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

• Judge: Chan Sek Keong CJ
• Judgment Date: 31 January 2012
• Neutral Citation: [2012] SGCA 9
• Citation: [2012] SGCA 9
• Court: Court of Appeal (Singapore)
• Published date: 03 April 2012
• Docket Number: Civil Appeal Nos 44 of 2010 and 47 of 2010
• Plaintiff Counsel: Lee Eng Beng SC, Low Poh Ling, Nigel Pereira, Raelene Pereira (Rajah & Tann LLP),Thio Shen Yi SC (TSMP Law Corporation) (instructed), Doris Chia and Aveline Chan (David Lim & Partners)
• Defendant Counsel: Alvin Yeo SC, Chang Man Phing, Tan Yee Siong, Lawrence Foo (Wong Partnership LLP)
• Subject Matter: Companies,Schemes of arrangement
• Hearing Date: 27 August 2010,18 August 2010,13 October 2010,05 October 2010

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

A High Court Judge ("the Judge") approved the Respondent’s scheme of arrangement (“the Scheme”) pursuant to s 210 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) notwithstanding vigorous objections made by a number of creditors, including the two appellants (see Re TT International Ltd [2010] SGHC 177 (“the Judgment”) at [2]). After considering the submissions made to us, we allowed the appeals and ordered that new creditors’ meetings (“the Further Meetings”) be called within four weeks for the Scheme to be put to a re-vote, subject to certain directions. These directions are stated in Annexure I. We should also explain that the issuance of these detailed grounds for our decision has been deferred until the resolution of a number of consequential issues arising from our directions.

Schemes of arrangement are a useful democratic process following which the claims of creditors asserting their ordinary legal rights against a company in financial straits may be compromised or varied. They sanction a process that restrains a minority from frustrating the will of a majority of creditors to implement a beneficial scheme for a distressed company. The objective of such schemes is to empower creditors to devise a composition with the company that will, on the whole, be more beneficial than the likely default alternative: liquidation. While the law allows the rights of a majority in number representing 75% in value of the creditors at a scheme creditors’ meeting (or meetings, if there is more than one class of creditors) to prevail over the objections of dissentients, it is also equally important that the rights of the minority are not illegitimately trampled over. The convening of a separate meeting for each disparate class of creditors, in particular, is a means of protecting a minority with different rights from the possibly oppressive conduct of the majority. Schemes of arrangement now appear to be the locally preferred mode of resuscitating salvageable businesses in parlous financial circumstances. For this reason, it is crucial that there be clarity in how such schemes are to be properly implemented and monitored in a practical way in the common interest of the creditors and the company. These grounds of decision emphasise the importance of scrupulous adherence to the integrity of the processes by all involved in the oversight of such schemes.

The facts The parties to the appeal

In Civil Appeal No 44 of 2010 (“CA 44”), the fourth appellant (the remaining appellants withdrew before the hearing), Oversea-Chinese Banking Corporation Limited (“OCBC”) took issue with the propriety of several aspects of the Scheme. OCBC was one of the respondent’s creditors and had an admitted claim of $21.66m.¹ It had voted against the Scheme at a creditors’ meeting held on 16 October 2009 (“the Scheme Meeting”).² It bears mention that the total value of the admitted claims was originally $502.82m.³

In Civil Appeal No 47 of 2010 (“CA 47”), the appellant was Ho Lee Construction Pte Ltd (“Ho Lee”). Ho Lee was the respondent’s main contractor for building works valued at $226m.⁴ It commenced work in March 2008⁵ but suspended works in October 2008 under instructions from the Superintending Officer (“SO”), Jurong Consultants Pte Ltd (“Jurong Consultants”).⁶ Ho Lee submitted $84.56m worth of claims to Mr Nicky Tan Ng Kuang (“the proposed Scheme Manager”), of which $22.77m was admitted.⁷ It had also voted against the Scheme at the Scheme Meeting.⁸

The respondent in both appeals was TT International Limited (“the Respondent”). The Respondent was incorporated locally in October 1984 as a private limited company.⁹ It was listed on the Main Board of the Singapore Exchange Securities Trading Limited under its present name, TT International Limited, in June 2000.¹⁰ The Respondent is primarily in the business of trading and distributing consumer electronic products under the brand name of AKIRA.¹¹ Accordingly, the main value of its business is in its trade receivables, inventory and distribution networks in various countries.¹²

The Respondent is the main distributor and licensee of the AKIRA brand worldwide.¹³ AKIRA is a locally grown brand for electronic products, and the trademark AKIRA was registered in 1995.¹⁴ The AKIRA trade mark has been registered in 141 countries worldwide.¹⁵ The Respondent has a significant overseas presence through its subsidiaries (collectively referred together with the Respondent as “the Group”) in Australia, South Africa, Poland, France, the United Arab Emirates and Nigeria, among other countries.¹⁶

Events leading to the proposal of the Scheme

The Group’s main business activities required high liquidity and it was heavily reliant on credit facilities.¹⁷ Unsurprisingly, the global credit crunch which followed the American subprime mortgage crisis in 2008 significantly affected the Group’s business.¹⁸ As of 31 October 2008, $66m out of $332m of the Respondent’s bank facilities and $17m out of $117m of the Respondent’s subsidiaries’ bank facilities had been cancelled, withdrawn, reduced and/or frozen by their lender banks.¹⁹ This severely impacted the Group’s existing working-capital, seriously disrupted its businesses and operations and had an immediate knock on effect on the Respondent’s operations.²⁰

Unable to obtain new credit facilities, the Respondent faced severe cash flow problems which in turn made it difficult for it to service its borrowings.²¹ As a result, some bank creditors declared default events in respect of their facility agreements with the Respondent, recalled their facilities and demanded prompt repayment of the sums due.²² The financial pressure on the Respondent was further compounded when some of its trade and other creditors threatened to or commenced legal proceedings against the Respondent to recover the moneys owed to them.²³

On 31 October 2008, the Respondent moved to improve its financial situation. It announced the appointment of nTan Corporate Advisory Pte Ltd (“nTan”) as an independent financial advisor to the Group and the appointment of WongPartnership LLP (“WongP”) as its legal advisor.²⁴ Subsequent to an informal creditors’ meeting held that same day, the Respondent announced that pending some consensual restructuring of its operational activities and financial arrangements, it would implement an immediate standstill of repayment of amounts owing to the bank creditors and all other unsecured creditors, except for operationally essential trade creditors.²⁵

On 4 December 2008, PricewaterhouseCoopers LLP (“PwC”) was appointed by the Respondent as the independent Special Accountant to the Group’s bank creditors, to advise them on the restructuring of the Respondent.²⁶

On 29 January 2009, the Respondent applied for and received approval from the court pursuant to s 210(1) of the Act to summon a meeting of its creditors to propose a scheme of arrangement.²⁷ That meeting was to be held by 29 July 2009.²⁸ However, on 21 July 2009, the Respondent applied for and was granted an extension of time to call the meeting by 21 October 2009.²⁹ Further, the Respondent also obtained a court order restraining the commencement or continuation of proceedings against the Respondent pending the approval by the court of the proposed scheme of arrangement.³⁰ Consequently, a winding up application which Ho Lee filed on 19 January 2009³¹ was stayed.³²

Meanwhile, the key terms of the proposed scheme were the subject of a number of discussions and meetings between the Respondent, nTan, PwC and the Respondent’s bank creditors between November 2008 and September 2009.³³ Despite the discussions, no consensus could be reached.³⁴ Finally, in September 2009, the Respondent decided to propose the Scheme for voting by creditors despite not having secured the support of all its major creditors.³⁵

Salient features of the Scheme

The proposed Scheme had three main features. First, the Respondent was empowered to employ the Reverse Dutch Auction (“RDA”) process to settle its debts with creditors who wanted early compromises. Creditors coming under the Scheme (“Scheme Creditors”) who were willing to accept a minimum discount of 80% on the repayment of their debts would have their debts retired on a priority basis under the RDA.³⁶ The Respondent was to set aside $30m for the RDA.³⁷ The Scheme Creditors who were willing to accept the deepest discounts on their claims would be paid off first. When the parties came before us, the RDA had been conducted and allowed for some $92.3m of the Respondent’s debts to be extinguished by the payment to participating creditors of a sum of around $14.7m.³⁸ The $14.7m was to be paid out in three equal tranches.³⁹ The first tranche of $4.91m had been paid out on 20 July 2010.⁴⁰ At the initial hearing on 18 August 2010, we stayed further payments to be made pursuant to the Scheme.⁴¹

Second, $150m of the remaining debt would be restructured into “Sustainable Debt” (maintained as term or revolving loan facilities) to be repaid within five years of the Scheme’s effective date.⁴²

Third, the rest of the debt (“the Non-Sustainable Debt”) would be converted into Redeemable Convertible Bonds (“RCBs”) with a 0% coupon rate and a tenor of 10 years from the effective date.⁴³ The Respondent had to offer to convert a limited number of RCBs into shares between the third and fifth anniversaries of the effective date;⁴⁴ and to convert the remaining RCBs into shares by the 10th anniversary of the effective date.⁴⁵

The RCBs and the shares they were converted into could be sold subject always to rights of first refusal (“ROFRs”) granted to Mr Sng Sze Hiang (“Mr Sng”) and Ms Julia Tong (“Ms Tong”).⁴⁶ Pertinently, the shares had to be offered to Mr Sng and Ms Tong at preferential prices fixed under the Scheme.⁴⁷ By way of background we ought to mention that Mr Sng...