CEL Tractors Pte Ltd: Court Approval of Scheme of Arrangement and Discharge of Guarantor Liabilities

In CEL Tractors Pte Ltd, the High Court of Singapore, on 2001-04-14, considered an application by CEL Tractors Pte Ltd to approve a scheme of arrangement under s 210 of the Companies Act. Daewoo Singapore Pte Ltd, an objecting creditor, argued that the scheme could not discharge the liabilities of guarantors, specifically Lim Chee Seng, a director of CEL Tractors. The court, however, approved the scheme, holding that an approved arrangement binds all creditors and can release guarantors when expressly provided for, provided the scheme has the support of the majority of creditors and is approved by the court.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Application allowed.

1.3 Case Type

Civil

1.4 Judgment Type

Judgment

1.5 Jurisdiction

Singapore

1.6 Description

The High Court considered CEL Tractors' scheme of arrangement, focusing on whether it could discharge guarantor liabilities despite Daewoo's objection. The court approved the scheme.

1.7 Decision Date

13 April 2001

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Daewoo Singapore Pte Ltd	Respondent	Corporation	Objection Dismissed	Lost	Tan Cheng Han of Tan Cheng Yew & Partners Tan Cheng Yew of Tan Cheng Yew & Partners
CEL Tractors Pte Ltd	Applicant	Corporation	Application Allowed	Won	David Chan of Shook Lin & Bok Vinodh Coomaraswamy of Shook Lin & Bok

3. Judges

Judge Name	Title	Delivered Judgment
Kan Ting Chiu	Judge	Yes

4. Counsels

Counsel Name	Organization
Tan Cheng Han	Tan Cheng Yew & Partners
Tan Cheng Yew	Tan Cheng Yew & Partners
David Chan	Shook Lin & Bok
Vinodh Coomaraswamy	Shook Lin & Bok

4. Facts

CEL Tractors applied to the court to approve a scheme of arrangement under s 210 of the Companies Act.
Daewoo Singapore Pte Ltd, a creditor of CEL Tractors, objected to the scheme.
Daewoo also had a claim against Lim Chee Seng, a director of CEL Tractors, under a guarantee.
Clause 4.3.1 of the scheme provided for the release of guarantors upon the company fulfilling its obligations.
Daewoo argued that a scheme cannot affect the rights of parties other than the creditors and the debtor company.
The scheme was accepted by a majority of 88.89% of the creditors, holding 95.62% of the debt.

5. Formal Citations

Re CEL Tractors Pte Ltd, OS 600261/2001, [2001] SGHC 72

6. Timeline

Date	Event
2001-04-14	Decision Date

7. Legal Issues

Discharge of Guarantor Liabilities under Scheme of Arrangement
- Outcome: The court held that an approved scheme of arrangement can discharge the liabilities of guarantors if expressly provided for in the scheme and approved by the court.
- Category: Substantive
- Sub-Issues:
  - Effect of scheme on third-party rights
  - Interpretation of scheme provisions
  - Release of co-debtors
- Related Cases:
  - [1971] NSWLR 868
  - [1933] 48 CLR 457
  - [1972] 2 NSWLR 704
  - [1982] 7 ACLR 171
  - [1912] 14 CLR 193
  - [1937] Ch 594
  - [1994] 2 BCLC 721
  - [1995] 3 All ER 581
  - [1998] 2 BCLC 252
  - [1998] 2 All ER 649
  - [1993] Ch 151
  - [1992] 3 All ER 945
  - [1877] 6 Ch D 627
  - [1934] Ch 635

8. Remedies Sought

Court Approval of Scheme of Arrangement

9. Cause of Actions

Approval of Scheme of Arrangement

10. Practice Areas

Commercial Litigation
Insolvency and Restructuring

11. Industries

No industries specified

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Hill v Anderson Meat Industries	Supreme Court of New South Wales	Yes	[1971] NSWLR 868	Australia	Cited for the principle that a scheme of arrangement does not automatically discharge a guarantor's liability unless there is a special provision in the guarantee agreement.
McDonald v Dennys Lascelles	High Court of Australia	Yes	[1933] 48 CLR 457	Australia	Cited regarding the extinction of a surety's obligation upon the extinction of a principal obligation, with exceptions for discharges by operation of law.
Hill v Anderson Meat Industries	Court of Appeal of New South Wales	Yes	[1972] 2 NSWLR 704	Australia	Affirmed the lower court's decision that a guarantee remains in force even if the creditor voted in favor of the scheme.
Re Glendale Land Development	Supreme Court	Yes	[1982] 7 ACLR 171	Australia	Cited for the principle that an arrangement cannot affect third-party rights and liabilities.
Isles v Daily Mail Newspaper	High Court of Australia	Yes	[1912] 14 CLR 193	Australia	Cited to support the point that the court's jurisdiction to sanction arrangements is limited to those between the debtor and creditor.
Re Garner`s Motors	High Court	Yes	[1937] Ch 594	England	Cited for the principle that a discharge of one joint debtor by operation of law does not discharge the other debtors.
RA Securities v Mercantile Credit Co	High Court	Yes	[1994] 2 BCLC 721	England	Cited for the principle that a voluntary company arrangement does not release a co-debtor.
RA Securities v Mercantile Credit Co	High Court	Yes	[1995] 3 All ER 581	England	Cited for the principle that a voluntary company arrangement does not release a co-debtor.
Johnson v Davies	Court of Appeal	Yes	[1998] 2 BCLC 252	England	Cited for rejecting the notion that a voluntary arrangement cannot release a co-debtor or surety, and ruling that the effect of any arrangement should be determined by construing its terms.
Johnson v Davies	Court of Appeal	Yes	[1998] 2 All ER 649	England	Cited for rejecting the notion that a voluntary arrangement cannot release a co-debtor or surety, and ruling that the effect of any arrangement should be determined by construing its terms.
Deanplan v Mahmoud	Chancery Division	Yes	[1993] Ch 151	England	Cited for the rule that where one joint and several covenantor is released by accord and satisfaction, all are released.
Deanplan v Mahmoud	Chancery Division	Yes	[1992] 3 All ER 945	England	Cited for the rule that where one joint and several covenantor is released by accord and satisfaction, all are released.
Re Wedgwood Coal and Iron Co	Court of Appeal	Yes	[1877] 6 Ch D 627	England	Cited for the principle that the court can withhold approval if creditors did not vote bona fide for the benefit of the creditors or the company as a whole.
Re Dorman, Long & Co	High Court	Yes	[1934] Ch 635	England	Cited for the principle that the court can withhold approval if the scheme is not fair and reasonable.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
s 210 Companies Act (Cap 50, 1994 Ed)	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Scheme of Arrangement
Guarantor
Creditor
Companies Act
Discharge of Liabilities
Voluntary Arrangement

15.2 Keywords

scheme of arrangement
companies act
guarantor
creditor
discharge of liabilities

17. Areas of Law

Area Name	Relevance Score
Schemes of Arrangement	80
Company Law	75
Bankruptcy	60
Winding Up	50
Contract Law	40
Guarantee	30

16. Subjects

Corporate Law
Insolvency
Schemes of Arrangement