Rabobank v Jurong Technologies: Unfair Preference Claim under Companies Act
Coöperatieve Centrale Raiffeisen-Boerenleenbank BA (Rabobank) appealed against the decision of the trial judge to set aside a payment of US$2,775,149.37 made by Jurong Technologies Industrial Corp Ltd (JTIC) to Rabobank as an unfair preference under section 227T of the Companies Act. The Court of Appeal of Singapore, comprising Chan Sek Keong CJ, Andrew Phang Boon Leong JA, and V K Rajah JA, dismissed the appeal, finding that JTIC's decision to make the payment was influenced by a desire to prefer Rabobank over other creditor banks.
1. Case Overview
1.1 Court
Court of Appeal1.2 Outcome
Appeal Dismissed
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Rabobank appeals the decision to set aside a payment from Jurong Technologies as an unfair preference under the Companies Act. The Court of Appeal dismissed the appeal.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Coöperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank International, Singapore Branch) | Appellant | Corporation | Appeal Dismissed | Lost | Gregory Vijayendran, Sheela Kumari Devi, Charmaine Neo |
| Jurong Technologies Industrial Corp Ltd (under judicial management) | Respondent | Corporation | Judgment for Respondent | Won | Sarjit Singh Gill, Pradeep Pillai, Zhang Xiaowei |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Chan Sek Keong | Chief Justice | Yes |
| Andrew Phang Boon Leong | Justice of the Court of Appeal | No |
| V K Rajah | Justice of the Court of Appeal | No |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Gregory Vijayendran | Rajah & Tann LLP |
| Sheela Kumari Devi | Rajah & Tann LLP |
| Charmaine Neo | Rajah & Tann LLP |
| Sarjit Singh Gill | Shook Lin & Bok LLP |
| Pradeep Pillai | Shook Lin & Bok LLP |
| Zhang Xiaowei | Shook Lin & Bok LLP |
4. Facts
- JTIC was an investment holding company providing electronic manufacturing services through subsidiaries.
- JTIC's business was financed by loans from Rabobank and other banks.
- Rabobank was granted a negative pledge and a pari passu undertaking.
- JTIC encountered financial difficulties due to the global recession.
- JTIC defaulted on facilities with Rabobank on 7 October 2008.
- Rabobank requested the Companies reduce the amount of invoices sent for discounting.
- Rabobank requested that the Companies reduce the amount of invoices sent for discounting.
- JTIC sold Min Aik Shares and remitted part of the proceeds to Rabobank on 22 December 2008.
- DBS obtained a charge over the MAP Shares to secure the Companies’ debts.
5. Formal Citations
- Coöperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank International, Singapore Branch) v Jurong Technologies Industrial Corp Ltd (under judicial management), Civil Appeal No 5 of 2011, [2011] SGCA 48
- Jurong Technologies Industrial Corp Ltd (under judicial management) v Coöperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank International, Singapore Branch), , [2011] 2 SLR 413
- Tam Chee Chong and another v DBS Bank Ltd, , [2011] 2 SLR 310
- DBS Bank Ltd v Tam Chee Chong and another (judicial managers of Jurong Hi-Tech Industries Pte Ltd (under judicial management)), Civil Appeal No 230 of 2010, [2011] SGCA 47
- Amrae Benchuan Trading Pte Ltd (in liquidation) v Tan Te Teck Gregory, , [2006] 4 SLR(R) 969
6. Timeline
| Date | Event |
|---|---|
| Ms. Joyce Lin Li Fang became a director of JTIC. | |
| Ms. Joyce Lin Li Fang became a director of JHTI. | |
| Rabobank first offered credit facilities to JTIC. | |
| Ms. Joyce Lin Li Fang was appointed Chairman of JTIC. | |
| Master Receivables Purchase Agreement signed. | |
| Ms. Lin made a presentation to DBS of the Companies’ financial position. | |
| The Companies’ total borrowings had reached the level of S$340m. | |
| JHTI deposited MAP shares with ABN-AMRO. | |
| ABN-AMRO requested that the MAP Shares be put in a custodian account. | |
| The Companies encountered significant financial difficulties. | |
| Rabobank requested that the Companies reduce the amount of invoices sent for discounting. | |
| Rabobank informed Ms. Lin that the bank wished to exit from financing non-core markets. | |
| The Companies first defaulted on their facilities with Rabobank. | |
| JTIC signed a non-binding term sheet with GEM. | |
| KBC sent a letter of demand to the Companies. | |
| Ms. Lin signed a security document which created a charge on the MAP Shares in favour of DBS. | |
| Rabobank demanded from JHTI payment of the unpaid receivables under the MRPA facility. | |
| The security document was fully executed. | |
| ABN-AMRO sent a letter of demand to the Companies. | |
| Ms. Lin signed a letter of undertaking to set up an escrow account with Rabobank. | |
| Maybank sent a letter of demand to the Companies. | |
| JTIC made a public announcement that its audit committee had commenced an investigation. | |
| KordaMentha Pte Ltd called a meeting of all the Creditor Banks. | |
| DBS registered the particulars of the Charge with the Accounting and Corporate Regulatory Authority. | |
| Trade creditors filed actions in court to recover their debts. | |
| Rabobank sent a letter to the Companies which demanded the payment of US$2m and S$0.8m within five business days. | |
| JTIC sold the Min Aik Shares. | |
| The Payment was remitted to Rabobank in two tranches. | |
| Rabobank informed JTIC that the Payment had been set off against the moneys due and owing by the latter. | |
| OCBC sent a letter of demand to the Companies. | |
| BTMU sent a letter of demand to the Companies. | |
| JTIC sold the Min Aik Shares. | |
| DBS applied to court to place JHTI under judicial management. | |
| Four Creditor Banks applied to court to place JTIC under judicial management. | |
| The Judge granted the applications to place JTIC under judicial management. | |
| JTIC applied to recover the Payment from Rabobank. | |
| The Judge allowed JTIC’s application. | |
| Judgment reserved. |
7. Legal Issues
- Unfair Preference
- Outcome: The court found that the payment was an unfair preference.
- Category: Substantive
- Sub-Issues:
- Desire to prefer creditor
- Commercial pressure
- Knowledge of insolvency
- Related Cases:
- [2011] 2 SLR 413
- [2011] SGCA 47
- [1990] BCLC 324
- Breach of Pari Passu Undertaking
- Outcome: The court observed that the payment may have breached the pari passu undertaking.
- Category: Substantive
8. Remedies Sought
- Recovery of Payment
9. Cause of Actions
- Unfair Preference
10. Practice Areas
- Commercial Litigation
- Banking Litigation
- Insolvency
11. Industries
- Finance
- Manufacturing
- Electronics
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Jurong Technologies Industrial Corp Ltd (under judicial management) v Coöperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank International, Singapore Branch) | High Court | Yes | [2011] 2 SLR 413 | Singapore | This is the decision from which the appeal arose. The Court of Appeal upheld the trial judge's decision. |
| Tam Chee Chong and another v DBS Bank Ltd | High Court | Yes | [2011] 2 SLR 310 | Singapore | Considered the validity of the Charge as an unfair preference. |
| DBS Bank Ltd v Tam Chee Chong and another (judicial managers of Jurong Hi-Tech Industries Pte Ltd (under judicial management)) | Court of Appeal | Yes | [2011] SGCA 47 | Singapore | The court referred to its judgment in this case for the principles of law applicable to unfair preferences. |
| Amrae Benchuan Trading Pte Ltd (in liquidation) v Tan Te Teck Gregory | High Court | Yes | [2006] 4 SLR(R) 969 | Singapore | Cited regarding the lack of knowledge or expectation on the part of the company’s controllers that it would be wound up imminently. |
| Re MC Bacon Ltd | United Kingdom High Court | Yes | [1990] BCLC 324 | England and Wales | Judgment which has been approved and followed in a number of decisions of the Singapore courts regarding unfair preference. |
| Re Beacon Leisure Ltd | United Kingdom High Court | Yes | [1992] BCLC 565 | England and Wales | Cited regarding the lack of knowledge of the debtor’s directors as the key reason for the court’s finding that the statutory presumption of a desire to prefer had been rebutted. |
| Katz & Ors v McNally & Ors | England and Wales Court of Appeal | Yes | [1999] BCC 291 | England and Wales | Cited regarding it is not necessary to establish that the directors of the company knew or believed that it was insolvent in order to prove unfair preference. |
| Wills and another v Corfe Joinery Ltd (in liq) | United Kingdom High Court | Yes | [1998] 2 BCLC 75 | England and Wales | Cited regarding it is not necessary, in order to show such desire, to demonstrate that the directors knew that the company would go into insolvent liquidation, or when it would do so. |
| Re Libra Industries Pte Ltd (in compulsory liquidation) | High Court | Yes | [1999] 3 SLR(R) 205 | Singapore | Cited regarding it is not necessary, in order to show such desire, to demonstrate that the directors knew that the company would go into insolvent liquidation, or when it would do so. |
| Re Living Images Ltd | United Kingdom High Court | Yes | [1996] BCC 112 | England and Wales | Cited regarding the debtor’s knowledge of its imminent insolvency was instrumental in proving the requisite desire. |
| Re Agriplant Services Ltd | United Kingdom High Court | Yes | [1997] BCC 842 | England and Wales | Cited regarding the debtor’s knowledge of its imminent insolvency was instrumental in proving the requisite desire. |
| Re Fairway Magazines Ltd; Fairbairn v Hartigan | United Kingdom High Court | Yes | [1993] BCLC 643 | England and Wales | Accepted Millett J’s proposition in MC Bacon. |
| Re Conegrade Ltd | United Kingdom High Court | Yes | [2003] BPIR 358 | England and Wales | Cited regarding if the debtor did desire a particular result, it matters not that it thought that bankruptcy was a remote risk. |
| Thompson and Others, Assignees of Jane Wiseman v Freeman | England and Wales Court of King's Bench | Yes | [1 TR 155;] | England and Wales | Cited regarding A bankrupt when in contemplation of his bankruptcy cannot by his voluntary act favour any one creditor; but if under fear of legal process he gives a preference, it is evidence that he does not do it voluntarily. |
| Re Ledingham-Smith (a bankrupt), ex parte the trustee of the bankrupt v Pannell Kerr Forster (a firm) | United Kingdom High Court | Yes | [1993] BCLC 635 | England and Wales | Cited regarding It may be that pressure does not displace desire in the way that it formerly displaced a dominant intention to prefer but it can certainly affect the question of desire. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap 50, 2006 Rev Ed) s 227T | Singapore |
| Bankruptcy Act (Cap 20, 2000 Rev Ed) s 99 | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Unfair preference
- Judicial management
- Negative pledge
- Pari passu undertaking
- Receivables financing
- Escrow account
- GEM Deal
- Min Aik Shares
- MAP Shares
- Commercial pressure
15.2 Keywords
- Unfair preference
- Companies Act
- Bankruptcy Act
- Rabobank
- Jurong Technologies
- Judicial management
- Singapore
- Insolvency
- Banking
16. Subjects
- Insolvency
- Company Law
- Banking
17. Areas of Law
- Insolvency Law
- Company Law
- Banking Law