Tam Chee Chong and another v DBS Bank Ltd

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 18 November 2010
• Neutral Citation: [2010] SGHC 331
• Plaintiff Counsel: Sarjit Singh Gill SC, Pradeep Pillai and Zhang Xiaowei (Shook Lin & Bok LLP)
• Docket Number: Originating Summons No 707 of 2009
• Date: 18 November 2010
• Hearing Date: 13 August 2010,16 August 2010,10 August 2010,03 September 2010,12 August 2010,11 August 2010
• Subject Matter: Insolvency Law
• Year: 2010
• Citation: [2010] SGHC 331
• Defendant Counsel: Ashok Kumar, Kevin Kwek and Linda Esther Foo (Stamford Law Corporation)
• Court: High Court (Singapore)
• Published date: 29 December 2010

Andrew Ang J: Introduction

This case concerns an action by Tam Chee Chong and Keoy Soo Earn (“the plaintiffs”) to set aside a charge given by Jurong Hi-Tech Industries Pte Ltd (under judicial management) (“JHTI”) over certain shares to DBS Bank Ltd (“the defendant”) on the grounds that the charge constituted an unfair preference under s 227T of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”).

JHTI is a wholly-owned subsidiary of Jurong Technologies Industrial Corporation Ltd (under judicial management) (“JTIC”), the latter of which is an investment holding company. JHTI and JTIC (“the Companies”) were placed under judicial management by orders of court on 20 February 2009. The plaintiffs were appointed as judicial managers of the Companies and it is in that capacity that they bring this action.

The background

Sometime in the last quarter of 2006, the defendant approached JTIC with an offer of banking facilities. Yeo Pek Heng (“Yeo”), a director of JTIC and JHTI, informed the defendant that the facilities from the other banks, such as ABN AMRO Bank NV (“ABN AMRO”), Bank of Tokyo-Mitsubishi UFJ (“BTMU”), Malayan Banking Berhad (“Maybank”), Oversea-Chinese Banking Corporation Ltd (“OCBC”), Rabobank International Singapore Branch (“Rabobank”), RHB Bank Berhad (“RHB”) and United Overseas Bank Ltd (“UOB”) were all unsecured but that each of the banks had been given a negative pledge and a pari passu undertaking. The defendant was willing to lend on a similar basis.

By a letter of offer dated 27 December 2006, the defendant granted banking facilities to the Companies, jointly and severally. The banking facilities were revised and supplemented with additional banking facilities over the next few years. Each of the defendant’s letters of offer provided that the facilities granted to the Companies were unsecured and contained the additional negative pledge and pari passu clauses similar to those on which facilities were granted to the Companies by the other banks.

When Ms Lin Li Fang, then already a director of both JTIC and JHTI, took over as chairperson of the JTIC group of companies (“the Group”) in March 2008, she was concerned about the high debt level of the Group and considered it a priority to “monetise” the assets of the Group and to pay down the loans outstanding to the banks.

Thereafter, Dr Chung Siang Joon (“Dr Chung”), executive director of finance of JTIC, and Yeo gave similar presentations to the defendant and each of the other banks (ie, ABN AMRO, KBC and KBC Bank NV (“KBC”), Maybank, Rabobank, RHB, Sumitomo Mitsui Banking Corporation (“SMBC”), OCBC and UOB) separately, where they stated that some of the Companies’ assets would be sold to pay down the loans from the banks. Those assets included the Electronic Manufacturing Services business, shares in MAP Technology Holdings Ltd (“MAP Shares”) as well as shares in Min Aik Technology Co Ltd (“Min Aik Shares”).

The defendant’s willingness to provide funding to the Companies when so requested can be seen from several episodes. In May 2008, JTIC was interested in acquiring a 100% stake in Priver Electric (BVI) Co Ltd (“Priver”) – a company incorporated in the British Virgin Islands. Dr Chung, Yeo and Lin approached the defendant for a short term loan of S$5m for the acquisition (“the 1st Ad Hoc Short Term Loan”). The defendant agreed and disbursed the loan pursuant to the drawdown notice issued by the Companies dated 2 July 2008.

Another noteworthy instance to illustrate how the defendant was more helpful to the Companies than the other banks occurred in July 2008. ABN AMRO Bank had wanted to reduce the amount of the standby letter of credit (“SBLC”) facility it had granted to JHTI’s wholly owned subsidiary in Brazil – JHT Industrial Jaguariuna Ltda. The Companies approached Rabobank, UOB and the defendant to take over the SBLC facility but only the defendant agreed to do so. The defendant granted the Companies an SBLC facility of US$1.5m on 14 July 2008 which was subsequently increased to US$2m on 15 September 2008.

Yet another example of the defendant’s assisting to the Companies is as follows. At JTIC’s annual general meeting on 30 April 2008, JTIC announced a dividend payment of $0.01 per share. The dividend was to be paid by end September 2008, but JTIC did not have the funds to pay it. Dr Chung, Yeo and Ms Lin approached the defendant for another short term loan of S$10m. The defendant approved a loan of S$7.5m (“the 2nd Ad Hoc Short Term Loan” and collectively with the 1st Ad Hoc Short Term Loan, the “Ad Hoc Short Term Loans”), of which S$6m was disbursed on 26 September 2008 and a further S$0.5m on 29 September 2008 pursuant to drawdown notices issued by the Companies.

By 14 January 2009, the Companies owed the defendant, its largest creditor, approximately S$30m and US$44m.

In June 2008, ABN AMRO requested that the Companies provide an undertaking to physically deposit the approximately 18 million shares in MAP Technology Holdings Ltd (“MAP”) that the Companies owned with ABN AMRO by 1 July 2008 in consideration for ABN AMRO not recalling the facilities and proposing new repayment terms. The Companies agreed and a letter of undertaking dated 30 June 2008 was furnished by JTIC to ABN AMRO. The Companies also physically deposited the non-tradeable share certificate representing approximately 18 million shares in MAP with ABN AMRO. Incidentally, the shares in question were subject to a sale moratorium until 28 July 2008.

On 1 July 2008, Dr Chung informed the defendant that JTIC held 18.8 million shares in MAP which were subject to the sale moratorium as described above. Dr Chung also stated that the shares might be sold to repay the 1st Ad Hoc Short Term Loan. This was somewhat inaccurate as there were in fact 18,661,620 shares, and they were held in the name of JHTI not JTIC.

Upon the expiry of the moratorium period, ABN AMRO returned the share certificate to JHTI so that the shares could be converted to scripless shares. JHTI also obtained additional shares in MAP from the sale by JTIC of two related companies to MAP.

In August and September 2008, ABN AMRO requested that the scripless shares in MAP be transferred to its nominees account, apparently without change of beneficial ownership, but Dr Chung refused the request as he was aware of the negative pledge and pari passu clause given by the Companies to the banks. This was despite ABN AMRO threatening to accelerate repayment by making a formal demand.

On or about 17 September 2008, the defendant gave JTIC an introduction to DBS Nominees so that JHTI could appoint DBS Nominees as custodian for the shares in MAP. The custody account was duly opened.

From September to November 2008, JHTI found it difficult to pay amounts due on the loans it had taken out. The defendant and other banks that had extended loans to JHTI were pressing the Companies for payment of overdue amounts. However, JHTI was unable to make payment of the outstanding amounts in full. JHTI told its bank creditors, including the defendant, that it would repay the facilities using the proceeds from the sale of the shares in MAP, the sale of the shares in Min Aik Technology Co Ltd and the sale (“the GEM Deal”) of the Electronic Manufacturing Services business to the Global Emerging Markets Group. During this period, trade creditors were also demanding payment of invoices from JHTI.

JHTI did make some payments to the banks, however. All the banks, including the defendant, had received some payments from JHTI from September to November 2008. The defendant had received US$300,000 and US$600,000 on 24 October 2008 and 31 October 2008. However, these payments were made in the ordinary course of business from trade receivables or by drawing on credit lines and not from the disposal of assets.

The defendant’s requests for payment in September 2008 were merely in relation to the Companies’ overdue trade bills. After the 2nd Ad Hoc Short Term Loan was disbursed on 26 September 2008, the defendant requested repayment of the 1st Ad Hoc Short Term Loan.

The 1st Ad Hoc Short Term Loan was originally due on 1 August 2008. Of this amount, S$2.5m was repaid in August and September 2008 with the balance rolled over. Despite the 1st Ad Hoc Short Term Loan not being fully repaid, the 2nd Ad Hoc Short Term Loan was nonetheless disbursed. When the Companies failed to repay the 2nd Ad Hoc Short Term Loan upon its maturity on 10 October 2008, this loan too was rolled over.

Even though the defendant was requesting the Companies to make payment of their overdue trade bills and the balance of the Ad Hoc Short Term Loans during this period, the relationship between the defendant and the Companies remained cordial. Ms Lin said she did not feel pressured by the defendant’s requests, especially since the other banks were also asking the Companies for repayment. Moreover, the defendant did not make any formal demand for payment until 14 January 2009, as discussed below.

On 10 October 2008, the defendant offered to assist the Companies by providing a US$8.5m account receivables facility to the Companies. The defendant issued a letter of offer for this facility on 4 November 2008 but the Companies did not accept it. Unbeknown to the defendant, accounts receivable financing had already been arranged with Rabobank.

Ms Khua Soh Teng Pansy (“Ms Khua”), a vice-president of the defendant’s Institutional Banking Group, sent an e-mail to the Companies on 17 October 2008 seeking their settlement instructions “immediately” in respect of several overdue trade bills.

Further to instructions given by Ms Tan Ee Lee (“Ms Tan”), the defendant’s managing director of the Institutional Banking Group, Ms Khua impressed upon Ms Lin during a meeting on 17 October 2008 at the defendant’s offices that the Companies’ failure to meet their repayment obligations constituted an event of default...