Rothstar Group Ltd v Leow Quek Shiong
| Jurisdiction | Singapore |
| Judge | Andrew Phang Boon Leong JCA,Steven Chong JCA,Chao Hick Tin SJ |
| Judgment Date | 21 March 2022 |
| Court | Court of Appeal (Singapore) |
| Docket Number | Civil Appeals Nos 36, 37 and 38 of 2021 |
Andrew Phang Boon Leong JCA, Steven Chong JCA and Chao Hick Tin SJ
Civil Appeals Nos 36, 37 and 38 of 2021
Court of Appeal
Insolvency Law — Avoidance of transactions — Transactions at an undervalue — Insolvent individual and company granting legal mortgage over property to lender as security for sums payable by them and/or related company — Legal mortgage containing certain warranties and covenants — Whether individual and company were estopped from arguing that mortgage was liable to be avoided as transaction at undervalue — Section 100(2) Bankruptcy Act (Cap 20, 2009 Rev Ed)
Insolvency Law — Avoidance of transactions — Transactions at an undervalue — Insolvent individual and company granting legal mortgage over property to lender as security for sums payable by them and/or related company — Whether and when grant of security for existing debt could constitute transaction at undervalue — Whether value of consideration received was significantly less than value of consideration provided — Section 98(3)(c) Bankruptcy Act (Cap 20, 2009 Rev Ed)
Insolvency Law — Avoidance of transactions — Transactions at an undervalue — Whether consequence of finding that legal mortgage was transaction at undervalue was that it was “void” — Appropriate order for restoring position to what it would have been if transaction had not been entered into — Section 98(2) Bankruptcy Act (Cap 20, 2009 Rev Ed)
Land — Caveats — Remedies of caveatee — Private trustees of bankrupt individual lodging caveat against mortgaged property — Whether mortgagee in this case was still “caveatee” — Whether private trustees were entitled to lodge caveat — Section 127(1) Land Titles Act (Cap 157, 2004 Rev Ed)
Land — Conveyance — Voluntary conveyances to defraud creditors — Individual and company granting legal mortgage over property to lender — Whether valid consideration provided for mortgage — Whether requisite intent to defraud creditors established — Section 73B(1) Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed)
Held, dismissing the appeals:
Transactions at an undervalue
(1) Section 98(3) of the BA set out three situations in which a party could be said to have entered into a transaction at an undervalue. “Consideration” in s 98(3) of the BA had the normal meaning ascribed to it by the law of contract. However, whereas s 98(3)(a) of the BA was concerned only with the existence of consideration in the contractual sense, s 98(3)(c) of the BA expressly required a comparison of value between the consideration provided and the consideration received: at [24].
(2) The value comparison exercise under s 98(3)(c) of the BA had to be undertaken from the perspective of the insolvent grantor. The material comparison was therefore between the value received by the grantor and the value provided by the grantor, not the value received or provided by any other party: at [25].
(3) While the relevant consideration did not need to have been received by the grantor directly, the value of that consideration was relevant in the value comparison exercise under s 98(3)(c) of the BA only in so far as it accrued to the grantor. Nevertheless, the grantor's mere perception of value, whether objectively or subjectively assessed, would not be taken into account. What mattered was the actual value received and provided by the grantor: at [26] and [29].
(4) Further, in undertaking the value comparison exercise under s 98(3)(c) of the BA, both the value of the consideration provided and the value of the consideration received by the grantor had to be assessed “in money or money's worth”. The assessment of value in “money's worth” required the value of the consideration to be quantifiable in monetary terms, even if the precise monetary value of the consideration could not be immediately determined with certainty. Abstract or intangible forms of value which could not be quantified in monetary terms had no place in the value comparison exercise. Further, where the value of the consideration was precarious or speculative, some evidence would be needed to establish and quantify its value in monetary terms in order to undertake an objective comparison: at [30] and [34].
(5) The grant of security for the grantor's existing debt would not, in principle, constitute a transaction at an undervalue because it did not deplete or diminish the grantor's assets. The principle in the English case of Re MC Bacon Ltd[1990] BCLC 324 (“MC Bacon”), which was supported by the weight of authority and was also sound in principle, should be adopted as part of Singapore law, in preference to the approach in Hill v Spread Trustee Co Ltd and another[2007] 1 WLR 2404 which focused incorrectly on what the grantee of the security received rather than on what the grantor gave up: at [39] to [41].
(6) Nevertheless, the principle in MC Bacon applied within, and not in the alternative to, the value comparison exercise in s 98(3)(c) of the BA. The principle in MC Bacon therefore could not be applied as a blanket rule to all grants of security for existing debts. In particular, it did not apply where the relevant security was granted in respect of a third party's existing debt, which would reduce the grantor's net assets by imposing a new liability which the grantor did not previously have. Such a grant of security could, in principle, constitute a transaction at an undervalue under s 98(3)(c) of the BA: at [42], [43] and [45].
(7) The Legal Mortgage was a transaction at an undervalue under s 98(3)(c) of the BA. The value provided by Pictorial and NSP was twofold: first, the Legal Mortgage securing AIPL's existing debt; and second, a new primary obligation to repay the Loan which they assumed under the terms of the Legal Mortgage. There was no value received by Pictorial and NSP in money or money's worth which could be compared with the significant value provided by them. Although both the Equitable Mortgage and the Legal Mortgage that replaced it were – having regard to the true commercial arrangement between the parties – granted in consideration of the Loan extended by Rothstar to AIPL, there was no evidence of Pictorial and NSP receiving the value of the Loan or any benefit therefrom that could be assessed in money or money's worth. The benefit that Rothstar claimed Pictorial and NSP received from the Loan to AIPL was an unparticularised and unsubstantiated benefit which was said to accrue to them merely by dint of their association with AIPL: at [47] to [49] and [51].
(8) Pictorial and NSP were insolvent at the time of, or became insolvent as a result of, granting the Legal Mortgage, as required under s 100(2) of the BA. The Liquidator and the Private Trustees were not estopped by the warranties and covenants made in the Legal Mortgage from arguing that the Legal Mortgage was liable to be avoided as a transaction at an undervalue, or that Pictorial and NSP were insolvent at the relevant time, as this would subvert the statutory scheme of s 98 of the BA: at [52] to [55], [58] and [59].
(9) The consequence of the Legal Mortgage being found to be a transaction at an undervalue was not that it was “void”. Under s 98(2) of the BA, the court had the power to make an order for restoring the position to what it would have been if the transaction had not been entered into. The transaction itself was not retrospectively avoided: at [60].
(10) In the circumstances of this case, the appropriate order was an order discharging the Legal Mortgage with prospective effect, without restoring the Equitable Mortgage or ordering the Property to be sold and the proceeds applied to discharge the Loan: at [61] to [66].
(11) The defence in reg 6 of the Companies (Application of Bankruptcy Act Provisions) Regulations (1996 Rev Ed) was not available to Rothstar. There was no evidence that Pictorial had entered into the Legal Mortgage “for the purpose of carrying on its business”. There was also no evidence of Pictorial or NSP receiving any benefit, or of Pictorial having reasonable grounds to believe that it would obtain such a benefit, from the Legal Mortgage: at [67].
Voluntary conveyances to defraud creditors
(12) Valid consideration had been provided by Rothstar for the Legal Mortgage, in the form of both the discharge of the Equitable Mortgage and the Loan extended to AIPL: at [71].
(13) The Liquidator and the Private Trustees had not established that Pictorial and NSP had acted with the actual intent to defraud their creditors, or that Rothstar had notice of any such intent at the relevant time: at [73].
(14) Therefore, the Legal Mortgage was not a voluntary conveyance to defraud creditors under s 73B(1) of the CLPA: at [68] and [74].
Application to remove the Private Trustees' caveat
(15) Once the Legal Mortgage was set aside, Rothstar would cease to have any interest in the Property as a registered legal mortgagee. Rothstar would then no longer be a “caveatee”, and could no longer avail itself of the statutory remedy provided to caveatees by s 127(1) of the LTA. On this basis, Rothstar's application for the removal of the Private Trustees' caveat was dismissed: at [75] and [76].
(16) Rothstar's submission that the Private Trustees lacked standing to lodge their caveat was misconceived, as they had a clear entitlement to lodge and maintain their caveat under s 115(1) of the LTA. In contrast, following the discharge of the Legal Mortgage, Rothstar would have no interest in the Property. In these circumstances, even if the Private Trustees' interest in the Property was purely economic and limited to 1% of its value, the balance of convenience plainly lay in favour of maintaining the Private Trustees' caveat: at [77] and [78].
Buildspeed Construction Pte Ltd v Theme Corp Pte Ltd [2000] 1 SLR(R) 287; [2000] 4 SLR 776 (folld)
Burnden Holdings (UK) Ltd v Fielding [2019] EWHC 1566 (Ch) (folld)
Christie,...
To continue reading
Request your trial