Yihua Lifestyle Technology Co, Ltd and another v HTL International Holdings Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Judith Prakash JCA
• Judgment Date: 08 September 2021
• Neutral Citation: [2021] SGCA 87
• Docket Number: Civil Appeal No 1 of 2021
• Subject Matter: Judicial management order,Receiver and manager,Companies
• Published date: 14 September 2021
• Hearing Date: 08 September 2021
• Defendant Counsel: Pradeep Pillai, Joycelyn Lin, Jonas Wong and Lek Haokai (PRP Law LLC),Harpreet Singh Nehal SC, Jordan Tan and Victor Leong (Audent Chambers LLC) (instructed), Cheng Wai Yuen Mark, Chew Xiang, Ho Zi Wei and Tan Tian Hui (Rajah & Tann Singapore LLP)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: Tan Tee Jim SC, Gan Theng Chong, Melissa Ng and Tan Sher Meen (Lee & Lee) (instructed), Sharon Chong Chin Yee, Nandhu and Sim Ling Renee (RHTLaw Asia LLP)

Steven Chong JCA (delivering the judgment of the court ex tempore): Introduction

When or under what circumstances can the shareholders or creditors of a company apply to court for relief in respect of a decision made by the company’s judicial managers (“JMs”) in the exercise of their discretion? That is the central question that arises in the present appeal.

The appellants (collectively, “the Shareholders”) are the direct and ultimate shareholders of HTL International Holdings Pte Ltd (“the Company”), which is presently under judicial management. In HC/SUM 3963/2020 (“SUM 3963”), the High Court Judge (“Judge”) dismissed the Shareholders’ application under s 227R of the Companies Act (Cap 50, 2006 Rev Ed) (“CA”) (now s 115 of the Insolvency, Restructuring and Dissolution Act 2018 (Act 40 of 2018)) for the court to displace the discretion exercised by the JMs of the Company in choosing to sell the Company’s interests in its subsidiaries (“the Asset”) to the first respondent, Golden Hill Capital Pte Ltd (“Golden Hill Capital”), instead of another prospective buyer.

In our judgment, there is no merit in the Shareholders’ appeal. We briefly elaborate on the grounds of our decision below.

Facts

The background facts are set out in the Grounds of Decision below – Re HTL International Holdings Pte Ltd [2021] SGHC 86 (“GD”). It suffices to highlight the material facts for the purpose of the appeal.

The Company was the holding company of a group of companies involved in the furniture trade (collectively, “the HTL Group”). The Company’s subsidiaries consisted of HTL Manufacturing (“HTLM”) as well as a number of PRC-incorporated subsidiaries (“PRC subsidiaries”).

The original founders of the Company were the second and third respondents, Mr Phua Yong Tat and Mr Phua Yong Pin, who are the beneficial owners of Golden Hill Capital. In or around September 2016, the second appellant, which is a wholly-owned subsidiary of the first appellant, acquired 100% of the shares in the Company.

On 5 May 2020, the Company was placed under interim judicial management. Thereafter, the interim judicial managers (“IJMs”), on behalf of the Company, entered into a share purchase agreement (“SPA”) with Golden Hill Capital on 28 May 2020 to sell the Asset to Golden Hill Capital for US$80m. To facilitate the transfer of the Asset to Golden Hill Capital, the IJMs transferred all of the Company’s shares in its PRC subsidiaries to a newly incorporated wholly-owned subsidiary of the Company known as HTL Capital Pte Ltd (“HTLC”). Mr Phua Yong Tat also extended two bridging loans to the Company to help alleviate its cashflow issues.

On 1 July 2020, the Company was placed under judicial management. Between 20 and 29 July 2020, Mr Phua Yong Tat and Mr Phua Yong Pin procured the assignment of the Company’s bank creditors’ claims against the Company to Golden Hill Investments, the parent company of Golden Hill Capital.

On 19 August 2020, nine days before the SPA’s completion date, another entity, Man Wah Holdings (“Man Wah”), made an offer (“Man Wah’s 19 August Offer”) to purchase the Asset for US$100m. As part of this offer, Man Wah also agreed to provide an additional working capital facility of US$20m to HTLC and HTLM post-completion. Man Wah subsequently clarified its 19 August Offer via an e-mail dated 20 August 2020 (“Man Wah’s 20 August Clarification”).

On 24 August 2020, the JMs invited both Golden Hill Capital and Man Wah to provide “anything further” they wished to communicate in relation to their respective offers by 26 August 2020. Man Wah then wrote to court to seek an order for the JMs to provide it with a full set of the Company’s financial accounts (“Financials”) and requested for an extension of the 26 August 2020 deadline. The JMs did not accede to Man Wah’s request to provide the Financials but agreed to extend the deadline to 31 August 2020.

On 31 August 2020, Golden Hill Capital submitted a revised offer (“Golden Hill Capital’s 31 August Offer”) of US$100m, with an additional US$20m working capital facility to be made available to HTLM and HTLC post-completion. Man Wah, for its part, also submitted a revised offer (“Man Wah’s 31 August Offer”), the salient terms of which were as follows: Man Wah maintained its offer of US$100m for the Asset. However, Man Wah also stated that it was prepared to offer US$10m more than any offer made by Golden Hill Capital. Thus, Man Wah’s offer was effectively US$110m. Man Wah also maintained that it would provide US$20m in post-completion working capital to HTLC and HTLM. In addition to the above, Man Wah was prepared to provide interim financing of US$20m up front, to be set off against the consideration payable on completion.

After considering the parties’ respective offers, the JMs accepted Golden Hill Capital’s 31 August Offer and the sale of the asset to Golden Hill Capital was completed on 7 September 2020. The next day, on 8 September 2020, Man Wah conveyed a further improved offer for the Asset (“Man Wah’s 8 September Offer”). The JMs did not accept Man Wah’s 8 September Offer.

As Man Wah was the Shareholders’ preferred buyer, the Shareholders commenced SUM 3963 seeking the following relief under s 227R of the CA on the basis that the JMs had acted in a manner that was “unfairly prejudicial” to their interests: an order to declare the Company’s sale of the Asset to Golden Hill Capital null and void; an order to direct the JMs to accept Man Wah’s 31 August or 8 September Offer; and an order to restrain the JMs from proceeding with any resolution and/or taking steps to wind up the Company.

There are two principal planks to the Shareholders’ case. First, the JMs had acted perversely by selecting Golden Hill Capital’s 31 August Offer over Man Wah’s 31 August Offer even though Man Wah’s 31 August Offer was superior in terms of shareholder returns. Second, the JMs’ refusal to disclose the Financials had caused Man Wah to suffer unfair prejudice, as Man Wah might well have been able to submit an improved offer (entailing a shorter acquisition time and/or...