IHC v Enterprise Fund: Share Buybacks & Companies Act s76/76A

In International Healthway Corporation Ltd v The Enterprise Fund III Ltd and others, the Singapore High Court addressed the validity of contracts related to IHC's indirect acquisition of its own shares, violating s 76(1A)(a)(i) of the Companies Act. IHC sought to avoid the share acquisitions, facility agreement, and security agreements under s 76A(2) of the Act. The court held that while the open market acquisitions were not void, the trust arrangement was void under s 76A(1)(a). The facility agreement and security agreements were deemed voidable as "related" transactions, which IHC had avoided. The court ruled in favor of IHC.

1. Case Overview

1.1 Court

High Court of the Republic of Singapore

1.2 Outcome

Judgment for Plaintiff

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Singapore High Court case regarding IHC's indirect share acquisitions violating Companies Act s76(1A)(a)(i). Court found trust arrangement void, loan agreements voidable.

1.7 Decision Date

12 November 2018

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
International Healthway Corporation Ltd	Plaintiff	Corporation	Judgment for Plaintiff	Won	Lee Eng Beng, Chow Chao Wu Jansen, Danitza Hon Cai Xia, Lee Hui Yi
The Enterprise Fund III Ltd	Defendant	Corporation	Judgment against Defendant	Lost	Leo Zhen Wei Lionel, Chng Zi Zhao Joel, Tan Kai Yun, Elizabeth Gan Wan Zhen, Daniel Lee Wai Yong
VMF3 Ltd	Defendant	Corporation	Judgment against Defendant	Lost	Leo Zhen Wei Lionel, Chng Zi Zhao Joel, Tan Kai Yun, Elizabeth Gan Wan Zhen, Daniel Lee Wai Yong
Value Monetization III Ltd	Defendant	Corporation	Judgment against Defendant	Lost	Leo Zhen Wei Lionel, Chng Zi Zhao Joel, Tan Kai Yun, Elizabeth Gan Wan Zhen, Daniel Lee Wai Yong

3. Judges

Judge Name	Title	Delivered Judgment
Hoo Sheau Peng	Judge	Yes

4. Counsels

Counsel Name	Organization
Lee Eng Beng	Rajah & Tann Singapore LLP
Chow Chao Wu Jansen	Rajah & Tann Singapore LLP
Danitza Hon Cai Xia	Rajah & Tann Singapore LLP
Lee Hui Yi	Rajah & Tann Singapore LLP
Leo Zhen Wei Lionel	WongPartnership LLP
Chng Zi Zhao Joel	WongPartnership LLP
Tan Kai Yun	WongPartnership LLP
Elizabeth Gan Wan Zhen	WongPartnership LLP
Daniel Lee Wai Yong	WongPartnership LLP

4. Facts

Crest Funds agreed to advance $20m to IHC under a facility agreement.
EFIII purchased IHC's shares from the open market using funds from the facility.
EFIII held the shares on behalf of IHC under a trust arrangement.
IHC sought to avoid the share acquisitions, facility agreement, and security agreements.
IHC claimed the transactions were related to the indirect acquisitions by the company of its own shares.
The Crest Funds disputed IHC’s position.
IHC shares were acquired by EFIII from the open market, and then held on behalf of IHC.

5. Formal Citations

International Healthway Corp Ltd v The Enterprise Fund III Ltd and others, Originating Summons No 380 of 2017, [2018] SGHC 246

6. Timeline

Date	Event
2015-04-03	Mr. Tan and Mr. Aathar discussed the provision of a credit facility to IHC.
2015-04-04	Mr. Aathar emailed Mr. Tan regarding concerns about short-selling of IHC shares.
2015-04-09	Mr. Tan sent Mr. Aathar and Mr. Fan a draft term sheet for the facility.
2015-04-16	Parties entered into a facility agreement for a credit facility of up to $20m.
2015-04-16	EFIII executed drawdowns on the Standby Facility to purchase IHC shares.
2015-05-01	Standby Fees paid for April 2015.
2015-05-01	Standby Fees paid for May 2015.
2015-07-30	Facility agreement superseded by agreement dated 30 July 2015.
2015-07-30	Three deeds of charge by IHC in favour of the Crest Funds were executed.
2015-07-30	Two deeds of undertaking by IHC Management Pte Ltd and IHC Management (Australia) Pty Ltd in favour of the Crest Funds were executed.
2015-08-01	EFIII executed drawdowns on the Standby Facility to purchase IHC shares.
2015-08-24	EFIII executed drawdowns on the Standby Facility to purchase IHC shares.
2015-09-09	SGX issued an announcement advising caution when dealing in IHC shares.
2015-10-19	EFIII issued a letter of demand to IHC for payment of interest charges.
2016-04-15	The Crest Funds appointed receivers over the charged shares in the three IHC subsidiaries.
2017-01-23	Extraordinary general meeting of IHC was held.
2017-03-08	IHC's solicitors issued a written notice to the Crest Funds' solicitors.
2017-03-20	WongPartnership responded to the written notice on behalf of the Crest Funds.
2017-04-06	IHC commenced proceedings against the Crest Funds.
2018-02-15	Hearing date.
2018-05-21	Hearing date.
2018-07-02	Hearing date.
2018-11-13	Judgment date.

7. Legal Issues

Share Buybacks
- Outcome: The court held that the trust arrangement was void under s 76A(1)(a) of the Companies Act.
- Category: Substantive
- Sub-Issues:
  - Indirect acquisition of own shares
  - Contravention of Companies Act
  - Validity of trust arrangement
- Related Cases:
  - [1929] 2 Ch 444
  - (1967) 11 FLR 155
  - (1887) 12 App Cas 409
Estoppel
- Outcome: The court held that estoppel did not apply to prevent IHC from exercising its rights pursuant to s 76A(2) of the Companies Act.
- Category: Procedural
- Sub-Issues:
  - Estoppel in defiance of statute
  - Representation of fact
  - Reliance and detriment
- Related Cases:
  - [2004] 4 SLR(R) 403
  - [2014] 2 SLR 156
Rescission
- Outcome: The court held that the common law bars to rescission did not apply to prevent IHC from exercising its right to avoid the loan agreements under s 76A(2) of the Companies Act.
- Category: Substantive
- Sub-Issues:
  - Bars to rescission
  - Affirmation
  - Third party interests
- Related Cases:
  - [2009] SGHC 236
  - (1987) 16 NSWLR 212
Validity of Loan Agreements
- Outcome: The court found that the loan agreements were 'related' to the share acquisition within the meaning of s 76A(2) of the CA, and were therefore voidable at the option of IHC.
- Category: Substantive
- Sub-Issues:
  - Related transactions
  - Severability
  - Purpose of facility
- Related Cases:
  - (1984) 57 ALR 691

8. Remedies Sought

Declaration that transactions are voidable
Declaration that transactions were avoided
Declaration that IHC bears no contractual obligation

9. Cause of Actions

Breach of Statute
Avoidance of Contract

10. Practice Areas

Commercial Litigation
Corporate Law

11. Industries

Finance

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Kirby v Wilkins	Chancery Division	Yes	[1929] 2 Ch 444	England and Wales	Cited as guidance on the common law prohibition against share buy-backs, specifically regarding shares held in trust for a company.
Re Galpin, ex parte Chowilla Timber Supply Co Ltd	Federal Court of Australia	Yes	(1967) 11 FLR 155	Australia	Cited to support the principle that an oral agreement for a nominee to hold shares on a company's behalf is invalid under common law.
Trevor v Whitworth	House of Lords	Yes	(1887) 12 App Cas 409	United Kingdom	Cited to illustrate that a trustee holding shares on a company's behalf remains liable to the seller when the company goes into liquidation.
Swee Hong Investment Pte Ltd v Swee Hong Exim Pte Ltd and another	Court of Appeal	No	[1994] 3 SLR(R) 259	Singapore	Cited by the Crest Funds to support the argument that a deeming provision like s 76A(14) could be exhaustive of the meanings attached to the particular words in a statute. Distinguished by the court.
Carney v Herbert	Privy Council	No	(1984) 57 ALR 691	New South Wales	Cited by the Crest Funds to argue that the standard of 'relatedness' in s 76A(2) of the CA could be determined by reference to the test for severance of an illegal contract at common law. Distinguished by the court.
Yokogawa Engineering Asia Pte Ltd v Transtel Engineering Pte Ltd	Court of Appeal	Yes	[2009] 2 SLR(R) 532	Singapore	Cited for the requirements of estoppel by representation of fact.
Joshua Steven v Joshua Deborah Steven	High Court	Yes	[2004] 4 SLR(R) 403	Singapore	Cited for the common law rule that precludes a court from allowing an estoppel if to do so would be to act in the face of a statute.
Cupid Jewels Pte Ltd v Orchard Central Pte Ltd and another appeal	Court of Appeal	No	[2014] 2 SLR 156	Singapore	Cited for the principle that an estoppel could in principle arise to bar the exercise of a statutorily-conferred right. Distinguished by the court.
Shen Yixuan v Maxz Universal Development Group Pte Ltd and others	High Court	No	[2009] SGHC 236	Singapore	Cited by the Crest Funds to argue that the common law bars to rescission have been recognised to apply to bar the right to avoid transactions under the rules on financial assistance. Distinguished by the court.
Darvall v North Sydney Brick & Tile Co Ltd	Supreme Court of New South Wales	Yes	(1987) 16 NSWLR 212	New South Wales	Cited for the principle that a right to avoid a contract under s 130(2) could be lost by election.
Aero-Gate Pte Ltd v Engen Marine Engineering Pte Ltd	Court of Appeal	Yes	[2013] 4 SLR 409	Singapore	Cited for the requirements for affirmation of a contract.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Companies Act (Cap 50, 2006 Rev Ed) s 76	Singapore
Companies Act (Cap 50, 2006 Rev Ed) s 76A	Singapore
Companies Act (Cap 50, 2006 Rev Ed) s 76A(4)	Singapore
Companies Act (Cap 50, 2006 Rev Ed) s 76A(14)	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Share buybacks
Trust arrangement
Facility agreement
Security agreements
Related transactions
Open market acquisitions
Standby Facility
Companies Act
Voidable
Void
Estoppel
Rescission

15.2 Keywords

Share buybacks
Companies Act
Section 76
Section 76A
Trust arrangement
Voidable
Void
Estoppel
Rescission

16. Subjects

Company Law
Share Buybacks
Contract Law
Equity

17. Areas of Law

Company Law
Share Capital
Equity
Contract Law