The Royal Bank of Scotland NV v TT International Ltd

• Jurisdiction: Singapore
• Judgment Date: 31 January 2012
• Date: 31 January 2012
• Docket Number: Civil Appeals Nos 44 and 47 of 2010
• Court: Court of Appeal (Singapore)

The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others

Plaintiff

and

TT International Ltd and another appeal

Defendant

[2012] SGCA 9

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeals Nos 44 and 47 of 2010

Court of Appeal

Companies—Schemes of arrangement—Classification of scheme creditors—Whether and when scheme creditors should be classified separately for voting purposes—Whether contingent creditors and/or related party creditors (subsidiaries or substantial shareholders of company) should be classified separately for voting purposes—Section 210 Companies Act (Cap 50, 2006 Rev Ed)

Companies—Schemes of arrangement—Classification of scheme creditors—Whether issues of creditors' classification should be considered by court at application stage—Section 210 Companies Act (Cap 50, 2006 Rev Ed)

Companies—Schemes of arrangement—Creditors' proofs of debt—Proposed scheme manager completing adjudication of proofs of debt after creditors voted—Opposing scheme creditors being denied access to relevant proofs of debt—Whether scheme creditors were entitled to examine proofs of debt submitted by other scheme creditors—Whether scheme creditors should be notified of admission or rejection of proofs of debtbefore casting votes at creditors' meeting—Whether scheme creditors might appeal proposed scheme manager's decisions to admit or reject its own and other creditors' proofs of debt—Section 210 Companies Act (Cap 50, 2006 Rev Ed)

Companies—Schemes of arrangement—Discounting of creditors' votes—Whether votes of related party creditors and contingent creditors should be discounted—Section 210 Companies Act (Cap 50, 2006 Rev Ed)

Companies—Schemes of arrangement—Scheme manager's duties—Proposed scheme manager concurrently acting for chairman and executive director of Company—Whether and to what extent a proposed scheme manager had to act objectively and transparently—Whether a proposed scheme manager might be placed in position of conflict of interest—Section 210 Companies Act (Cap 50, 2006 Rev Ed)

TT International Limited (‘the Company’) was incorporated in Singapore and was listed on the Main Board of the Singapore Exchange Securities Trading Limited in June 2000. The financial crisis in 2008 significantly affected the Company's business. Its financial position became precarious when some bank creditors' recalled their facilities and demanded prompt repayment of the sums due. On 31 October 2008, the Company appointed nTan Corporate Advisory Pte Ltd as an independent financial advisor and announced in an informal creditors' meeting that it would be implementing a scheme of arrangement (‘the Scheme’).

On 29 January 2009, the Company applied for and received approval from the court pursuant to s 210 (1) of the Companies Act (Cap 50, 2006 Rev Ed) (‘the Act’) to summon a meeting of its creditors to propose the Scheme. In the ensuing months, the key terms of the proposed Scheme were the subject of a number of discussions and meetings between the Company and its bank creditors. Despite the stalemate, the Company proposed the Scheme for voting by creditors in September 2009. After the creditors had voted at a creditors' meeting held on 16 October 2009 (‘the Scheme Meeting’), they were informed that the proposed Scheme Manager had not completed the adjudication of the proofs of debt. At a much later date, 17 December 2009, the proposed scheme manager reported that the Scheme had been passed by a majority of creditors representing 75.06% in value, barely exceeding the statutory threshold (of 75%). The proposed scheme manager was also concurrently the nominee for the individual voluntary arrangements filed by the chairman and an executive director (who was the chairman's wife) of the Company.

The events above prompted the opposing scheme creditors (‘the Opposing Creditors’) to seek copies of the proofs of debt lodged by certain scheme creditors and other information regarding the other scheme creditors' claims. The Company provided some information on a ‘goodwill basis’ but the proposed scheme manager was adamant that access to the relevant proofs could and would not be given to the Opposing Creditors. Dissatisfied with the adjudication of several proofs of debt as well as the Company's response to their information requests, the Opposing Creditors objected to the Scheme on various grounds.

In the High Court, the Judge disagreed with the Opposing Creditors' arguments and approved the Scheme. The Judge held that contingent creditors and related creditors (subsidiaries or substantial shareholders of the Company) were entitled to vote in the same class as other unsecured scheme creditors. The Judge also systematically dismissed objections raised by the Opposing Creditors against the proposed scheme manager's admission or rejection of specific proofs of debt. Finally, the Judge held that the Company need not provide supporting documentation for each proof of debt whenever the same was requested by any opposing creditor. The Opposing Creditors appealed to the Court of Appeal.

Held, allowing the appeal:

(1) A court should consider issues of creditors' classification when hearing the initial application for an order to summon the scheme creditors' meeting (s), rather than at the subsequent application for the court's sanction of the scheme. The application for an order to summon the scheme creditors' meeting was to be made on an expedited basis,and a company had to unreservedly disclose all material informationto the court to assist it in arriving at a properly considered determination on how the scheme creditors' meeting was to be conducted: at [62].

(2) A proposed scheme manager had to act transparently and objectively. He would be in a position of conflict of interest if he aligned his interests with those of the company without good reason. On the facts, the proposed scheme manager was conflicted because he was also the nominee for the individual voluntary arrangements filed by the chairman of the Company and his wife, an executive director: at [71] and [78].

(3) A scheme creditor was entitled to examine the proofs of debt submitted by other scheme creditors in respect of a proposed scheme, as long as the information sought was relevant to his voting rights. The scheme creditor would thus be entitled to access only if he had produced prima facie evidence of impropriety in the admission or rejection of the proofs of debt: at [93].

(4) A scheme creditor had to be notified of the proposed scheme manager's decisions to admit or reject its own and other creditors' proofs of debtbefore the votes were cast at the creditors' meeting. On the facts, the proposed scheme manager should have completed adjudicating all the proofs of debt submitted (and notified all scheme creditors of the admitted proofs) prior to the Scheme Meeting: at [99].

(5) A scheme creditor was entitled to appeal the proposed scheme manager's decisions to admit or reject its own and other creditors' proofs of debt. However, the court would be slow in overriding the professional judgment of the proposed scheme manager on this matter: at [103] and [105].

(6) On the facts, the proposed scheme manager's decisions to partially reject a certain creditor's claim for loss of profits and wholly admit the proofs of debt of three other creditors for the purpose of voting were incorrect. In particular, a creditor should not be allowed to vote based on contingent claims which it could later unilaterally ensure would never crystallise: at [113], [119], [122] and [128].

(7) Scheme creditors had to be classified differently for voting purposes when their rights were so dissimilar to each other's that they could not sensibly consult together with a view to their common interest. In other words, should a creditor's position improve or decline to such a different extent vis-à-vis other creditors simply because of the terms of the scheme assessed against the most likely scenario in the absence of scheme approval (‘the appropriate comparator’), then that creditor should be classified differently. The appropriate comparator depended on the facts of each case and was not necessarily an insolvent liquidation, as it was in this case: at [131], [140] and [142].

(8) On the facts, the contingent creditors' legal rights as against the Company (and relative to the other creditors) were the same under the Scheme as they were in an insolvent liquidation, and there was therefore no reason to classify those contingent creditors separately: at [143].

(9) However, the claims of certain substantial shareholders should have been classified separately since their claims would have been subordinated in a liquidation pursuant to s 250 (1) (g) of the Act, whereas they were not so under the Scheme. The claims of the chairman of the Company and his wife should have been classified separately as well because they were granted rights of first refusal to some bonds and shares under the Scheme which improved their position relative to other scheme creditors vis-à-vis a liquidation scenario: at [147] and [149].

(10) The votes of related party creditors should have been discounted because of their special interests to support the proposed scheme by virtue of their relationship to the Company. The votes of wholly-owned subsidiaries should have been discounted to zero and effectively classified separately from the general class of unsecured creditors since they were entirely controlled by their parent company (ie, the Company in this case). Otherwise, related party creditors should generally have their votes discounted by the value of their interest in the company: at [155], [158] and [170].

(11) In the result, the Court held that the Scheme did not have the approval of the requisite majority of creditors voting at meetings properly constituted. The High Court Judge therefore had no jurisdiction to sanction the...