Tam Chee Chong v DBS Bank: Unfair Preference in Judicial Management
In Tam Chee Chong and Keoy Soo Earn v DBS Bank Ltd, the High Court of Singapore ruled on 18 November 2010 that a charge given by Jurong Hi-Tech Industries Pte Ltd (JHTI) to DBS Bank Ltd constituted an unfair preference under Section 227T of the Companies Act. The plaintiffs, as judicial managers of JHTI, successfully argued that JHTI was influenced by a desire to prefer DBS Bank when granting the charge, and that JHTI was insolvent at the time. The court ordered DBS Bank to pay JHTI the net sale proceeds received from the disposal of shares related to the charge.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Judgment for Plaintiffs
1.3 Case Type
Insolvency
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
The High Court held that a charge given by JHTI to DBS Bank constituted an unfair preference under the Companies Act and ordered DBS to pay JHTI the proceeds.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| DBS Bank Ltd | Defendant | Corporation | Judgment Against Defendant | Lost | |
| TAM CHEE CHONG | Plaintiff | Individual | Judgment for Plaintiff | Won | |
| Keoy Soo Earn | Plaintiff | Individual | Judgment for Plaintiff | Won |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Andrew Ang | Judge | Yes |
4. Counsels
4. Facts
- JHTI granted a charge over shares to DBS Bank on 13 November 2008.
- JHTI was under judicial management at the time of the lawsuit.
- DBS Bank was a creditor of JHTI.
- No new loans were extended to JHTI when the charge was granted.
- JHTI had received short term loans from DBS when other banks were unwilling.
- Other banks had issued letters of demand to JHTI prior to the charge being granted.
- JHTI was facing financial difficulties and was unable to pay its debts as they fell due.
5. Formal Citations
- Tam Chee Chong and another v DBS Bank Ltd, Originating Summons No 707 of 2009, [2010] SGHC 331
6. Timeline
| Date | Event |
|---|---|
| DBS Bank granted banking facilities to the Companies | |
| Lin Li Fang took over as chairperson of the JTIC group of companies | |
| JTIC announced a dividend payment of $0.01 per share | |
| JTIC sought a short term loan of S$5m from DBS for the acquisition of Priver Electric | |
| ABN AMRO requested the Companies provide an undertaking to physically deposit shares in MAP Technology Holdings Ltd | |
| JTIC furnished a letter of undertaking to ABN AMRO | |
| Dr Chung informed DBS that JTIC held shares in MAP Technology Holdings Ltd | |
| DBS disbursed the 1st Ad Hoc Short Term Loan | |
| DBS granted the Companies an SBLC facility of US$1.5m | |
| 1st Ad Hoc Short Term Loan was originally due | |
| DBS increased the SBLC facility to US$2m | |
| DBS approved a loan of S$7.5m, of which S$6m was disbursed | |
| DBS disbursed a further S$0.5m | |
| 2nd Ad Hoc Short Term Loan matured | |
| DBS offered to assist the Companies by providing a US$8.5m account receivables facility | |
| DBS issued a letter of offer for the US$8.5m account receivables facility | |
| KBC served a letter of demand on the Companies | |
| Rabobank issued a letter to the Companies requesting payment of all sums due | |
| JHTI granted DBS a charge over the MAP Shares | |
| Particulars of the charge were lodged for registration with the Accounting and Corporate Regulatory Authority | |
| DBS sent a letter of demand to the Companies | |
| The Companies were placed under judicial management | |
| Ms. Lin filed her first affidavit | |
| Ms. Lin filed her second affidavit | |
| Judgment reserved |
7. Legal Issues
- Unfair Preference
- Outcome: The court held that the granting of the Charge by JHTI to DBS Bank was an unfair preference within the meaning of s 99 of the Bankruptcy Act.
- Category: Substantive
- Sub-Issues:
- Desire to prefer creditor
- Insolvency at the time of preference
- Related Cases:
- [1999] 3 SLR(R) 205
- [1990] BCLC 324
- [2006] 4 SLR(R) 969
- [1993] BCLC 643
- [2008] 2 HKLRD 92
- [1994] 3 SLR(R) 899
- [2006] 3 SLR(R) 227
- [2004] SGHC 251
- [2005] NSWCA 243
- [2008] WASC 239
- [1907] HCA 78
8. Remedies Sought
- Setting aside the charge
- Restoring the position to what it would have been if the unfair preference had not been given
9. Cause of Actions
- Unfair Preference under Section 227T of the Companies Act
10. Practice Areas
- Commercial Litigation
- Insolvency
- Judicial Management
11. Industries
- Banking
- Finance
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Re Libra Industries Pte Ltd (in compulsory liquidation) | N/A | Yes | [1999] 3 SLR(R) 205 | Singapore | Cited for the interpretation of unfair preference under the Bankruptcy Act, specifically regarding the changes introduced by Section 99. |
| Re MC Bacon Ltd | N/A | Yes | [1990] BCLC 324 | United Kingdom | Cited for its detailed discussion on the changes brought about by the new law on unfair preference, particularly the distinction between 'intention' and 'desire'. |
| Amrae Benchuan Trading Pte Ltd (in liquidation) v Tan Te Teck Gregory | N/A | Yes | [2006] 4 SLR(R) 969 | Singapore | Cited for its discussion on the changes brought about by the new law in the English decision Re MC Bacon Ltd. |
| Re Fairway Magazines Ltd | N/A | Yes | [1993] BCLC 643 | United Kingdom | Cited for the principle that a security interest is not a voidable preference if the company is influenced by 'proper commercial considerations' and not a desire to improve the creditor's position. |
| Re Sweetmart Garment Works Ltd (in liquidation) | N/A | No | [2008] 2 HKLRD 92 | Hong Kong | Cited to support the argument that pressure exerted by DBS Bank was less significant than that of other banks, and that JHTI could not have realistically expected to continue business for a significant period. |
| Lin Securities Pte v Royal Trust Bank (Asia) Ltd | N/A | No | [1994] 3 SLR(R) 899 | Singapore | Cited by the defendant to argue that pressure can be exerted in subtle ways, but distinguished by the court as the pressure exerted by DBS was not as significant as the pressure in Lin Securities. |
| Leun Wah Electric Co (Pte) Ltd (in liquidation) v Sigma Cable Co (Pte) Ltd | N/A | Yes | [2006] 3 SLR(R) 227 | Singapore | Cited for the definition of insolvency, specifically the 'liquidity test' and the 'balance sheet test', and the disjunctive nature of Section 100(4) of the Bankruptcy Act. |
| Velstra Pte Ltd (in compulsory winding up) v Azero Investments SA | N/A | Yes | [2004] SGHC 251 | Singapore | Cited for the principle that the two subsections of s 100(4) of the BA are to be read disjunctively. |
| Lewis (as liquidator of Doran Constructions Pty Ltd (in liq) v Doran & others | Court of Appeal of the Supreme Court of New South Wales | No | [2005] NSWCA 243 | Australia | Cited by the defendant to argue that solvency should be assessed based on what was known at the time, without hindsight, but distinguished by the court as the adjustments to the balance sheets were not unexpected. |
| The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) | N/A | No | [2008] WASC 239 | Australia | Cited to support the argument that a court can consider post-event facts to determine the realism of parties' expectations, but distinguished by the court. |
| Bank of Australasia v Hall | High Court of Australia | No | [1907] HCA 78 | Australia | Cited within Doran for the principle of considering the immediate future in solvency assessments. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap 50, 2006 Rev Ed) | Singapore |
| Section 227T of the Companies Act (Cap 50, 2006 Rev Ed) | Singapore |
| Bankruptcy Act (Cap 20, 2000 Rev Ed) | Singapore |
| Section 99 of the Bankruptcy Act (Cap 20, 2000 Rev Ed) | Singapore |
| Section 100 of the Bankruptcy Act (Cap 20, 2000 Rev Ed) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Unfair preference
- Judicial management
- Charge
- Insolvency
- Desire to prefer
- Liquidity test
- Balance sheet test
- MAP Shares
15.2 Keywords
- Unfair preference
- Judicial management
- Charge
- Insolvency
- Companies Act
- Bankruptcy Act
- DBS Bank
- JHTI
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Unfair Preference | 90 |
| Bankruptcy | 80 |
| Company Law | 75 |
| Judicial Management | 70 |
| Banking and Finance | 60 |
| Contract Law | 40 |
16. Subjects
- Insolvency
- Unfair Preference
- Corporate Law