a creditor whose claim against the company is secured by a third-party security is not a “secured creditor” for the purpose of reg 74 of the Regulations, for the following reasons: First, a creditor whose claim is secured by a third-party security is not a “secured creditor” for the purpose of rr 164(3)–164(4) of the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) (“the Bankruptcy Rules”). Rules 164(3)–164(4) are substantially similar to reg 74 and are the applicable provisions under the personal bankruptcy regime. Further, in serving statutory demands, commencing bankruptcy proceedings and proving for debts, the fact that a creditor holds a third-party security is irrelevant. Second, foreign authorities indicate that a creditor whose claim is secured by a third-party security is not a “secured creditor” for the purpose of r 126 of the Companies (Winding Up) Rules (Cap 50, R 1, 2006 Rev Ed) (“the Winding-Up Rules”). Rule 126 is identical to reg 74 and is the applicable provision where a company is in liquidation. The Judicial Managers submitted that a consistent approach should be adopted across the personal bankruptcy, liquidation and judicial management regimes in relation to the relevance of third-party securities to the votes of creditors.

UOB, who submitted a proof of debt to the Judicial Managers based on the corporate guarantees executed by SHL in its favour (see [4] above), similarly contended that a creditor whose claim is secured by a third-party security is not a “secured creditor” for the purpose of reg 74. UOB also emphasised that under the bankruptcy regime, the term “secured creditor” does not include a creditor whose claim was secured by a third-party security (see [13(a)] above), and submitted that the term “secured creditor” in reg 74 bears the same meaning.

Ms Yeong also submitted that a creditor whose claim is secured by a third-party security is not a “secured creditor” under reg 74 for these reasons: First, reg 74 should be interpreted in the light of the provisions in the Act pertaining to judicial management, ie, ss 227A to 227X of the Act. References to “security” in those provisions are confined to references to security over the property of the company. Second, a narrow interpretation of the term “secured creditor” was consistent with the purpose of restricting the secured creditors of a company under judicial management from voting in creditors’ meetings. The purpose was to prevent secured creditors from scuppering corporate rescue attempts. However, a creditor whose claim against the company was secured by a third-party security would have no impetus to do so. Third, reading the term “secured creditor” in reg 74 to include a creditor holding a third-party security would go against the grain of...