Velstra Pte Ltd v Dexia Bank NV: Avoidance of Transactions at Undervalue under Bankruptcy Act

In Velstra Pte Ltd v Dexia Bank NV, the Court of Appeal of Singapore heard an appeal regarding whether a payment of US$20,920,000 by Velstra Pte Ltd (under liquidation) to Dexia Bank NV was a transaction at an undervalue under s 98 of the Bankruptcy Act. The liquidators of Velstra sought to reverse the transaction. The High Court dismissed the claim, finding no direct transaction between Velstra and Dexia Bank. The Court of Appeal upheld the dismissal, determining that the payment was intended for Lernout and Hauspie Speech Products NV (LH&W), with Dexia Bank acting as a conduit. The court found no undervalue as Dexia Bank had provided consideration by crediting LH&W's account. The Court of Appeal dismissed the appeal.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal dismissed

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 by Velstra to Dexia Bank for the account of a third party was not a transaction at an undervalue.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Velstra Pte LtdAppellantCorporationAppeal dismissedLost
Dexia Bank NVRespondentCorporationAppeal dismissedWon

3. Judges

Judge NameTitleDelivered Judgment
Chao Hick TinJustice of the Court of AppealYes
Choo Han TeckJudgeNo
Yong Pung HowChief JusticeNo

4. Counsels

Counsel NameOrganization
David ChanShook Lin and Bok
Vinodh CoomaraswamyShook Lin and Bok
Tan Chuan ThyeWong and Leow LLC
Felicia ChuaWong and Leow LLC

4. Facts

  1. Velstra, a Singapore company, was linked to Lernout and Hauspie Speech Products NV (L&H).
  2. Dexia Bank NV is a Belgian bank that absorbed Artesia Bank.
  3. Jo Lernout, Pol Hauspie, and Nico Willaert (LH&W) opened a joint account with Artesia Bank and were granted a credit facility.
  4. Velstra entered into a loan agreement for US$36m with Mr Harout Khatchadourian.
  5. Velstra instructed DBS Bank to remit US$20.92m to Artesia Bank, with the account number being the joint account of LH&W.
  6. In Velstra’s books, the remittance was recorded as repayment of a loan from a consortium of Belgian investors (LH&W).
  7. Velstra was placed under liquidation following a winding up order on 12 April 2002.

5. Formal Citations

  1. Velstra Pte Ltd v Dexia Bank NV, CA 21/2004, [2004] SGCA 49

6. Timeline

DateEvent
Jo Lernout, Pol Hauspie and Nico Willaert opened a joint account with Artesia Bank
Expiry of credit facility granted to Jo Lernout, Pol Hauspie and Nico Willaert
Velstra entered into a loan agreement for US$36m with Mr Harout Khatchadourian
DBS Bank sent a SWIFT message to Artesia Bank stating that it would be receiving US$36m in favour of Velstra
Velstra instructed DBS Bank to remit US$20.92m to Artesia Bank
Harout Khatchadourian transferred US$36m into Velstra’s account with DBS Bank
DBS Bank remitted US$36m to Artesia Bank
Dexia Bank debited the joint account with the difference between the US$21m provisional credit and the actual receipt of US$20.92m
Velstra was placed under liquidation
Judgment reserved

7. Legal Issues

  1. Transaction at an undervalue
    • Outcome: The court held that the payment was not a transaction at an undervalue because there was no transaction between Velstra and Dexia Bank.
    • Category: Substantive
  2. Admissibility of hearsay evidence
    • Outcome: The court held that the hearsay statement was inadmissible because there was no evidence that the person who made it was conscious that what he said was against his own interest.
    • Category: Procedural
  3. Intention to transact
    • Outcome: The court held that for a transaction to fall within s 98, the counter party must be a person to whom the donor party intends to make the payment, or pass the property.
    • Category: Substantive

8. Remedies Sought

  1. Reversal of transaction
  2. Return of money

9. Cause of Actions

  • Avoidance of transaction at an undervalue

10. Practice Areas

  • Commercial Litigation
  • Insolvency Litigation

11. Industries

  • Banking
  • Finance

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Mercator & Noordstar NV v Velstra Pte LtdSingapore High CourtYes[2003] 4 SLR 667SingaporeCited for the proposition that a gift is a unilateral act in the context of s 98 of the Bankruptcy Act.
Ramrati Kuer v Dwarika Prasad SinghSupreme CourtYesAIR 1967 SC 1134IndiaCited for the principle that for a hearsay statement to be admissible under the 'against interest' rule, it must be shown that the person who made it was conscious that what he said was against his own interest.
Re Emanuel (No 14) Pty LtdAustralian Federal CourtYes(1997) 147 ALR 281AustraliaCited by the appellant to argue that intention is irrelevant in determining whether there is a transaction between two parties under s 98 of the Bankruptcy Act. The court distinguished this case.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Section 98 Bankruptcy Act (Cap 20, 2000 Rev Ed)Singapore
Section 329(1) Companies Act (Cap 50, 1994 Rev Ed)Singapore
Sections 17, 21(1), 32(c) Evidence Act (Cap 97, 1997 Rev Ed)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Transaction at an undervalue
  • Liquidation
  • Insolvency
  • Hearsay evidence
  • Intention to transact
  • Provisional credit
  • Joint account

15.2 Keywords

  • Velstra
  • Dexia Bank
  • Bankruptcy Act
  • Transaction at undervalue
  • Insolvency
  • Liquidation

17. Areas of Law

Area NameRelevance Score
Insolvency Law90
Transactions at an undervalue85
Restructuring and Insolvency80
Bankruptcy75
Avoidance of transactions70
Evidence Law60
Company Law60
Contract Law40
Affidavits20

16. Subjects

  • Insolvency
  • Bankruptcy
  • Commercial Law