The Royal Bank of Scotland NV v TT International Ltd

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
Judgment Date27 September 2012
Date27 September 2012
Docket NumberCivil Appeals Nos 44 and 47 of 2010

Court of Appeal

Chan Sek Keong CJ, Andrew Phang Boon Leong JA and V K Rajah JA

Civil Appeals Nos 44 and 47 of 2010

The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others
Plaintiff
and
TT International Ltd and another appeal
Defendant

Lee Eng Beng SC, Low Poh Ling and Raelene Pereira (Rajah & Tann LLP) for the monitoring committee

Alvin Yeo SC, Chan Hock Keng and Lawrence Foo (Wong Partnership LLP) for the respondent company

Edwin Tong and Kenneth Lim (Allen & Gledhill LLP) for the scheme manager.

Econ Corp Ltd, Re [2004] 2 SLR (R) 264; [2004] 2 SLR 264 (refd)

Heron International NV, Re [1994] 1 BCLC 667 (refd)

Pheon Pty Ltd, Re (1986) 11 ACLR 142 (refd)

Royal Bank of Scotland NV, The v TT International Ltd [2012] 2 SLR 213 (folld)

Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd [2003] 3 SLR (R) 629; [2003] 3 SLR 629 (folld)

Companies Act (Cap 50, 2006 Rev Ed) s 211 (1)

Companies—Schemes of arrangement—Directors—Duty to make full disclosure to creditors of potential liabilities—Whether directors of financially distressed company should have disclosed value-added fee to creditors and court—Whether device of ‘excluded creditors’ in scheme of arrangement could be used to conceal from other creditors substantial actual or contingent liabilities incurred by company

Companies—Schemes of arrangement—Scheme managers—Duty to act in good faith—Duty to disclose fee arrangements—Whether scheme manager should have disclosed value-added fee to creditors and court

Shortly before the decision in The Royal Bank of Scotland NV v TT International Ltd[2012] 2 SLR 213 was released, the solicitors of the Monitoring Committee (‘MC’) informed the court of the existence of a success-based fee arrangement which required TT International Limited (‘the Company’) to pay to nTan Corporate Advisory Pte Ltd (‘nTan’) a ‘Value-Added Fee’ (‘VAF’) for the latter's professional services to the Company. nTan was owned by the scheme manager Mr Nicky Tan Ng Kuang (‘SM’). According to an appointment letter between the Company and nTan dated 15 May 2009, the VAF comprised of ‘7.5% of the Net Value of Debt Resolved’ and ‘5.0% of Total Gross Transaction Value’ which was to be paid upon the successful completion of the scheme of arrangement (‘the Scheme’). The VAF was therefore a contingent liability of the Company in favour of nTan which crystallised at the moment of the successful completion of the Scheme. The estimated quantum of the VAF was between $15 m to $30 m.

The VAF was not disclosed to the scheme creditors or the court prior to the sanction of the Scheme. As nTan was listed as one of the various ‘excluded creditors’ under the terms of the Scheme, the debt restructuring plans in the Scheme did not apply to arrangements with nTan which were to be ‘paid in the ordinary course of business as and when any amount owing to [the excluded creditor] falls due’. It was only close to a year after the Scheme was sanctioned that details of the VAF were disclosed piecemeal to the MC. From the parties' submissions, it appeared that it was not uncommon for some scheme managers (or financial advisors) to include a success-based element of their fees for the debt restructuring works which they had carried out. The issues before the court were therefore: (a) whether the commercial practice not to disclose the VAF to the scheme creditors and/or to the court was contrary to law; and (b) if the aforementioned practice was contrary to law, what ought the consequences of non-disclosure be?

Held, making a consequential order:

(1) The Company had an obligation to disclose all material information to the creditors and the court, and that covered contingent liabilities such as the VAF. The law did not allow the use of the device of ‘excluded creditors’ in a scheme of arrangement to keep hidden from other creditors substantial actual or contingent liabilities incurred by the financially distressed company: at [20].

(2) As the Company did not disclose the VAF and its enormous financial implications to the scheme creditors, the majority decision to support the Scheme was not a fully informed one. The ‘material information’ which had to be disclosed connoted information relating to the commercial viability of the implementation of the scheme as a whole, in order to allow creditors to make a holistic assessment as to whether the proposed scheme manager and/or the proposed terms of the scheme were appropriate for the Company. Such information included a contingent liability such as the VAF which would meaningfully affect the amount that scheme creditors bound by the Scheme could ultimately recover: at [21].

(3) The proposed SM had an obligation to act in good faith towards the scheme creditors and had to not mislead or suppress material information from them. He had to also not place himself in a position of conflict. In the present case, the SM was placed in a conflict of interest as he was the controlling shareholder of nTan, yet the quantum of the VAF which would accrue to nTan was dependent on the value of the debts which would be adjudicated upon by the proposed SM himself. This conflict could only have been satisfactorily resolved by the informed consent of the scheme creditors: at [25] and [26].

(4) The duty of disclosure was all the more necessary when a financially distressed company had proposed to enter into a scheme of arrangement because the parties with a genuine interest to ensure that the proposed SM was being reasonably remunerated would be the scheme creditors who would determine whether the Scheme was commercially viable (and preferable to liquidation) and thus deserving of their support. Therefore, the Company should have promptly disclosed all benefits accruing to the proposed SM (or his firm) to the scheme creditors and the court prior to the sanction of the Scheme. The SM should also have personally taken steps to ensure that this was done: at [28] and [29].

(5) Ordinarily, the breach of the duty to disclose material information by the Company and the SM should have resulted in the Scheme being set aside and put to a fresh vote because it might not have been approved by the scheme creditors if they had known about the VAF. The SM could also have been deprived of his costs. This would be the result of non-disclosure of material information in schemes of arrangement for future cases. However, in the present case, because the Scheme had been implemented for more than two years, it was not practical to set it aside without causing more harm to the Company and the creditors: at [33] and [36].

(6) In light of the prevailing circumstances, the relevant parties to this dispute (ie, the SM/nTan, the Company and the MC) were to endeavour to reach an agreement as to what ought to be the proper amount of professional fees awarded for nTan's efforts in reviving the Company to date. Should the parties be unable to reach an agreement, nTan's global fees (before and after the SM's appointment) would be assessed by a High Court judge, who shall have regard to the principles stated in Re Econ Corp Ltd[2004] 2 SLR (R) 264 to ensure that nTan would be fairly, reasonably and adequately remunerated: at [34] and [35].

[Observation: A commercial practice, no matter how widespread, did not have the force of law either by dint of accident of vintage or absence of protest if it was contrary to legal principle: at [14].]

V K Rajah JA

(delivering the judgment of the court):

Introduction

1 On 31 January 2012, we released our detailed grounds of decision (The Royal Bank of Scotland NV v TT International [2012] 2 SLR 213 (‘the GD’)) explaining why we allowed the appeals of the appellant creditors for the scheme of arrangement (‘the Scheme’) of the respondent company (‘the Company’) to be put to a re-vote on 27 August 2010. We held, inter alia,that a scheme manager has a quasi-judicial role and owes a duty to be objective, independent, fair and impartial (see [75] of the GD). The GD also included our brief grounds of decision of 13 October 2010 (see Annexure II of the GD) where the members and powers of the Monitoring Committee (‘MC’) were set out to ensure that it could fairly and effectively oversee the implementation of the Scheme.

2 On 27 January 2012, just a few days prior to the release of the GD, the solicitors of the MC, Rajah & Tann LLP (‘R&T’), informed this court of the existence of a fee arrangement which required the Company to pay to nTan Corporate Advisory Pte Ltd (‘nTan’) a ‘Value-Added Fee’ (‘VAF’) (ie, a success-based fee) for the latter's professional services to the Company. nTan is owned by the scheme manager Mr Nicky Tan Ng Kuang (‘the SM’). R&T requested this court to direct that the VAF be assessed in court. We should clarify that the propriety or reasonableness of this VAF was not considered by this court in sanctioning the Scheme and in the GD, as full submissions had not been made to us earlier by the parties.

3 R&T's letter prompted the solicitors of the Company, Wong Partnership LLP (‘Wong P’) and the solicitors of the SM, Allen & Gledhill LLP (‘A&G’) to write to this court stating their clients' respective positions on the VAF as well. After this, we directed all parties to file written submissions giving their views on the power of this court to resolve this issue and how the balance between the various competing interests might be fairly struck in assessing the SM's remuneration. The key issue which has now clearly crystallised is whether the VAF should have been disclosed to the creditors or/and the court prior to the sanction of the Scheme. The pertinent facts are as follows.

The facts

The nature of the VAF

4 In R&T's letter dated 27 January 2012, the MC drew our direct attention to the VAF for the very first time:

  1. 6. The MC was recently informed by the Company that there is a success fee arrangement...

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