Re Econ Corp Ltd: Scheme of Arrangement Approval Dispute

The High Court of Singapore heard an application by Econ Corporation Limited for the sanction of a scheme of arrangement. Several creditors opposed the application, alleging a lack of transparency and bona fides in the company's conduct. The court, presided over by Justice Lai Siu Chiu, dismissed the application, finding that the company had withheld material information and that the creditors' approval may not have been obtained with informed consent. The court found issues with the company's disclosure of financial information, transactions with related parties, and classification of creditors.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Application dismissed.

1.3 Case Type

Insolvency

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

The High Court refused to sanction Econ Corp Ltd's scheme of arrangement due to a lack of transparency and withheld material information.

1.7 Decision Date

23 November 2003

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Goldbell Engineering Pte Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
Jurong Readymix Concrete Pte Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
Econ Corporation Limited	Applicant	Corporation	Application dismissed	Lost	Foo Maw Shen of Yeo Wee Kiong Law Corp Michael Hwang of Yeo Wee Kiong Law Corp Chong Shiao Hann of Ang and Partners
Albert Aluminium Pte Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
Chua Chuan Leong and Sons Pte Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
Enterprise (S) Pte Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
CSC Enterprise (S) Pte Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
Goldbell Leasing Pte Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
Otis Elevator Co (S) Pte Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
Leong Hin Piling (Pte) Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
Resource Hardware and Trading Pte Ltd	Respondent	Corporation	Application dismissed	Won	Alvin Yeo of Wong Partnership Nishith Shetty of Wong Partnership Tan Yi Tyng of Wong Partnership
Supermix Concrete Pte Ltd	Respondent	Corporation	Application dismissed	Won	Winston Kwek of Rajah and Tann Sharon Goh of Rajah and Tann
Ssangyong Cement (S) Limited	Respondent	Corporation	Application dismissed	Won	Kuah Boon Theng of Legal Clinic LLC
United Central Engineering Pte Ltd	Respondent	Corporation	Application dismissed	Won	Kuah Boon Theng of Legal Clinic LLC
Gammon Skanska Pte Ltd	Respondent	Corporation	Application dismissed	Won	Andrew Chan of Allen and Gledhill
Tat Hong Heavy Equipment	Respondent	Corporation	Application dismissed	Won	Timothy Tan of Asia Legal LLC
Tat Hong Plant Leasing Pte Ltd	Respondent	Corporation	Application dismissed	Won	Timothy Tan of Asia Legal LLC
Tat Hong Machinery Pte Ltd	Respondent	Corporation	Application dismissed	Won	Timothy Tan of Asia Legal LLC

3. Judges

Judge Name	Title	Delivered Judgment
Lai Siu Chiu	Judge	Yes

4. Counsels

Counsel Name	Organization
Alvin Yeo	Wong Partnership
Nishith Shetty	Wong Partnership
Tan Yi Tyng	Wong Partnership
Foo Maw Shen	Yeo Wee Kiong Law Corp
Michael Hwang	Yeo Wee Kiong Law Corp
Chong Shiao Hann	Ang and Partners
Winston Kwek	Rajah and Tann
Sharon Goh	Rajah and Tann
Kuah Boon Theng	Legal Clinic LLC
Andrew Chan	Allen and Gledhill
Timothy Tan	Asia Legal LLC

4. Facts

Econ Corporation Limited sought court approval for a scheme of arrangement.
Opposing creditors alleged a lack of transparency and withholding of material information.
The company's executive director denied non-disclosure of EIL's losses.
The company confirmed no sale of equipment to Tat Hong at the meeting, but later revealed sale and purchase agreements.
The company sold equipment to Kok Tong Construction Pte Ltd with payment set off against amounts owed.
The company's unaudited and audited accounts showed significant discrepancies.
The company extended a $12.388m loan to ECIL secured by a mortgage on a vessel.

5. Formal Citations

Re Econ Corp Ltd, OS 653/2003, [2003] SGHC 288

6. Timeline

Date	Event
1975-04-01	Econ Piling Pte Ltd incorporated.
2000-09-25	Econ Piling Pte Ltd changed its name to Econ Corporation Limited.
2003-04-09	Econ Corporation Limited held an emergency meeting with its bankers and other financial institutions.
2003-04-10	Meeting held with members of the informal steering committee.
2003-04-24	Supermix took out garnishee proceedings against the Housing Development Board, Public Utilities Board and Land Transport Authority for their judgment debt.
2003-04-25	Econ Corporation Limited applied to court for leave to present a scheme of arrangement of debts.
2003-05-02	Econ Corporation Limited applied to court for leave to convene a meeting for the creditors to consider and approve the original scheme.
2003-05-06	Garnishee order nisi against PUB was made absolute.
2003-05-07	Kan J granted Econ Corporation Limited leave to convene a meeting.
2003-05-09	Statutory mortgage and deed of covenants both dated.
2003-05-17	Econ Corporation Limited filed notice of a meeting.
2003-05-20	Sale and purchase agreement between Econ Corporation Limited and Tat Hong dated.
2003-05-23	Econ Corporation Limited's application to set aside the Garnishee Order Absolute was dismissed.
2003-05-26	Rental agreement between Tat Hong and Econ Corporation Limited dated.
2003-05-27	Econ Corporation Limited tendered a formal scheme of arrangement to its unsecured creditors.
2003-05-31	Sale and purchase agreement between Econ Corporation Limited and Tat Hong dated.
2003-06-06	Econ Corporation Limited met certain creditors to answer queries.
2003-06-13	Jurong sent a second letter to Econ Corporation Limited.
2003-06-16	Econ Corporation Limited replied to Jurong.
2003-06-17	Econ Corporation Limited convened a meeting of its unsecured creditors.
2003-06-26	Econ Corporation Limited applied to court for sanction of the scheme.
2003-06-30	EIL's full year financial results were released to the public.
2003-07-01	Report in the Straits Times that EIL's losses had risen 985%.
2003-07-08	Lai Kew Chai J allowed Econ Corporation Limited's appeal and the Garnishee Order Absolute was set aside.
2003-07-21	Lai J rescinded his earlier orders and allowed the Garnishee Order Absolute to stand on condition Supermix furnished a banker's guarantee.
2003-08-13	Dovebid (S) Pte Ltd valuation report as at.
2003-08-21	Supermix had failed to furnish the security ordered by Lai J.
2003-11-24	Decision Date

7. Legal Issues

Lack of Transparency
- Outcome: The court found that the company's conduct lacked transparency and that it withheld material information from creditors.
- Category: Substantive
- Sub-Issues:
  - Withholding material information
  - Inadequate disclosure of financial losses
  - Questionable asset transfers
Classification of Creditors
- Outcome: The court agreed with the opposing creditors that certain classes of creditors should have been separately classified for voting purposes.
- Category: Procedural
- Sub-Issues:
  - Improper grouping of creditors with dissimilar interests
  - Failure to separately classify creditors with claims under $4,000
  - Failure to separately classify contingent creditors
Informed Consent of Creditors
- Outcome: The court found that the 89% vote at the meeting may not have been obtained with the informed consent of the unsecured creditors.
- Category: Substantive
- Sub-Issues:
  - Creditors not provided with sufficient information to make an informed decision
  - Misleading financial forecasts
  - Failure to disclose related party transactions

8. Remedies Sought

Court Sanction of Scheme of Arrangement

9. Cause of Actions

Application for Sanction of Scheme of Arrangement

10. Practice Areas

Restructuring
Corporate Law
Commercial Litigation

11. Industries

Construction

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd	Court of Appeal	Yes	[2003] SGCA 23	Singapore	Cited as a case heavily relied on by the opposing creditors and distinguished by the Company.
Re Halley's Departmental Store Pte Ltd	High Court	Yes	[1996] 2 SLR 70	Singapore	Cited by the Company as not applicable to the present case.
Commissioner of Inland Revenue v Chester Trustee Services Ltd	New Zealand Court of Appeal	Yes	[2003] 1 NZLR 395	New Zealand	Cited by the Company regarding the wishes of creditors and collateral purposes.
Re English, Scottish and Australian Chartered Bank	Court of Appeal	Yes	(1893) 3 Ch 385	England and Wales	Cited by the Company regarding whether the arrangement contemplated is a reasonable arrangement such as that which a man of business would reasonably approve.
Re Alabama, New Orleans, Texas & Pacific Junction Railway Company	Court of Appeal	Yes	(1891) 1 Ch 213	England and Wales	Cited by the Company regarding whether the arrangement is such as a man of business would reasonably approve.
Re Ferro Constructions Pty Ltd	Unknown	Yes	2 ACLR 18	Australia	Cited by the Company regarding differences between the scheme approved at the meeting and the scheme as originally considered by the court.
Sovereign Life Assurance Co v Dodd	Queen's Bench	Yes	[1892] 2 QB 573	England and Wales	Cited by the Company regarding the proper test on classification of creditors.
Re Industrial Equity (Pacific) Ltd	High Court	Yes	[1991] 2 HKC 364	Hong Kong	Cited by the Company regarding the different rights of shareholders and creditors.
Re Hawk Insurance Co Ltd	Unknown	Yes	[2001] 2 BCLC 480	England and Wales	Cited by the Company regarding unsecured creditors whose liabilities are contingent.
Re Butterworth Products & Industries Sdn Bhd	High Court	Yes	[1992] 1 MLJ 429	Malaysia	Cited by the Company regarding a contingent creditor was no different from judgment creditors.
UDL Argos Engineering & Heavy Industries Co Ltd	Unknown	Yes	[2001] 1184 HKCU 1	Hong Kong	Cited by the Company regarding inter-company creditors should be separately classed.
Re BTR plc	Unknown	Yes	[2000] 1 BCLC 740	England and Wales	Cited by the Company regarding creditors for claims of less than $4,000 should be separately classed.
Re Jax Marine Pty Ltd	Unknown	Yes	[1967] 1 NSWLR 145	Australia	Cited by the Company regarding the discount approach.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

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

15. Key Terms and Keywords

15.1 Key Terms

Scheme of Arrangement
Creditors
Transparency
Material Information
Related Party Transactions
Contingent Creditors
Liquidation
Garnishee Order
Set-off Arrangement
Econ International Limited
Tat Hong
KPMG
Valuation Report

15.2 Keywords

Scheme of Arrangement
Insolvency
Creditors
Transparency
Singapore
High Court
Econ Corporation Limited

17. Areas of Law

Area Name	Relevance Score
Schemes of Arrangement	85
Company Law	75
Corporate Restructuring	70
Corporate Insolvency	65
Winding Up	60
Bankruptcy	60
Injunctions	30
Contract Law	25
Arbitration	10

16. Subjects

Schemes of Arrangement
Corporate Insolvency
Company Law