Mercator & Noordstar NV v Velstra Pte Ltd: Winding Up & Transaction at Undervalue

In Mercator & Noordstar NV v Velstra Pte Ltd (in liquidation), the Singapore Court of Appeal heard an appeal regarding whether a payment made by Velstra Pte Ltd (in liquidation) to Mercator & Noordstar NV constituted a transaction at an undervalue under s 98 of the Bankruptcy Act. The liquidators of Velstra sought to recover US$5.08 million from Mercator, arguing the payment was voidable. The Court of Appeal allowed Mercator's appeal, declaring that the liquidators had not proven the transaction was at an undervalue. The court also dismissed Mercator's appeal on a procedural matter regarding the conversion of the originating summons to a writ action.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal Allowed

1.3 Case Type

Insolvency

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

The Court of Appeal held that a payment from Velstra to Mercator was not proven to be a transaction at an undervalue under s 98 of the Bankruptcy Act.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Velstra Pte Ltd (in liquidation)RespondentCorporationClaim DismissedDismissed
Mercator & Noordstar NVAppellantCorporationAppeal Allowed in partPartial

3. Judges

Judge NameTitleDelivered Judgment
Chao Hick TinJustice of AppealYes
Tan Lee MengJudgeNo
Yong Pung HowChief JusticeNo

4. Counsels

Counsel NameOrganization
David ChanShook Lin & Bok
Vinodh CoomaraswamyShook Lin & Bok
Dinesh DhillonWong & Leow LLC
Koh Kok WahWong & Leow LLC

4. Facts

  1. Mercator invested US$2 million in LDF and extended a US$10 million loan.
  2. Mercator acquired 97% of the shares in LDF.
  3. LDF incorporated Velstra as a wholly owned subsidiary in Singapore.
  4. Khatchadourian loaned US$36 million to Velstra.
  5. Velstra paid US$5.08 million to Mercator from the Khatchadourian loan.
  6. Velstra's audited accounts recorded the payment to Mercator as being made on behalf of LDF.
  7. Mercator discharged a portion of LDF's US$10 million loan obligation upon receiving the US$5.08 million from Velstra.

5. Formal Citations

  1. Mercator & Noordstar NV v Velstra Pte Ltd (in liquidation), CA 24/2003, 25/2003, [2003] SGCA 37

6. Timeline

DateEvent
Mercator met with the directors of L&H indicating its interest in investing.
LDF was incorporated in Belgium.
LDF’s capital was increased from 2.5 million BF to 77.76 million BF.
Mercator acquired all the new shares in LDF which constituted 97% of the shares in LDF.
Mercator entered into an agreement with LDF extending to the latter a loan of US$10 million.
LDF incorporated a wholly owned subsidiary in Singapore called Velstra Pte Ltd.
A loan agreement for US$36 million was executed between Katchadourian and Velstra.
Khatchadourian transferred the sum of US$36 million into Velstra’s account in Singapore.
Velstra paid Mercator US$5.08 million.
Velstra was to repay Khatchadourian the total debt of US$36 million.
Velstra was wound up.
Decision Date

7. Legal Issues

  1. Transaction at an Undervalue
    • Outcome: The court held that the liquidators failed to prove that the payment of US$5,080,000 made by Velstra to Mercator constituted a transaction at an undervalue.
    • Category: Substantive
  2. Associated Companies
    • Outcome: The court held that Mercator and Velstra were associated companies, triggering the presumption of insolvency.
    • Category: Substantive
  3. Definition of Transaction
    • Outcome: The court held that a simple payment can constitute a 'transaction' under s 98 of the Bankruptcy Act.
    • Category: Substantive
    • Related Cases:
      • [2001] 2 BCLC 176
  4. Burden of Proving Undervalue
    • Outcome: The court held that the burden of proving that a transaction was at an undervalue rests with the liquidators.
    • Category: Substantive

8. Remedies Sought

  1. Declaration that the payment was void
  2. Recovery of US$5.08 million

9. Cause of Actions

  • Transaction at an undervalue

10. Practice Areas

  • Insolvency Litigation
  • Commercial Litigation

11. Industries

  • Finance
  • Insurance

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Show Theatres Pte Ltd (in liquidation) v Shaw Theatres Pte Ltd & AnorHigh CourtYes[2002] 4 SLR 145SingaporeCited to illustrate a situation where two companies were considered to be associated, but not to establish a strict requirement for a common person in charge for companies to be considered associated.
Re Taylor Sinclair (Capital) Ltd (in liquidation); Knights v Seymour Pierce Ellis Ltd & AnorEnglish CourtYes[2001] 2 BCLC 176EnglandCited for the interpretation of the word 'transaction' in the context of insolvency law, specifically whether a simple payment constitutes a transaction.
Phillips v Brewin Dolphin BellEnglish CourtYes[2001] 1 All ER 673EnglandCited regarding whether ex post facto events could be taken into account when determining the value of consideration in a transaction at an undervalue.
Owen v TateCourt of AppealYes[1976] QB 402EnglandCited regarding the principle of indemnity and reimbursement when a person makes a payment for the benefit of another without a prior request.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Bankruptcy ActSingapore
s 98 of the Bankruptcy ActSingapore
s 100 of the Bankruptcy ActSingapore
s 101 of the Bankruptcy ActSingapore
s 101(6) of the Bankruptcy ActSingapore
s 101(9)(b) of the Bankruptcy ActSingapore
s 329 of the Companies ActSingapore
s 329(1) of the Companies ActSingapore
s 103 of the Evidence ActSingapore

15. Key Terms and Keywords

15.1 Key Terms

  • Transaction at an undervalue
  • Associated companies
  • Insolvency
  • Liquidation
  • Burden of proof
  • Payment simpliciter

15.2 Keywords

  • Winding up
  • Transaction at undervalue
  • Bankruptcy Act
  • Companies Act
  • Associated companies
  • Insolvency
  • Singapore

17. Areas of Law

Area NameRelevance Score
Winding Up90
Transaction at Undervalue85
Company Law80
Bankruptcy75
Civil Procedure60
Contract Law30

16. Subjects

  • Insolvency
  • Company Law
  • Bankruptcy