Jurong Aromatics v BP Singapore: Insolvency Set-Off & Assignment Dispute

In Jurong Aromatics Corporation Pte Ltd (Receivers and Managers appointed) v BP Singapore Pte Ltd and another matter, the High Court of Singapore addressed a dispute over set-off rights between Jurong Aromatics Corporation Pte Ltd ('JAC') and BP Singapore Pte Ltd ('BP') and Glencore Singapore Pte Ltd ('Glencore'). JAC's receivers and managers sought declarations that BP and Glencore were not entitled to set-off debts owed to JAC under various agreements. The court ruled in favor of the plaintiffs, holding that the defendants could not set off debts due to the security interests of senior lenders.

1. Case Overview

1.1 Court

High Court of the Republic of Singapore

1.2 Outcome

Declarations granted in favour of the Plaintiffs; damages to be assessed.

1.3 Case Type

Civil

1.4 Judgment Type

Judgment

1.5 Jurisdiction

Singapore

1.6 Description

Singapore court case regarding set-off rights in insolvency. The court ruled against set-off, favoring secured creditors' rights over debts.

1.7 Decision Date

2 October 2018

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Jurong Aromatics Corporation Pte Ltd (Receivers and Managers appointed)	Plaintiff	Corporation	Declarations granted	Won	Edwin Tong, Tham Hsu Hsien, Peh Aik Hin, Lee May Ling, Yeo Kok Quan Nigel
Cosimo Borrelli	Plaintiff	Individual	Declarations granted	Won	Edwin Tong, Tham Hsu Hsien, Peh Aik Hin, Lee May Ling, Yeo Kok Quan Nigel
Jason Kardachi	Plaintiff	Individual	Declarations granted	Won	Edwin Tong, Tham Hsu Hsien, Peh Aik Hin, Lee May Ling, Yeo Kok Quan Nigel
BP Singapore Pte Ltd	Defendant	Corporation	Claim Dismissed	Lost	Jaikanth Shankar, Tan Ruo Yu, Teo Zhiwei Derrick Maximillian
Glencore Singapore Pte Ltd	Defendant	Corporation	Claim Dismissed	Lost	Balakrishnan Ashok Kumar, Leong Ji Mun Gregory, Aw Chee Yao, Tay Kang-Rui Darius

3. Judges

Judge Name	Title	Delivered Judgment
Aedit Abdullah	Judge	Yes

4. Counsels

Counsel Name	Organization
Edwin Tong	Allen & Gledhill LLP
Tham Hsu Hsien	Allen & Gledhill LLP
Peh Aik Hin	Allen & Gledhill LLP
Lee May Ling	Allen & Gledhill LLP
Yeo Kok Quan Nigel	Allen & Gledhill LLP
Jaikanth Shankar	Drew & Napier LLC
Tan Ruo Yu	Drew & Napier LLC
Teo Zhiwei Derrick Maximillian	Drew & Napier LLC
Balakrishnan Ashok Kumar	Blackoak LLC
Leong Ji Mun Gregory	Blackoak LLC
Aw Chee Yao	Blackoak LLC
Tay Kang-Rui Darius	Blackoak LLC

4. Facts

JAC obtained loans of approximately US$1.6 billion from Senior Lenders.
Senior Lenders obtained a security package from JAC, including a debenture with fixed and floating charges.
JAC entered into Feedstock Supply Agreements and Product Offtake Agreements with BP and Glencore.
Receivers and managers were appointed for JAC on 28 September 2015.
A Tolling Agreement was entered into between JAC and the Defendants on 19 April 2016.
A Set-Off Agreement was entered into between Glencore and JAC on 23 December 2014.
A purchaser, ExxonMobil, was found for the Plant, and a Put and Call Option Agreement was entered into.
The sale of the Plant was completed on 28 August 2017.

5. Formal Citations

Jurong Aromatics Corp Pte Ltd (receivers and managers appointed) and othersvBP Singapore Pte Ltd and another matter, Originating Summons No 1178 of 2017 and Originating Summons No 1180 of 2017, [2018] SGHC 215

6. Timeline

Date	Event
2005-05-30	Jurong Aromatics Corporation Pte Ltd incorporated
2011-03-01	Glencore and JAC entered into a Feedstock Supply Agreement
2011-03-01	Glencore and JAC entered into a Product Offtake Agreement
2011-03-16	BP and JAC entered into a Feedstock Supply Agreement
2011-03-16	BP and JAC entered into a Product Offtake Agreement
2011-04-28	Assignment between JAC and the Agent
2011-04-30	Debenture between the Agent and JAC
2014-12-23	Set-Off Agreement between Glencore and JAC
2015-09-28	Receivers and managers appointed for JAC
2016-04-19	Tolling Agreement between JAC and the Defendants
2017-05-09	Put and Call Option Agreement between ExxonMobil and the Plaintiffs
2017-06-16	Transitional Agreement executed by BP, Glencore, JAC, and ExxonMobil
2017-06-16	Transitional Supplemental Agreement between BP, Glencore, and JAC
2017-08-28	Sale of the Plant was completed
2017-01-01	Originating Summons No 1178 of 2017 and Originating Summons No 1180 of 2017 filed
2017-11-15	Hearing date
2018-01-23	Hearing date
2018-01-24	ExxonMobil confirmed that the Glencore–JAC Feedstock Supply Agreement and the Glencore–JAC Product Offtake Agreement have not been assigned, novated or otherwise transferred to ExxonMobil
2018-01-25	Hearing date
2018-02-05	ExxonMobil confirmed that the Glencore–JAC Feedstock Supply Agreement and the Glencore–JAC Product Offtake Agreement do not fall within the definition of Assets which are acquired by ExxonMobil pursuant to the PCOA
2018-02-08	Hearing date
2018-03-01	Hearing date
2018-10-03	Judgment reserved

7. Legal Issues

Insolvency Set-Off
- Outcome: The court held that insolvency set-off was not applicable due to the lack of mutuality, as the debts owed by the Defendants were beneficially owned by the Senior Lenders and not JAC.
- Category: Substantive
- Sub-Issues:
  - Mutuality of debt
  - Beneficial ownership of debt
Equitable Set-Off
- Outcome: The court held that equitable set-off was not established because the cross-claims did not bear a close connection.
- Category: Substantive
- Sub-Issues:
  - Close connection between transactions
  - Fairness and justice
Assignment
- Outcome: The court held that the prohibition against assignment clauses did not prohibit charging of the receivables that arise under the agreements.
- Category: Substantive
- Sub-Issues:
  - Prohibition against assignment clauses
  - Effect on security interests
Nature of a Charge
- Outcome: The court clarified the nature of a charge as an equitable encumbrance, not requiring transfer of ownership or possession.
- Category: Substantive
- Sub-Issues:
  - Fixed charge
  - Floating charge
  - Crystallisation

8. Remedies Sought

Declarations
Damages

9. Cause of Actions

Breach of Contract
Debt Recovery

10. Practice Areas

Commercial Litigation
Insolvency
Debt Recovery

11. Industries

Chemicals
Commodities Trading
Finance

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
In re Spectrum Plus Ltd (in liquidation)	House of Lords	Yes	[2005] 2 AC 680	United Kingdom	Cited for the principle of control as the hallmark of a fixed charge as distinguished from a floating charge.
Foamcrete (UK) Ltd v Thrust Engineering Ltd	High Court	Yes	[2002] BCC 221	United Kingdom	Cited for the position that the beneficial interest in the debts which the Senior Lenders acquired once the floating charge crystallised remains unaffected by prohibitions against assignment contained in agreements which post-date the floating charge.
N. W. Robbie & Co. Ltd. v Witney Warehouse Co. Ltd.	Court of Appeal	Yes	[1963] 1 WLR 1324	United Kingdom	Cited for the position that the effect of the crystallisation of a floating charge at the commencement of receivership is that the debt would be assigned in equity to the Senior Lenders and there would be no mutuality for insolvency set-off to operate.
Rendell v Doors and Doors Ltd (in liquidation)	High Court	Yes	[1975] 2 NZLR 191	New Zealand	Cited for the position that the effect of the crystallisation of a floating charge at the commencement of receivership is that the debt would be assigned in equity to the Senior Lenders and there would be no mutuality for insolvency set-off to operate.
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd	Court of Appeal	Yes	[2008] 3 SLR(R) 1029	Singapore	Cited for the principles of contractual interpretation.
Duncan, Cameron Lindsay and another v Diablo Fortune Inc and another matter	High Court	Yes	[2018] 4 SLR 240	Singapore	Cited to show that a charge operates as an equitable assignment.
Diablo Fortune Inc v Duncan, Cameron Lindsay and another	Court of Appeal	Yes	[2018] 2 SLR 129	Singapore	Cited to show that a charge operates as an equitable assignment.
National Mutual Life Nominees Ltd and others v National Capital Development Commission and others	Australian Capital Territory Supreme Court	Yes	(1975) 6 ACTR 1	Australia	Cited to show that a charge operates as an equitable assignment.
In re ELS LTD.	Chancery Division	Yes	[1995] Ch 11	United Kingdom	Cited to show that a charge operates as an equitable assignment.
Biggerstaff v Rowatt’s Wharf Ltd	Court of Appeal	Yes	[1896] 2 Ch 93	United Kingdom	Cited to show that a charge operates as an equitable assignment.
Haw Par Brothers International Ltd v Overseas Textiles Co Ltd	High Court	Yes	[1977-1978] SLR(R) 352	Singapore	Cited for the principle that a floating charge is crystallised by the appointment of the receivers and managers.
In re B. Johnson & Co. (Builders) Ltd	Court of Appeal	Yes	[1955] Ch 634	United Kingdom	Cited for the principle that a receiver and manager’s primary duty is to the debenture holders.
Y.E.S. F&B Group Pte Ltd v Soup Restaurant Singapore Pte Ltd (formerly known as Soup Restaurant (Causeway Point) Pte Ltd)	Court of Appeal	Yes	[2015] 5 SLR 1187	Singapore	Cited for the principles of contractual interpretation.
Gye v McIntyre	High Court	Yes	(1991) 171 CLR 609	Australia	Cited for the principle that mutuality conveys the notion of reciprocity.
Good Property Land Development Pte Ltd (in liquidation) v Société Générale	High Court	Yes	[1996] 1 SLR(R) 884	Singapore	Cited for the principle that mutuality sees through to the real beneficial ownership.
Abdul Salam Asanaru Pillai (trading as South Kerala Cashew Exporters) v Nomanbhoy & Sons Pte Ltd	Court of Appeal	Yes	[2007] 2 SLR(R) 856	Singapore	Cited for the principle that equitable set-off applies where there is a close relationship or connection between the dealings and the transactions which give rise to the respective claims.
Audi Construction Pte Ltd v Kian Hiap Construction Pte Ltd	Court of Appeal	Yes	[2018] 1 SLR 317	Singapore	Cited for the principle that waiver has not been proved because it was not shown that the party waiving its rights were necessarily aware of the facts that gave rise to the rights which were being foregone.
In re Yagerphone Ltd	High Court	Yes	[1935] Ch 392	United Kingdom	Cited for the principle that a claim by a liquidator for repayment to him of a fraudulent preference was not subject to the debenture holder’s charge.
National Provincial and Union Bank of England v Charnley	King's Bench Division	Yes	[1924] 1 KB 431	United Kingdom	Cited for the definition of a charge.
Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liquidation) (Receivers and Managers Appointed)	Supreme Court of Western Australia	Yes	[2017] WASC 152	Australia	Cited for the principle that equitable set-off is not displaced by insolvency set-off.
Leichhardt Emporium Pty. Ltd. v A. G. C. (Household Finance) Ltd.	Supreme Court of New South Wales	Yes	[1979] 1 NSWLR 701	Australia	Cited for the principle that set-off may be possible where the company’s debt was incurred by or at the behest of the receiver or in circumstances which gave the receiver or debenture holder benefit.
West Street Properties Pty. Limited and others v Jamison and others	Supreme Court of New South Wales	Yes	[1974] 2 NSWLR 435	Australia	Cited for the principle that a debenture holder who authorises the continuation of the company’s business should be prepared to accept the normal incidents of trading, including the possibility that its debtors may require rights of set-off.

13. Applicable Rules

Rule Name
Rules of Court

14. Applicable Statutes

Statute Name	Jurisdiction
Bankruptcy Act	Singapore
Companies Act	Singapore
Civil Law Act	Singapore
Law of Property Act 1925	United Kingdom

15. Key Terms and Keywords

15.1 Key Terms

Set-off
Insolvency
Receivers and Managers
Fixed Charge
Floating Charge
Debenture
Assignment
Tolling Agreement
Feedstock
Product Offtake
Mutuality
Crystallisation
Prohibition against assignment

15.2 Keywords

set-off
insolvency
charge
assignment
receivership
mutuality
debenture
tolling agreement
fixed charge
floating charge

16. Subjects

Insolvency
Set-off
Security Interests
Assignment

17. Areas of Law

Insolvency Law
Contract Law
Credit and Security Law
Debt and Recovery