Rothstar Group Ltd v Leow Quek Shiong and other appeals

• Judge: Andrew Phang Boon Leong JCA
• Judgment Date: 21 March 2022
• Neutral Citation: [2022] SGCA 25
• Citation: [2022] SGCA 25
• Court: Court of Appeal (Singapore)
• Published date: 24 March 2022
• Docket Number: Civil Appeals Nos 36, 37 and 38 of 2021
• Plaintiff Counsel: Bazul Ashhab bin Abdul Kader, Chan Cong Yen Lionel, Foo Chuan Min Jerald and Caleb Tan Jia Chween (Oon & Bazul LLP) (instructed), Tan Wen Cheng Adrian, Tan Choon Yuan Delson and Theenan Narendra Mudaliar (August Law Corporation)
• Defendant Counsel: Lee Eng Beng SC, Sim Kwan Kiat, Cheong Tian Ci Torsten and Wong Ye Yang (Rajah & Tann Singapore LLP),Lee Eng Beng SC, Chua Beng Chye, Raelene Su-Lin Pereira, Cheong Tian Ci Torsten, Yeoh Su Yi and Foung Han Peow (Rajah & Tann Singapore LLP)
• Subject Matter: Civil Procedure,Appeals,Leave to introduce new points on appeal,Insolvency Law,Avoidance of transactions,Transactions at an undervalue,Land,Caveats,Remedies of caveatee,Conveyance,Voluntary conveyances to defraud creditors
• Hearing Date: 27 January 2022

Steven Chong JCA (delivering the judgment of the court): Introduction

Upon the insolvency of an individual or a company, the statutory scheme set out in the Bankruptcy Act (Cap 20, 2009 Rev Ed) (“the BA”), the Companies Act (Cap 50, 2006 Rev Ed) (“the CA”), and now the Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018) (“the IRDA”) governs the avoidance of certain antecedent transactions. While the conditions for avoidance vary according to the particular ground of avoidance and type of transaction in issue, they are generally animated by a common policy: namely, “protect[ing] the general body of creditors against a diminution of the assets available to them by a transaction which confers an unfair or improper advantage on the other party” (Goode on Principles of Corporate Insolvency Law (Kristin van Zweiten gen ed) (Sweet & Maxwell, 5th Ed, 2018) (“Goode”) at para 13–03). The appeals before us have brought into focus several questions relating to one such category of transactions: transactions at an undervalue within the scope of s 98 of the BA. In particular, these appeals raise for determination, for what we understand to be the first time, the question of whether the grant of security for the existing indebtedness of a third party can constitute a transaction at an undervalue, and thus the applicability and scope of the principle articulated in the English case of Re MC Bacon Ltd [1990] BCLC 324 (“MC Bacon”) in our law.

These appeals have also provided us with an opportunity to clarify the proper interpretation and application of s 98(3)(c) of the BA, which provides that a transaction will be at an undervalue if it is entered into for consideration the value of which is significantly less than the value provided, with both values being measured in money or money’s worth.

We begin with an overview of the salient facts, a proper understanding of which is necessary to appreciate the specific legal issues raised.

Facts Background

At all material times, Mr Ng Say Pek (“NSP”) and his son were the only two shareholders and directors of Agritrade International (Pte) Ltd (“AIPL”). NSP was also the sole shareholder and one of the two directors of Pictorial Development Pte Ltd (“Pictorial”), with the other director being his wife.

Pictorial owned 99% of a residential property that was NSP’s family home (“the Property”), with the remaining 1% owned by NSP in his own name.

Mortgages granted to Rothstar

Under a loan agreement dated 9 April 2019 (“the Loan Agreement”) between AIPL and Rothstar Group Limited (“Rothstar”), Rothstar agreed to extend a loan of $5m (“the Loan”) to AIPL. As security for the payment and discharge of the Loan, AIPL was to procure a third-party equitable mortgage in respect of the Property in favour of Rothstar. On 10 June 2019, NSP and Pictorial granted an equitable mortgage over the Property (“the Equitable Mortgage”) to Rothstar as security for the fulfilment of AIPL’s obligations under the Loan Agreement.

AIPL failed to make repayment of the Loan by 16 July 2019, the date stipulated under the Loan Agreement. Thereafter, the deadline for the repayment of the Loan was extended twice, on 20 August 2019 and 4 November 2019, for a total of six months until 1 February 2020. On 27 November 2019, Rothstar, AIPL, Pictorial and NSP entered into a Deed of Discharge and Termination (“the Deed of Discharge”), under which the Equitable Mortgage was terminated in consideration of NSP and Pictorial agreeing to grant a legal mortgage over the Property to Rothstar. On 2 December 2019, NSP and Pictorial executed the legal mortgage (“the Legal Mortgage”), as security for all sums due and payable by them and/or AIPL to Rothstar. The Legal Mortgage was registered on 5 December 2019.

On or around 21 December 2019, NSP absconded from Singapore. AIPL failed to repay the Loan by 1 February 2020.

Insolvency of Pictorial, NSP and AIPL

A bankruptcy order was made against NSP on 12 March 2020 and private trustees in bankruptcy (“the Private Trustees”) were appointed. On 18 March 2020, the Private Trustees lodged a caveat against the Property on the basis that NSP’s assets, including his 1% interest in the Property, vested in them upon NSP’s bankruptcy (“the Private Trustees’ Caveat”). On 30 April 2020, the Private Trustees applied to compulsorily wind up Pictorial. On 19 June 2020, Pictorial was ordered to be wound up and a liquidator (“the Liquidator”) was appointed. On 29 June 2020, the Liquidator lodged a further caveat against the Property (“the Liquidator’s Caveat”). Thereafter, AIPL was placed under judicial management. Its judicial managers filed a winding up application on 4 September 2020 and AIPL was wound up on 21 September 2020.

Commencement of proceedings

On 20 January 2021, the Liquidator and the Private Trustees applied for the Legal Mortgage to be set aside on the ground that it was a transaction at an undervalue or a voluntary conveyance to defraud creditors, and for Rothstar to deliver vacant possession of the Property to them. In response, on 26 January 2021, Rothstar applied under s 127(1) of the Land Titles Act (Cap 157, 2004 Rev Ed) (“the LTA”) for the Private Trustees to show cause as to why the Private Trustees’ Caveat should not be removed.

The winding up and bankruptcy applications against Pictorial and NSP respectively were made, and the Legal Mortgage was granted, before the IRDA came into operation on 30 July 2020. It is undisputed that the pre-IRDA versions of the BA, the CA and the Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed) (“the CLPA”) are the applicable statutes.

Decision below

In Rothstar Group Ltd v Chee Yoh Chuang and another and other matters [2021] SGHC 176 (“the GD”), the High Court judge below (“the Judge”) held that the Legal Mortgage was void as a transaction at an undervalue. Although Rothstar had provided valid consideration for the Legal Mortgage in the form of the discharge of the Equitable Mortgage, such that s 98(3)(a) of the BA did not apply (GD at [50]–[51]), the Legal Mortgage was entered into at an undervalue within s 98(3)(c) of the BA as the value of any consideration received by Pictorial and NSP with respect to the Legal Mortgage was significantly less than the value of the consideration provided by them. The Loan was for AIPL’s benefit, and Pictorial and NSP could not be said to have received the value of the Loan (GD at [60]–[65]). The Judge also found that Pictorial became insolvent as a result of the Legal Mortgage, and that NSP either was insolvent when the Legal Mortgage was granted or became insolvent as a result of the Legal Mortgage (GD at [70]). Further, Reg 6 of the Companies (Application of Bankruptcy Act Provisions) Regulations (GN No S 293/1995) (“the Regulations”) was not available to Rothstar as against the Liquidator as it could not be said that Pictorial had granted the Legal Mortgage for the purpose of carrying on its business, or that Pictorial had reasonable grounds for believing that the Legal Mortgage would benefit it (GD at [71]–[73]).

However, the Judge found that the Legal Mortgage was not a voluntary conveyance to defraud creditors. As consideration had been given for the Legal Mortgage, there had to be actual intent on the part of Pictorial and NSP to defraud their creditors. The Judge found that the Liquidator and the Private Trustees had failed to prove the requisite actual intent to defraud (GD at [81]).

Having found that the Legal Mortgage was void, the Judge consequently dismissed Rothstar’s application to remove the Private Trustees’ Caveat (GD at [86]).

Summonses for leave to raise new points on appeal

Before we address the substantive issues arising in these appeals, we deal briefly with the parties’ applications under O 57 r 9A(4)(b) of the Rules of Court (2014 Rev Ed) for leave to raise several new points on appeal. The new points Rothstar sought to raise related to whether Pictorial became insolvent as a result of the grant of the Legal Mortgage; whether the Liquidator and the Private Trustees were estopped from arguing that Pictorial and NSP were insolvent or became insolvent when they granted the Legal Mortgage; and whether the Judge should have voided the Legal Mortgage in view of the previously existing Equitable Mortgage. In response, the Liquidator and the Private Trustees sought to raise new points relating to the validity and priority of the Equitable Mortgage.

At the commencement of the hearing before us on 27 January 2022, we allowed all the applications as the new points were essentially questions of law and, as the parties confirmed, no fresh evidence was required for these points to be determined on appeal. As this court noted in Liew Kit Fah and others v Koh Keng Chew and others [2020] 1 SLR 275 at [14], an appellate court will generally be open to consider new arguments where these involve questions of law that can be answered without further evidence.

Issues to be determined

The following issues arise for our determination in these appeals: First, whether the Legal Mortgage should be set aside on the ground that it was a transaction at an undervalue within s 98 of the BA. This in turn raises three sub-issues: whether the Legal Mortgage was granted at an undervalue (including whether and when the grant of security for an existing debt can constitute a transaction at an undervalue); whether Pictorial and NSP were insolvent at the time of, or became insolvent as a result of, granting the Legal Mortgage; and the appropriate order that should be made under s 98(2) of the BA. Second, whether the Legal Mortgage was a voluntary conveyance to defraud creditors under s 73B(1) of the CLPA. Third, whether the Private Trustees’ Caveat ought to be removed.

Whether the Legal Mortgage was a transaction at an undervalue

We begin with the issue of whether the Legal Mortgage was a transaction at an...