SK Engineering & Construction Co Ltd v Conchubar Aromatics Ltd and another appeal

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 30 August 2017
• Neutral Citation: [2017] SGCA 51
• Plaintiff Counsel: Debby Lim and Jamal Siddique (Shook Lin & Bok LLP)
• Date: 30 August 2017
• Docket Number: Civil Appeals Nos 15 and 16 of 2017
• Hearing Date: 20 March 2017
• Subject Matter: Related creditors,Companies,Schemes of Arrangement,Assignment of debts
• Year: 2017
• Defendant Counsel: Andy Lem, Justin Chia, Akesh Abhilash and Kok Yee Keong (Harry Elias Partnership LLP),Leong Yi Ming and Tham Hsu Hsien (Allen & Gledhill LLP)
• Court: Court of Appeal (Singapore)
• Citation: [2017] SGCA 51
• Published date: 23 September 2017

Chao Hick Tin JA (delivering the judgment of the court): Introduction

We have before us two appeals, Civil Appeals Nos 15 and 16 of 2017 (“CA 15” and “CA 16” respectively, and “these Appeals” collectively), against the High Court’s decision in Originating Summonses Nos 153 and 154 of 2016 (“the High Court OSes” collectively) approving two schemes of arrangement under s 210(3AB) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”) and granting a moratorium under s 210(10) on all pending, contingent or fresh actions against two companies, Conchubar Aromatics Ltd and UVM Investment Corporation (“Conchubar” and “UVM” respectively, and “the two Scheme Companies” collectively), for one year with effect from 29 August 2016. The grounds of decision of the High Court judge (“the Judge”) for the High Court OSes can be found in Re Conchubar Aromatics Ltd and another matter [2017] 3 SLR 748 (“the GD”).

The High Court OSes were brought by the two Scheme Companies to seek (among other things) the court’s sanction of two schemes of arrangement that had been approved by their respective creditors in accordance with s 210(3AB) of the Companies Act. For ease of discussion, we will refer to the scheme relating to Conchubar as “the Conchubar Scheme”, the scheme relating to UVM as “the UVM Scheme”, and the two schemes collectively as “the Schemes”. The material terms of the Schemes are set out at [18] below. The High Court OSes were opposed by SK Engineering & Construction Co Ltd (“SKEC”), a judgment creditor of the two Scheme Companies as well as the appellant in these Appeals. SKEC’s opposition was based mainly on the ground that the creditors that had voted in favour of the Schemes were related to the two Scheme Companies and their votes should therefore be wholly discounted. On this basis, SKEC submitted that the requisite level of approval by the creditors of the two Scheme Companies had not been obtained in relation to the Schemes.

The key issue identified by the parties in these Appeals relates to an unsettled point of law touching on the appropriate discount to apply to the votes of related creditors – ie, creditors related to the company which is the subject matter of a scheme of arrangement (a “scheme company”) – that are not wholly-owned subsidiaries of the scheme company. However, it will become apparent in the course of this judgment that this question does not in fact arise in the circumstances of this case as the threshold requirement of a relationship between the alleged related creditors and the two Scheme Companies has not been made out. Instead, it appears to us that the more important question is whether the assignments of part of the two Scheme Companies’ debts by some of their creditors to other parties were genuine, or made for the purpose of circumventing the statutory requirement in ss 210(3AB)(a) and 210(3AB)(b) of the Companies Act that a scheme of arrangement must be approved by a majority in number of the scheme company’s creditors or shareholders (as the case may be) representing three-fourths in value of the creditors or shareholders. We will refer to the requirement of a majority in number as the “headcount test”, and the requirement of three-fourths in value as the “value test”.

We will first set out the facts which form the backdrop to the present dispute, followed by an outline of the issues raised by the parties in these Appeals. We will then set out the parties’ specific arguments on each of these issues, and thereafter, our holdings in relation to each issue.

The background facts The parties to these Appeals and the alleged related creditors

Jurong Aromatics Corporation Pte Ltd (“JAC”) was incorporated on 30 May 2005 as a joint venture vehicle to own and operate an integrated condensate splitter and aromatics complex on Jurong Island that would process and produce aromatics and oil products (“the JAC Project”).

SKEC is a company incorporated in South Korea. It is a creditor of Conchubar for a sum of US$14,527,732.33, and a creditor of UVM for a sum of US$4,129,333.57.¹ These debts were incurred by the two Scheme Companies pursuant to a judgment and corresponding costs orders made by the court in a suit brought by SKEC against them on account of an indemnity which each of them had given SKEC.²

Conchubar, the respondent in CA 15, is a company incorporated in the Cayman Islands. It is an indirect shareholder of JAC. Its primary asset is its 6% indirect shareholding in JAC, owned through its 26.7% stake in SKEC Jurong Investment Pte Ltd (“SKECJI”). SKECJI holds a 75% stake in SK International Investment Singapore Pte Ltd (“SKIIS”), which in turn has a 30% stake in JAC.³ SKECJI was set up by SKEC and Conchubar on 12 July 2010 for the purpose of investing in JAC (and, in turn, the JAC Project) through SKIIS. At the time of the meeting of Conchubar’s creditors to vote on the Conchubar Scheme, Conchubar owed a total debt of US$76,277,818.33 to the following parties:⁴

Creditor	Debts (US$)
Conchubar Chemicals Ltd (“Chemicals”)	50,000,000.00
Universal Petrochem Corp Ltd (“Universal”)	10,599,174.00
Estanil Assets Ltd (“Estanil”)	1,150,912.00
SKEC	14,527,732.33

Chemicals, one of Conchubar’s creditors, is a company incorporated in the Cayman Islands. It is wholly-owned by Conchubar Infrastructure Fund (“Conchubar Infrastructure”). The latter wholly owns Conchubar⁵ and is also the holding company of several other investment companies. Conchubar Infrastructure, Conchubar and Chemicals share a common director, Pardeep Dhir. Chemicals became a creditor of Conchubar for US$50m pursuant to a Corporate Guarantee Agreement dated 25 August 2010 (“the 2010 Corporate Guarantee Agreement”)⁶ under which Conchubar acted as the guarantor of a US$50m loan from Chemicals to SKECJI. The loan was used by SKECJI to subscribe (through SKIIS) for JAC shares. SKECJI defaulted on repayment of the loan on 25 August 2015. In September 2015, Chemicals made a demand against Conchubar for this debt pursuant to the 2010 Corporate Guarantee Agreement.⁷ Because of Chemicals’ corporate structure and these contractual arrangements, SKEC alleges that Chemicals is a related creditor of Conchubar.

Besides the US$50m, Chemicals was also a creditor of Conchubar for: a sum of US$10.422m, which arose out of a separate Loan Agreement dated 23 May 2011 between them (“the 2011 Loan Agreement”),⁸ pursuant to which Chemicals paid SKECJI US$9m on behalf of Conchubar, with accruing interest for the period between May 2011 and April 2015 amounting to US$1.422m;⁹ and a sum of US$1,131,673, which represented fees paid by Chemicals on behalf of Conchubar.¹⁰

Chemicals allegedly owed Universal, a company incorporated in the British Virgin Islands (“BVI”), US$11m pursuant to a Sales and Purchase Agreement dated 1 August 2014 (“the 2014 SPA”).¹¹ On 30 April 2015, Chemicals assigned to Universal its receivables of US$10.422m from Conchubar under the 2011 Loan Agreement. This assignment operated to extinguish Chemicals’ debt to Universal by the said amount.¹² This resulted in Universal becoming a creditor of Conchubar for the principal sum of US$10.422m, which sum increased to US$10,599,174 taking into account accrued interest.

Chemicals also allegedly owed Estanil, another BVI-incorporated company, US$1.2m pursuant to a Financing Lease Agreement dated 7 August 2013 (“the 2013 FLA”).¹³ On 30 April 2015, Chemicals assigned to Estanil its receivables of US$1,131,673 from Conchubar. This assignment operated to extinguish Chemicals’ debt to Estanil by the said amount.¹⁴ This resulted in Estanil becoming a creditor of Conchubar for the sum of US$1,131,673, which sum increased to US$1,150,912 taking into account accrued interest.¹⁵

SKEC alleges that Universal and Estanil are also creditors which are related to Conchubar because they acquired their claims against Conchubar by way of assignment from Chemicals, which SKEC says is a related creditor of Conchubar.

UVM, the respondent in CA 16, is a BVI-incorporated company. It is a direct shareholder of JAC, and its primary asset is its 5.1% shareholding in JAC. At the time of the meeting of UVM’s creditors to vote on the UVM Scheme, UVM owed a total debt of US$32,583,446.57 to the following parties:¹⁶

Creditor	Debts (US$)
MacNair Group Inc (“MacNair”)	28,000,000.00
Shefford Investment Holdings Ltd (“Shefford”)	317,651.00
Emirates Resources Inc (“Emirates”)	136,462.00
SKEC	4,129,333.57

MacNair, a BVI-incorporated company, is a creditor of UVM pursuant to a Convertible Bond Agreement dated 31 March 2011 which it entered into with UVM and UVM’s sole shareholder, Bonquest Capital Ltd (“Bonquest”).¹⁷ Under that agreement (“the 2011 CBA”), MacNair subscribed for US$28m worth of convertible bonds in UVM for the purpose of providing debt finance to UVM so as to enable the latter to invest in JAC.¹⁸ The convertible bonds could be converted into 99.82% of UVM’s shares at MacNair’s option, upon giving notice, between the third and the 15th anniversary of the issue date of the convertible bonds.¹⁹ As part of the 2011 CBA, Bonquest also granted MacNair a charge over all its rights, title and interests in UVM, such that MacNair also holds a charge over 100% of UVM’s shares. Because of these contractual arrangements, SKEC alleges that MacNair is a related creditor of UVM.

Separately, MacNair was also a creditor of UVM for fees of US$134,181²⁰ which it had paid on UVM’s behalf. MacNair allegedly owed Emirates US$200,000 pursuant to a promissory note dated 23 November 2014.²¹ On 30 April 2015, MacNair assigned to Emirates its receivables of US$134,181 from UVM. This assignment operated to extinguish MacNair’s debt to Emirates by the said amount.²² This resulted in Emirates becoming a creditor of UVM for the sum of US$134,181, which sum...