Case Details
- Citation: [2016] SGHC 279
- Title: Re Conchubar Aromatics Ltd and another matter
- Court: High Court of the Republic of Singapore
- Date of Decision: 20 December 2016
- Judge: Aedit Abdullah JC
- Coram: Aedit Abdullah JC
- Case Number: Originating Summons Nos 153 and 154 of 2016
- Proceedings: Applications for leave to convene creditor meetings and subsequent application for court approval/sanction of a scheme of arrangement
- Legal Area: Companies — Schemes of arrangement
- Applicant(s): Conchubar Aromatics Ltd; UVM Investment Corporation
- Respondent/Opposing Creditor: SK Engineering and Construction Co Ltd (“SKEC”)
- Key Statutory Provision: Companies Act (Cap 50, 2006 Rev Ed), s 210 (including s 210(3AB) and s 210(3AB)(c))
- Related Appellate Note: Appeals to this decision in Civil Appeals Nos 15 and 16 of 2017 were allowed by the Court of Appeal on 30 August 2017 (see [2017] SGCA 51)
- Counsel (Applicants): Andy Lem, Chia Tze Yung Justin, Jaclyn Leong and Kok Yee Keong (Harry Elias Partnership LLP for the applicants)
- Counsel (Opposing Creditor): Debby Lim and Jamal Siddique (Shook Lin & Bok LLP) for SKEC
- Judgment Length: 15 pages, 8,875 words
Summary
This High Court decision concerns two linked applications by Conchubar Aromatics Ltd and UVM Investment Corporation (“UVM”) for court leave to convene, and then for court approval of, a proposed scheme of arrangement under s 210 of the Companies Act. The scheme was designed to restructure the Applicants’ liabilities to their creditors by contingent mechanisms tied to a proposed equity and funding injection into a Singapore operating company, JAC. The scheme also contained a “failsafe” payment feature intended to provide partial repayment to creditors if the contingent restructuring did not proceed.
At the creditor meetings, the statutory majorities were achieved on the face of the votes. However, SKEC opposed sanction on the basis that the creditors who voted in favour were “related” to the Applicants, and that their votes should be discounted—potentially entirely—because the scheme was allegedly engineered to secure the required majorities. The court accepted that certain creditors were indeed related parties, but held that SKEC had not established that the votes should be disregarded wholesale. The court ultimately granted sanction under s 210(3AB), subject to its assessment of the appropriate discount and the overall fairness of the scheme.
What Were the Facts of This Case?
Conchubar was incorporated in the Cayman Islands and had no operating business. Its primary asset was a 6% shareholding in Jurong Aromatics Corporation Pte Ltd (“JAC”) held indirectly. UVM Investment Corporation, incorporated in the British Virgin Islands, similarly had no underlying business and held a 5.1% direct shareholding in JAC. JAC was incorporated in Singapore as a joint venture vehicle to develop, finance, construct, and operate an integrated condensate splitter and aromatics complex on Jurong Island. The project suffered delays, and JAC was placed into receivership on 28 September 2015. By the time of the High Court hearing on 29 August 2016, construction had been completed and the plant was operational.
In late 2015, a special purpose vehicle, Jurong Energy International Pte Ltd (“JEI”), submitted a restructuring proposal (“the JEI Proposal”) to the receivers and managers (“R&M”) of JAC. Under the JEI Proposal, JEI would inject approximately US$550 million into JAC in the form of equity, shareholder’s loan, and feedstock, in exchange for a 60% shareholding in JAC. The stated purpose was to enable JAC to repay its debts to a syndicate of secured finance parties (“the Senior Lenders”). The Senior Lenders held share charges over approximately 95% of JAC’s shares, making the share disposition and waiver issues commercially sensitive.
The Applicants’ proposed scheme of arrangement was contingent on the R&M’s acceptance of the JEI Proposal. If accepted (and subject to waivers and consents), JEI would purchase the Applicants’ shares in JAC. In return, the Applicants would receive JEI shares or JEI convertible bonds of equal or higher value, as determined by third-party valuation. Those JEI instruments would then be distributed pari passu to the Applicants’ creditors. If, however, the JEI Proposal was not accepted or a “trigger event” occurred (one year from commencement of the scheme, whichever was earlier), a failsafe payment mechanism would apply: UVM would pay US$300,000 and Conchubar would pay US$650,000 to their respective creditors on a pari passu basis over 24 months in four equal instalments. The failsafe payments were guaranteed by Orient Time Capital Ltd.
Creditors were invited to vote at meetings convened on 19 May 2016. For Conchubar, creditors voting in favour included MacNair Group Inc (“MacNair”), Shefford Investment Holdings Ltd (“Shefford”), and Emirates Resources Inc (“Emirates”), with SKEC voting against. For UVM, MacNair voted in favour, while SKEC voted against. Universal Petrochem Corp Ltd (“Universal”), Estanil Assets Ltd (“Estanil”), and Emirates were creditors by assignment of portions of claims originally held by Chemicals or MacNair. Notably, Shefford did not vote because its proof of debt was submitted after the deadline set by the scheme manager; it attended only as an observer. SKEC, a judgment creditor, opposed the scheme and argued that the voting outcome was not representative because many supporting votes came from related parties.
What Were the Key Legal Issues?
The first central issue was whether the statutory requirements for sanction under s 210(3AB) were met, in particular the requirement that the scheme be approved by a majority in number representing at least 75% in value of the creditors voting. On the face of the voting results, the statutory majorities were achieved. The dispute therefore shifted to whether the votes of certain creditors should be discounted or disregarded due to their relationship with the Applicants.
The second issue concerned the evidential and substantive treatment of “related creditors”. SKEC contended that all creditors voting in favour (other than itself) were related to the Applicants: Chemicals was said to be related to Conchubar; MacNair related to UVM; and Universal, Estanil, and Emirates were said to be related by virtue of assignments from Chemicals or MacNair. The court had to determine (i) whether SKEC bore the burden of proving relatedness and (ii) if relatedness was established, what discount should be applied to the votes rather than automatically applying a 100% discount.
A third issue, raised by SKEC, was whether the scheme was “bad” for lack of certainty or whether the intended outcomes were unattainable. SKEC also alleged lack of bona fides and dishonesty, asserting that the Applicants had orchestrated the assignment of debts to friendly entities to engineer the voting majorities. These allegations required the court to consider the overall fairness and plausibility of the scheme’s mechanisms and the Applicants’ conduct in relation to the creditor process.
How Did the Court Analyse the Issues?
The court began by identifying the statutory framework. Under s 210(3AB), the Applicants bore the burden of proving that the scheme met the statutory majority requirements. On the face of the voting results, the threshold was satisfied. The court then addressed SKEC’s attempt to undermine the majority by discounting votes. The judge emphasised that it was for SKEC, as the party asserting relatedness, to prove the relevant facts. This approach was grounded in the basic evidential principle that he who asserts must prove, reflected in s 105 of the Evidence Act.
Applying this, the court was persuaded that Chemicals was indeed related to Conchubar. The evidence included shared governance and ownership links, including the fact that Chemicals shared a common sole shareholder (Conchubar Infrastructure Fund) and a common director (Mr Pardeep Dhir) with Conchubar Infrastructure Fund. The court also found that MacNair and Emirates were related to UVM. The court thus accepted that the voting was not entirely “independent” and that a discount analysis was required.
However, the court did not accept SKEC’s submission that the votes should be disregarded entirely. The judge noted that the key question was not merely whether relatedness existed, but what the appropriate discount should be to account for the relationship. This required the court to consider guidance from the Court of Appeal on how to treat votes cast by related creditors in scheme contexts. The judgment refers to the Court of Appeal’s approach in The Royal Bank of Scotland NV (formerly known as A …) (the extract is truncated in the provided text), which is commonly cited for the proposition that relatedness does not automatically invalidate the vote; rather, the court must assess the extent to which the relationship undermines the credibility of the creditor’s consent.
In practical terms, the discount analysis seeks to determine whether the related creditors’ votes should be treated as unreliable indicators of genuine creditor support. The court’s reasoning reflects a balancing exercise: it recognises that related creditors may have incentives aligned with the Applicants, but it also avoids an automatic “100% discount” rule that would be inconsistent with the statutory design of schemes of arrangement. The court therefore considered the nature of the relationships, the structure of the scheme, and the overall context in which the votes were cast. While relatedness was established, the court was not persuaded that the scheme should be rejected on that basis alone.
On the allegations of uncertainty and attainability, the court considered the scheme’s contingent structure. The scheme did not guarantee repayment in the ordinary sense; instead, it offered a conditional pathway dependent on the JEI Proposal and the R&M’s acceptance, coupled with a failsafe payment if the contingency failed. The court also considered evidence from relevant stakeholders, including the scheme manager’s opinion and the R&M’s position. The R&M indicated that the JEI Proposal in its then-current terms was not acceptable, but they were prepared to consider future proposals from JEI. This did not render the scheme inherently unworkable; rather, it supported the view that the JEI Proposal was part of an ongoing negotiation process.
Further, the security agent for the Senior Lenders (BNP Paribas (Singapore Branch)) raised a concern that the contemplated sale of the Applicants’ shares in JAC might breach share charge terms and that it was not prepared to waive those terms. Yet, the security agent’s position was not absolute rejection; it acknowledged that the Applicants had stated the JEI Proposal was an ongoing negotiation and that both the Applicants and the R&M were prepared to consider further proposals. The court treated these points as relevant to assessing whether the scheme was “hopeless” or “no reasonable creditor would agree” to it. The presence of the failsafe payment mechanism also mitigated the risk that creditors would receive nothing if the contingency failed.
Finally, the court addressed SKEC’s bona fides and dishonesty allegations. The judge’s approach, as reflected in the extract, indicates that the court required more than suspicion to justify refusing sanction. The court considered the evidence regarding the creditor assignments and the voting process. It accepted that relatedness existed, but it was not persuaded that the Applicants had acted dishonestly in a manner that would justify refusing sanction. In scheme cases, the court typically focuses on whether the statutory process was properly followed and whether the scheme is one that a reasonable class of creditors could approve, rather than on speculative claims of manipulation absent clear proof.
What Was the Outcome?
The High Court granted sanction for the proposed scheme of arrangement under s 210(3AB). Although the court found that certain supporting creditors were related to the Applicants, it held that SKEC had not established that the votes should be discounted to the extent necessary to defeat the statutory majority. The scheme was therefore approved notwithstanding the related-party voting issue.
Practically, the decision meant that the scheme’s contingent restructuring mechanism—JEI’s purchase of the Applicants’ JAC shares (if the JEI Proposal was accepted) and the distribution of JEI instruments to creditors, together with the failsafe payments if the trigger event occurred—could proceed in accordance with the court-sanctioned terms.
Why Does This Case Matter?
Re Conchubar Aromatics Ltd is significant for practitioners because it illustrates how Singapore courts handle scheme sanction applications where creditor votes are challenged on the ground of relatedness. The decision underscores that relatedness is not a binary question that automatically invalidates a vote. Instead, it triggers a discount analysis aimed at assessing the reliability of the creditor’s consent. This is particularly important in complex corporate groups and cross-border structures where creditor claims may be held by entities with overlapping ownership or management.
The case also highlights the evidential burden in scheme disputes. The court’s insistence that the party asserting relatedness must prove it (consistent with s 105 of the Evidence Act) is a useful procedural reminder for litigators. In practice, challengers should prepare targeted evidence on corporate links, governance overlaps, and the circumstances of debt assignments, rather than relying on inference or general allegations of “friendly” voting.
From a substantive perspective, the decision demonstrates the court’s willingness to sanction schemes that are contingent and negotiated, provided there is a credible pathway to implementation and adequate risk-mitigation (here, the failsafe payment). The court’s approach suggests that uncertainty in commercial outcomes does not necessarily defeat sanction if the scheme provides a rational structure for creditor treatment and is not shown to be unattainable or fundamentally unfair.
Legislation Referenced
- Companies Act (Cap 50, 2006 Rev Ed), s 210 (including s 210(3AB) and s 210(3AB)(c)) [CDN] [SSO]
- Evidence Act (Cap 97, 1997 Rev Ed), s 105 [CDN] [SSO]
- Supreme Court of Judicature Act (reference noted in the judgment metadata)
Cases Cited
- [2016] SGHC 279 (this decision)
- [2017] SGCA 51 (Court of Appeal allowed the appeals on 30 August 2017)
- Re R M Eastmond Pty Ltd and the Companies Act (as referenced in the judgment metadata)
- The Royal Bank of Scotland NV (formerly known as A …) (as referenced in the judgment text extract; full citation not fully reproduced in the provided excerpt)
Source Documents
This article analyses [2016] SGHC 279 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.