Tan Holdings Pte Ltd (in creditor's voluntary liquidation) v Prosperity Steel (Asia) Co Ltd and others

• Jurisdiction: Singapore
• Judge: Steven Chong J
• Judgment Date: 30 September 2011
• Neutral Citation: [2011] SGHC 219
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 726 of 2010
• Published date: 05 October 2011
• Year: 2011
• Hearing Date: 08 August 2011,27 July 2011
• Plaintiff Counsel: David Chan and Carol Teh (Shook Lin & Bok LLP)
• Defendant Counsel: Giam Chin Toon SC and Kevin Lim (Wee Swee Teow & Co),and Chia Boon Teck and Wong Kai Yun (Chia Wong LLP),Tan Cheng Han SC and Charmaine Kong (TSMP Law Corporation),Chew Kei-Jin (Tan Rajah & Cheah)
• Subject Matter: Courts and jurisdiction,court judgments,declaratory,Contract,contractual terms,rules of construction
• Citation: [2011] SGHC 219

Steven Chong J: Introduction

This case concerns an application by a receiver appointed by a judgment creditor to claim for “bonus” shares in a Singapore listed company that the judgment debtor was allegedly entitled to. However the application was challenged at the threshold level that the receiver lacked locus standi to claim the “bonus” shares as the receivership order did not purport to permit the receiver to bring the action on behalf of the judgment debtor. Instead the receivership order merely authorised the action to be brought in the name of the judgment creditor and indeed the application was filed on that basis.

In addition, the application was also opposed on the merits that the judgment debtor was not entitled to the “bonus” shares in the first place and if it did, the right had been transferred to another party in any event. After hearing the parties, I dismissed the application both on the locus standi issue as well as on the merits.

In dismissing the application, I had provided my brief oral grounds which I have elaborated below. This decision will examine the circumstances under which a receiver could be appointed by way of equitable execution in respect of a chose in action allegedly vested in a judgment debtor. The facts of this case were rather complex and needed to be set out in some detail in order to fully understand the nature and origin of the application. It underwent several routes with a view to achieving its objective and along the way, the pivotal locus standi issue was raised but unfortunately, it remained unresolved when the application finally came before me for determination.

Background The parties

The plaintiff, Tan Holdings Pte Ltd (“Tan Holdings”), is a company incorporated in Singapore. On 20 June 2006, Tan Holdings was placed under insolvent voluntary liquidation pursuant to section 290 of the Companies Act (Cap 50, 2006 Rev Ed). Mr Bob Yap Cheng Ghee (“Mr Bob Yap”) of KPMG Advisory Services Pte Ltd (“KPMG”) was appointed as the sole liquidator of Tan Holdings.

The first defendant, Prosperity Steel (Asia) Company Limited (“Prosperity”), is a company incorporated in Hong Kong. It is currently inactive.

The second defendant, Abterra Limited (“Abterra”), is a company incorporated in Singapore, and is listed on the mainboard of the Singapore Exchange Securities Trading Limited. Abterra was formerly known as Hua Kok International Ltd.

The third defendant, General Nice Resources (Hong Kong) Limited (“GNR”), is also a company incorporated in Hong Kong. Unlike Prosperity, GNR is presently still an active company.

The Strategic Subscription and New Business Agreement between Prosperity and Abterra

Sometime in 2004, Abterra ran into financial difficulties. As part of Abterra’s efforts to restructure its debts, it entered into a Scheme of Arrangement (“the Abterra Scheme”) with its creditors. The Abterra Scheme was sanctioned by an order of court dated 12 January 2005 and Mr Bob Yap was appointed as the Scheme Manager of the Abterra Scheme.

Prior to the sanction of the Abterra Scheme, on 30 August 2004, as part of Abterra’s efforts to raise capital, Abterra had entered into a Strategic Subscription and New Business Agreement (“SSA”) with Prosperity. The SSA provided that Prosperity would invest S$6 million in Abterra by subscribing for shares in Abterra with the result that Prosperity became its majority shareholder that ultimately translated into a 70% stake in Abterra. Essentially, Prosperity was to be the “white knight” of Abterra.

Under the Abterra Scheme, “Contingent Creditors” were to receive “Contingent Conversion Shares” in lieu of their claims against Abterra upon the crystallization of “Contingent Liabilities” as defined under the SSA. In order to preserve Prosperity’s 70% shareholding in Abterra, Prosperity was entitled to call on Abterra for the allotment of “Further Strategic Shares” (“FSS”) whenever “Contingent Conversion Shares” were allotted to the “Contingent Creditors” under clause 8A.5 of the SSA which provided, inter alia, as follows: 8A.5 In the event that the Contingent Creditors referred to in Recital (F) are bound in the Agreed Period to receive Contingent Conversion Shares in discharge of the Crystallized Liabilities, Prosperity shall have the right to request the Company, and the Company shall agree, to issue bonus shares in the capital of the Company to Prosperity, such shares to be fully paid-up upon issue (“Further Strategic Shares”), at the ratio of :- (a) seven (7) Further Strategic Shares for every three (3) Contingent Conversion Shares when neither of Value Event A or Value Event B is applicable;

[emphasis in original in bold, emphasis added in italics]

On 29 December 2004, before the court sanctioned the Abterra Scheme, Prosperity and Abterra entered into the First Supplementary SSA to vary certain terms of the SSA.

Paragraph 2.9 of the First Supplementary SSA read: 2.9 Clause 8A.5

As the claims of Contingent Creditors may crystallize after three years from the date of the [SSA], the reference to “in the Agreed Period” in Clause 8A.5 of the [SSA] shall be deleted.

On 14 March 2005, after the court had sanctioned the Abterra Scheme, Prosperity and Abterra entered into a Second Supplementary SSA to vary certain terms of the SSA as amended by the First Supplementary SSA.

Paragraph 3.11 of the Second Supplementary SSA read: 3.11 Clause 8A.5

The existing Clause 8A.5 shall be deleted and replaced with the following:-

“8A.5 In the event that the Contingent Creditors referred to in Recital (F) are bound in the Agreed Period to receive Contingent Conversion Shares in discharge of the Crystallized Liabilities, Prosperity shall have the right to request the Company, and the Company shall agree, to issue bonus shares in the capital of the Company to Prosperity, such shares to be fully paid-up upon issue (“Further Strategic Shares”), at the ratio of seven (7) Further Strategic Shares for every three (3) Contingent Conversion Shares.”

[emphasis in original]

I pause to observe that the reference to the “Agreed Period” in clause 8A.5 of the SSA was initially removed via the First Supplementary SSA, but was reinstated pursuant to the Second Supplementary SSA.

On 17 May 2005, Prosperity and Abterra entered into a Third Supplementary SSA. However, as the Third Supplementary SSA did not vary clause 8A.5 further, it is not relevant to the present application.

The Loan Agreement between Tan Holdings and Prosperity

The genesis of this application could be traced to a Loan and Assignment Agreement dated 20 January 2005 (“the Loan Agreement”) between Tan Holdings, Prosperity and Bumiputra Commerce Bank Berhad, Singapore (“BCB”). Under the Loan Agreement, Prosperity extended a loan of S$800,000 to Tan Holdings in exchange for which Tan Holdings pledged 60 million shares that it held in Abterra to Prosperity.

Tan Holdings in turn used the S$800,000 loan to purchase Abterra’s outstanding debt to BCB.

Suit No 899 of 2008

A dispute eventually arose in relation to the Loan Agreement that led to the commencement of Suit No 899 of 2008 (“S 899/2008”) on 28 November 2008 by the liquidator of Tan Holdings (“the Liquidator”) against Prosperity for breach of certain implied terms of the Loan Agreement. The details of the Liquidator’s claim in S 899/2008 are strictly irrelevant to the present application. Suffice it to say that Prosperity did not enter an appearance to S 899/2008, and consequently, on 27 February 2009, default judgment was obtained by the Liquidator against Prosperity for the sum of some S$4.4 million.

Summons No 2983 of 2009: Receivership Order

To enforce the default judgment, on 2 July 2009, the Liquidator applied by way of an ex parte summons before Judith Prakash J in Summons No 2983 of 2009 (“SUM 2983/2009”) and obtained an order (“the Receivership Order”) appointing Mr Lai Seng Kwoon as receiver (“the Receiver”) to receive the profits and moneys receivable in respect of Prosperity’s interest in the FSS under the SSA.

The Liquidator took the position that Prosperity was entitled to 291,515,259 FSS which was derived as follows: First, he relied on two announcements made by Abterra dated 28 December 2007 and 24 December 2008 on the allotments of Contingent Conversion Shares to Contingent Creditors. Pursuant to the 28 December 2007 announcement under which United Overseas Bank’s (“UOB”) claim for S$397,800.28 under a corporate guarantee (“the 2007 UOB claim”) was admitted, Abterra allotted 3,043,800 Contingent Conversion Shares to UOB. Pursuant to the 24 December 2008 announcement under which ECICS Credit and Guarantee Company (Singapore) Pte Ltd’s (“ECICS”) claim for S$9,307.36 under a performance guarantee (“the ECICS claim”), UOB’s claim for S$1,587,572.51 under a corporate guarantee (“the 2008 UOB claim”) and Malayan Banking Berhad’s (“MBB”) claim for S$1,084,728.97 under a corporate guarantee (“the MBB claim”) were admitted, Abterra allotted a total of 121,891,311 Contingent Conversion Shares to the said Contingent Creditors. Given that seven FSS were to be allotted for every three Contingent Conversion Shares under clause 8A.5 of the SSA, the total number of FSS that Prosperity was entitled to worked out to be 291,515,259.

Upon hearing SUM 2983/2009, Prakash J granted the Receivership Order of which paragraphs 1 and 5 read as follows: 1 The Plaintiff being answerable for the acts and defaults of the receiver, it is ordered that LAI SENG KWOON (NRIC No. S1287640H), care of 8 Robinson Road, #13-00 ASO Building Singapore 048544, be and is hereby appointed to receive the profits and moneys receivable in respect of the abovenamed Defendant’s interest in the following property, namely the Further Strategic Shares to be issued pursuant to the [SSA] dated August 2004 between Abterra Ltd (formerly known as “Hua Kok...