Aavanti Offshore v Bab Al Khail: Validity of Security Interests and Debit Notes Dispute

In the High Court of Singapore, Aavanti Offshore Pte Ltd (in creditors’ voluntary liquidation) sought orders, directions, and declarations regarding the validity of security interests granted over its assets and the validity of debit notes issued to its subsidiary, PT Palm Lestari Makmur. Bab Al Khail General Trading and Aavanti Industries Pte Ltd, creditors of Aavanti Offshore, were the respondents. The court found that the security interests were void for lack of registration under the Companies Act and declined to grant a declaration regarding the debit notes due to the absence of all interested parties and lack of locus standi. The liquidators' request for appointment of solicitors was granted.

1. Case Overview

1.1 Court

High Court of the Republic of Singapore

1.2 Outcome

Originating Summons dismissed in part and granted in part.

1.3 Case Type

Insolvency

1.4 Judgment Type

Judgment

1.5 Jurisdiction

Singapore

1.6 Description

Singapore court case concerning the validity of security interests and debit notes. The court found the security interests void and declined to rule on the debit notes.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Aavanti Offshore Pte Ltd (in creditors’ voluntary liquidation)ApplicantCorporationApplication dismissed in part and granted in partPartial
Bab Al Khail General TradingRespondentCorporationClaim dismissedLost
Aavanti Industries Pte Ltd (in Liquidation)RespondentCorporationSuccessful defenseWon

3. Judges

Judge NameTitleDelivered Judgment
Aedit AbdullahJudgeYes

4. Counsels

Counsel NameOrganization
Leo Cheng SuanInfinitus Law Corporation
Tay Hui Yuan DeniseInfinitus Law Corporation
Chacko SamuelLegis Point LLC
Charmaine Chan-RichardLegis Point LLC
Sharmila SanjeeviLegis Point LLC
Kirpalani Rakesh GopalDrew & Napier LLC
Oen Weng Yew TimothyDrew & Napier LLC
Cheng Yu Ning TeriDrew & Napier LLC

4. Facts

  1. Aavanti Offshore entered into a Convertible Loan Agreement (CLA) with Sawit Plantations for a loan facility of up to US$10,000,000.
  2. Sawit assigned its rights under the CLA to Bab Al Khail General Trading (BAB).
  3. Aavanti Offshore was placed in provisional liquidation.
  4. BAB claimed security over Aavanti Offshore's assets, including shares in PT Palm.
  5. Aavanti Industries (AIPL) issued debit notes to PT Palm for management fees.
  6. The security documents were not executed.
  7. PT Palm was not joined as a party in the proceedings regarding the debit notes.

5. Formal Citations

  1. Aavanti Offshore Pte Ltd (in creditors’ voluntary liquidation) v Bab Al Khail General Trading and another, Originating Summons No 698 of 2019, [2020] SGHC 50

6. Timeline

DateEvent
Aavanti Offshore entered into a Convertible Loan Agreement with Sawit Plantations Pte Ltd.
Aavanti Offshore passed a resolution to place itself in provisional liquidation.
Liquidators were appointed for Aavanti Offshore.
Hearing commenced.
Judgment reserved.

7. Legal Issues

  1. Validity of Security Interests
    • Outcome: The court held that the security interests were void against the liquidator and creditors of the applicant for failure of registration under s 131 of the Companies Act.
    • Category: Substantive
    • Sub-Issues:
      • Failure to register charge
      • Nature of security interest
  2. Validity of Debit Notes
    • Outcome: The court declined to grant a declaration regarding the debit notes due to the absence of all interested parties (PT Palm) and the applicant's lack of locus standi.
    • Category: Substantive
    • Sub-Issues:
      • Lack of supporting documentation
      • Absence of agreement
  3. Locus Standi
    • Outcome: The court held that the applicant lacked locus standi to seek a declaration regarding the debit notes as it was not a party to the debit notes.
    • Category: Procedural
    • Sub-Issues:
      • Right to seek declaration
      • Party to the dispute

8. Remedies Sought

  1. Declaration of Validity of CLA
  2. Order for Execution of Security Documents
  3. Declaration that Debit Notes are Void

9. Cause of Actions

  • Breach of Contract
  • Enforcement of Security Interest

10. Practice Areas

  • Liquidation
  • Security Interests
  • Commercial Litigation

11. Industries

  • Offshore
  • General Trading

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Karaha Bodas Co LLC v Pertamina Energy Trading LtdCourt of AppealYes[2006] 1 SLR(R) 112SingaporeCited for the requirements for granting declaratory relief.
Diablo Fortune Inc v Duncan, Cameron Lindsay and anotherCourt of AppealYes[2018] 2 SLR 129SingaporeCited for the approach to construing whether and what security interest is created.
In re Yorkshire Woolcombers Association LtdCourt of ChanceryYes[1903] 2 Ch 284England and WalesCited for the defining characteristics of a floating charge.
London Passenger Transport Board v MoscropHouse of LordsYes[1942] 1 AC 332United KingdomCited for the rule that all parties with affected interests should be before the court when a declaration is sought.
Ng Foong Yin v Koh Thong SamHigh CourtYes[2013] 3 SLR 455SingaporeCited for the application of the requirement that all interested parties be joined in a declaration.
The One Suites Pte Ltd v Pacific Motor Credit (Pte) LtdHigh CourtYes[2014] 4 SLR 806SingaporeCited for the application of the requirement that all interested parties be joined in a declaration.
United Overseas Bank Ltd v The Asiatic Enterprises (Pte) LtdHigh CourtYes[1999] 2 SLRI 671SingaporeCited for the principle that an option to take or create a charge is no different from agreeing to give or execute a charge.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Companies Act (Cap 50, 2006 Rev Ed)Singapore
Companies Act, s 131Singapore
Companies Act, s 4Singapore
Companies Act, s 269(1)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Convertible Loan Agreement
  • Security Interest
  • Floating Charge
  • Debit Notes
  • Liquidation
  • Locus Standi
  • Assignment Agreement
  • Encumber
  • Liquidators

15.2 Keywords

  • security interest
  • liquidation
  • debit notes
  • companies act
  • floating charge
  • locus standi

17. Areas of Law

Area NameRelevance Score
Credit and Security90
Liquidation80
Bankruptcy70
Company Law50
Contract Law40
Banking and Finance30

16. Subjects

  • Security Interests
  • Company Law
  • Insolvency Law
  • Civil Procedure