SK Engineering v. Conchubar Aromatics: Schemes of Arrangement & Related Creditors
SK Engineering & Construction Co Ltd (SKEC) appealed against the High Court's decision to approve schemes of arrangement for Conchubar Aromatics Ltd and UVM Investment Corporation. The Court of Appeal of Singapore, comprising Sundaresh Menon CJ, Chao Hick Tin JA, Andrew Phang Boon Leong JA, Judith Prakash JA, and Tay Yong Kwang JA, heard the appeals. SKEC opposed the schemes, arguing that the creditors who voted in favor were related to the scheme companies. The court allowed the appeal, finding that the assignments of debt were not properly scrutinized and the schemes lacked a meaningful compromise due to the rejection of a key restructuring proposal.
1. Case Overview
1.1 Court
Court of Appeal of the Republic of Singapore1.2 Outcome
Appeal Allowed
1.3 Case Type
Civil
1.4 Judgment Type
Judgment
1.5 Jurisdiction
Singapore
1.6 Description
Appeal regarding schemes of arrangement. The court examined related creditors and debt assignments, ultimately allowing the appeal.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| SK Engineering & Construction Co Ltd | Appellant | Corporation | Appeal Allowed | Won | |
| Conchubar Aromatics Ltd | Respondent | Corporation | Appeal Allowed | Lost | |
| UVM Investment Corporation | Respondent | Corporation | Appeal Allowed | Lost |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Sundaresh Menon | Chief Justice | No |
| Chao Hick Tin | Judge of Appeal | Yes |
| Andrew Phang Boon Leong | Judge of Appeal | No |
| Judith Prakash | Judge of Appeal | No |
| Tay Yong Kwang | Judge of Appeal | No |
4. Counsels
4. Facts
- SKEC is a creditor of Conchubar for US$14,527,732.33 and of UVM for US$4,129,333.57.
- Conchubar is an indirect shareholder of JAC, with its primary asset being its 6% indirect shareholding in JAC.
- UVM is a direct shareholder of JAC, with its primary asset being its 5.1% shareholding in JAC.
- Chemicals is wholly-owned by Conchubar Infrastructure and shares a common director with Conchubar.
- MacNair has the right to convert the debt owed to it by UVM into a 99.82% shareholding in UVM.
- Chemicals assigned receivables to Universal and Estanil, and MacNair assigned receivables to Emirates on the same date.
- The JEI Proposal was rejected by JAC’s R&M as early as December 2015, but this was not disclosed to the creditors before the vote.
5. Formal Citations
- SK Engineering & Construction Co Ltd v Conchubar Aromatics Ltd and another appeal, Civil Appeal No 15 of 2017, [2017] SGCA 51
- SK Engineering & Construction Co Ltd v Conchubar Aromatics Ltd and another appeal, Civil Appeal No 16 of 2017, [2017] SGCA 51
6. Timeline
| Date | Event |
|---|---|
| Jurong Aromatics Corporation Pte Ltd incorporated | |
| SKECJI set up by SKEC and Conchubar | |
| Corporate Guarantee Agreement between Conchubar and Chemicals | |
| Convertible Bond Agreement between MacNair, UVM, and Bonquest | |
| Loan Agreement between Chemicals and Conchubar | |
| Deed between SKEC and Conchubar | |
| Financing Lease Agreement between Chemicals and Estanil | |
| Sales and Purchase Agreement between Chemicals and Universal | |
| Promissory note between MacNair and Emirates | |
| Chemicals assigned receivables to Universal and Estanil; MacNair assigned receivables to Emirates | |
| SKECJI defaulted on repayment of loan | |
| Chemicals made a demand against Conchubar | |
| JAC put into receivership | |
| JEI submitted restructuring proposal to JAC’s R&M | |
| JEI Proposal rejected by JAC's R&M | |
| Judge granted leave to convene creditors' meetings | |
| Creditors’ meetings held to vote on the Schemes | |
| JAC began operations again | |
| Schemes’ manager received letter from Allen & Gledhill LLP | |
| Schemes’ manager informed creditors of rejection of JEI Proposal | |
| Judge approved the Schemes and granted a one-year moratorium | |
| Amended version of the JEI Proposal rejected by JAC’s R&M | |
| Court of Appeal hearing | |
| Scheme Companies received notice of rejection of JEI Proposal | |
| Solicitors for the Scheme Companies gave notice to creditors of intent to propose new schemes | |
| Judgment reserved |
7. Legal Issues
- Related Creditors
- Outcome: The court found that Chemicals, Universal, and Estanil were not related creditors of Conchubar, and that MacNair and Emirates were not related creditors of UVM.
- Category: Substantive
- Sub-Issues:
- Special interests of creditors
- Control of creditor by scheme company
- Common directors
- Related Cases:
- [2012] 2 SLR 213
- [2003] 3 SLR(R) 629
- Circumvention of Headcount Test
- Outcome: The court found that the assignments of debt to Universal, Estanil, and Emirates merited consideration as to whether they were genuine or made to circumvent the headcount test.
- Category: Substantive
- Sub-Issues:
- Vote-splitting
- Genuine assignments of debt
- Arms-length transactions
- Related Cases:
- [2009] 3 HKC 292
- [2017] EWHC 184 (Ch)
- Material Non-Disclosure
- Outcome: The court found that there was no material non-disclosure because the two Scheme Companies were not aware of the rejection of the JEI Proposal at the time of the creditors’ meetings.
- Category: Substantive
- Sub-Issues:
- Duty of disclosure
- Concealment of material facts
- Related Cases:
- [2003] 3 SLR(R) 629
- Certainty of Schemes
- Outcome: The court found that the schemes lacked a meaningful compromise because the acceptance of the JEI Proposal was a critical part of the Schemes, without which the Schemes would essentially be meaningless.
- Category: Substantive
- Sub-Issues:
- Clarity of terms
- Meaningful compromise
- Related Cases:
- [2012] 2 SLR 213
8. Remedies Sought
- Sanction of Schemes of Arrangement
- Moratorium on Actions
9. Cause of Actions
- Breach of Contract
- Schemes of Arrangement
10. Practice Areas
- Commercial Litigation
- Insolvency Law
11. Industries
- Construction
- Chemicals
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Re Conchubar Aromatics Ltd and another matter | High Court | Yes | [2017] 3 SLR 748 | Singapore | Cited as the grounds of decision of the High Court judge for the High Court OSes. |
| The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal | Court of Appeal | Yes | [2012] 2 SLR 213 | Singapore | Cited for the three requirements a court must be satisfied of before sanctioning a scheme of arrangement. |
| Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd | Court of Appeal | Yes | [2003] 3 SLR(R) 629 | Singapore | Cited for the principle that courts attribute less weight to related parties' votes when asked to exercise their discretion in favor of a scheme. |
| Re BTR plc | N/A | Yes | [2000] 1 BCLC 740 | England | Cited for the definition of 'special interests' in the context of a scheme of arrangement. |
| In Re The Village at Lakeridge, LLC | United States Court of Appeals for the Ninth Circuit | Yes | 814 F 3d 993 (9th Cir, 2016) | United States | Cited for the principle that a person does not become a statutory insider solely by acquiring a claim from a statutory insider. |
| Hitachi Plant Engineering & Construction Co Ltd and another v Eltraco International Pte Ltd and another appeal | Court of Appeal | Yes | [2003] 4 SLR(R) 384 | Singapore | Cited for the principle that if a right of the creditors is to be taken away or affected by a scheme of arrangement, it has to be expressly stated in the scheme. |
| Re PCCW Ltd | Hong Kong Court of Appeal | Yes | [2009] 3 HKC 292 | Hong Kong | Cited for the disapproval of vote-splitting in shareholders' schemes of arrangement. |
| Re Dee Valley Group Plc | N/A | Yes | [2017] EWHC 184 (Ch) | England | Cited for the disapproval of share-splitting exercise undertaken with the object of defeating a scheme of arrangement. |
| The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal | Court of Appeal | Yes | [2012] 4 SLR 1182 | Singapore | Cited for the principle that information provided should not only enable creditors to determine their expected returns under the scheme, but should also relate to the commercial viability of the scheme as a whole. |
| Fustar Chemicals Ltd (Hong Kong) v Liquidator of Fustar Chemicals Pte Ltd | N/A | Yes | [2009] 4 SLR(R) 458 | Singapore | Cited for the principle that the verification process of a proof of debt was not a mere administrative exercise. |
| Re Ice-Mack Pte Ltd (in liquidation) | N/A | Yes | [1989] 2 SLR(R) 283 | Singapore | Cited for the observation that in an arms-length situation, an audit confirmation would be strong evidence against a party of the correctness of the credit or debit balance which it has confirmed. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act | Singapore |
| Section 210(3AB) of the Companies Act | Singapore |
| Section 210(10) of the Companies Act | Singapore |
| Section 210(3AB)(a) of the Companies Act | Singapore |
| Section 211 of the Companies Act | Singapore |
| Companies Act 1967 | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Schemes of Arrangement
- Related Creditors
- Headcount Test
- Value Test
- JEI Proposal
- JAC Project
- Failsafe Payments
- Assignment of Debts
- Material Non-Disclosure
- Vote-Splitting
15.2 Keywords
- Schemes of Arrangement
- Related Creditors
- Companies Act
- Singapore
- Insolvency
- Restructuring
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Schemes of Arrangement | 90 |
| Company Law | 70 |
| Bankruptcy | 30 |
16. Subjects
- Insolvency
- Corporate Law
- Schemes of Arrangement