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

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 27 September 2012
• Neutral Citation: [2012] SGCA 53
• Court: Court of Appeal (Singapore)
• Hearing Date: 27 September 2012
• Docket Number: Civil Appeal Nos 44 of 2010 and 47 of 2010
• Plaintiff Counsel: Lee Eng Beng SC, Low Poh Ling and Raelene Pereira (Rajah & Tann LLP)
• Defendant Counsel: Alvin Yeo SC, Chan Hock Keng and Lawrence Foo (WongPartnership LLP),Edwin Tong and Kenneth Lim (Allen & Gledhill LLP)
• Subject Matter: COMPANIES,Schemes of arrangement
• Published date: 04 October 2012

V K Rajah JA (delivering the judgment of the court): Introduction

On 31 January 2012, we released our detailed grounds of decision (The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International and another appeal [2012] SGCA 9 (“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.

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.

R&T’s letter prompted the solicitors of the Company, Wong Partnership LLP (“WongP”) 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

In R&T’s letter dated 27 January 2012, the MC drew our direct attention to the VAF for the very first time: 6. The MC was recently informed by the Company that there is a success fee arrangement between the Company and [nTan] as Financial Advisor, that is, for work done prior to the sanction of the Scheme. Under this arrangement, a “Value-Added Fee” became payable to nTan upon the sanction of the Scheme. The terms of this arrangement are set out in Appointment Letters dated 28 October 2008 and 15 May 2009 (collectively, the “Appointment Letters”) … 7. Pursuant to paragraphs 7 and 8 of the Appointment Letter dated 15 May 2009, a “Value-Added Fee” is payable to nTan if “Successful Completion” occurs, that is, if a scheme “is agreed and approved by the Company and the requisite majority of creditors of the Company, and sanctioned by the High Court of Singapore”.

[underline in original, emphasis in italics added]

The MC’s description of the VAF is substantiated by the appointment letter between the Company and nTan dated 15 May 2009 (“the Appointment Letter”), which sets out in detail the fee arrangements between the Company and nTan (including the various components of the VAF) as follows: 1. Our fees for the engagement comprises:- (a) Our time costs which shall be determined in accordance with Schedule A attached thereto; and (b) A Value-Added Fee (“Value-Added Fee”) which shall be computed in accordance with paragraphs 3, 4 and 5 below. 2. In addition to the fees set out in paragraph 1 above, you will also be required to pay for our out-of-pocket expenses (including fees of any experts or professionals). Our time costs and out-of-pocket expenses shall be paid promptly and on a monthly basis. 3. The Value-Added Fee shall comprise: - (a) 7.5% of the Net Value of Debt Resolved (as defined in paragraph 4 below); and (b) 5.0% of Total Gross Transaction Value (as defined in paragraph 5 below). 4. “Net value of Debt Resolved” means the total value of the Group’s actual and contingent liabilities as at 31 October 2008, inclusive of contractual accrued interest and other charges thereon (“Total Debt”) which, upon Successful Completion … are waived, written off, extinguished, forgiven or avoided (“Extinguished”), such liabilities to be valued as at the date that each such liability is Extinguished. … 5. “Total Gross Transaction Value” means the aggregate of (i) the aggregate value of those parts of the Total Debt, other than those that have been taken into account as Net Value of Debt Resolved, which, upon Successful Completion are: - a) converted to equity in the Company, including inter alia issuance of warrants or options by the Company that are exercisable into equity in the Company (“Converted to Equity”); and b) restructured, including but not limited to, inter alia restructuring by payment of a liability either partially or in full except for amounts paid under paragraph 4 above, conversion into term loans or by rescheduling of payments (in which case the entire amount of those parts of the Total Debt that are rescheduled) shall be calculated as part of the Total Gross Transaction Value …

…

(ii) new funds raised by us for the Group by the issuance of any equity or debt instruments (“New Investors”); and (iii) the sum of new loans or other new financing from banks and/or non-financial institutions successfully obtained by us for the Group (“New Loans”); and (iv) the fair value of any assets and/or businesses acquired or to be acquired by the Group which have been advised by us following a written confirmation between us that we would provide such advice. …

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

The linkage of professional fees to, inter alia, the “Net Value of Debt Resolved” makes it plain that the greater the amount of the debt due to creditors that is “waived, written off, extinguished, forgiven or avoided” or converted into equity, the greater the quantum of the remuneration received by nTan (see paras 3 and 4 in the Appointment Letter above). For ease of reference, we have appended the Appointment Letter in its entirety to this Judgment as Annex A.

In reality, the VAF immediately became a contingent liability of the Company in favour of nTan when the Appointment Letter was entered into. As the VAF is a “success-based fee”, it crystallises only at the moment of the “successful completion” of the Scheme. The parties now estimate the quantum of the VAF to be in the region of some $15m to $30m.¹ By any standard, this is an extraordinary amount that will leave many breathless. Notably, the Appointment Letter was neither disclosed to the creditors whose rights were affected by the Scheme (“the scheme creditors”) nor the Court prior to the sanctioning of the Scheme; indeed, it was not even disclosed when the appeal was heard. As nTan was listed as one of the various “excluded creditors” under the terms of the Scheme,² 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”.³ In short, both the drawing up of this arrangement and the intended payment of the fees appear to have confidently proceeded on the basis that both the scheme creditors and the Court had no interest or say in the same, despite the potentially remarkable fees involved. This is troubling as it is plainly evident that the scheme creditors would certainly have a very tangible ongoing interest in a fee arrangement that would result in the SM’s fees increasing proportionately to the quantum of losses they would suffer as a consequence of the “successful” implementation of the Scheme. Put another way, the greater the pain endured by the scheme creditors, the greater the gain of the SM (see [5] above). This undisclosed arrangement raises an issue of considerable importance to the scheme creditors and nTan, viz, whether it is now enforceable by the latter against the Company.

How and when the VAF was disclosed

The crucial dates leading up to the sanction of the Scheme (ie, 13 October 2010) are the scheme meetings on 16 October 2009 and 24 September 2010. It is not disputed by the parties that the scheme creditors were not informed of the liability of the Company to pay the VAF during or prior to any of the above material dates.⁴ This was despite the fact that some scheme creditors (including, inter alia, ABN AMRO Bank N.V., Singapore; BNP Paribas, Singapore Branch and Oversea-Chinese Banking Corporation Limited (“OCBC”)) had earlier written to WongP (ie, the Company’s solicitors) specifically for more information regarding nTan’s professional fees.⁵ No information was given by the Company. For instance, on 4 October 2010, WongP responded to one such request by bluntly stating:

Our clients do not see the need to justify or explain to you the costs of each and every professional engaged in the matter. They would point out that your clients’ actions have caused or contributed to our clients having to incur professional fees to deal with your clients’ unjustified attacks on the proposed scheme … [emphasis added]

During a hearing before us on 5 October 2010, the Company provided a breakdown of the sum of S$31m that, according to the Company’s unaudited financial statements as at 31 March 2010, had been incurred as restructuring expenses and professional fees. However, the VAF was not part of the sum of $31m disclosed to this Court on 5 October 2010.⁶

It was only close to a year after...