Re Hin Leong Trading (Pte) Ltd (in compulsory liquidation) and another matter [2024] SGHC 256

Case Details

• Citation: [2024] SGHC 256
• Court: General Division of the High Court
• Decision Date: 15 October 2024
• Coram: Andre Maniam J
• Case Number: Originating Application No 555 of 2024; Originating Application No 726 of 2024; Summons No 1957 of 2024
• Hearing Date(s): 30 August 2024
• Claimants / Plaintiffs: Goh Thien Phong (Liquidator); Chan Kheng Tek (Liquidator); Hin Leong Trading (Pte) Ltd (in compulsory liquidation)
• Respondent / Defendant: UT Singapore Services Pte Ltd; Skomer Investments Designated Activity Company; Trafigura Pte Ltd; The Hongkong and Shanghai Banking Corporation; DBS Bank Ltd; ING Bank N.V., Singapore Branch; Cooperative Rabobank U.A., Singapore Branch; Societe Generale, Singapore Branch; Credit Agricole Corporate and Investment Bank, Singapore Branch; Oversea-Chinese Banking Corporation Limited; ABN Amro Bank N.V.
• Counsel for Claimants: Vergis S Abraham SC, Lau Hui Ming Kenny, Alston Yeong and Huang Xinli, Daniel (Providence Law Asia LLC)
• Practice Areas: Companies; Schemes of arrangement; Insolvency and Restructuring

Summary

In [2024] SGHC 256, the General Division of the High Court addressed a novel and significant question in insolvency law: whether a scheme of arrangement can validly include a class of "potentially secured" creditors whose claims to security have not yet been fully and finally determined. The dispute arose within the complex liquidation of Hin Leong Trading (Pte) Ltd ("HLT"), an oil trading giant that collapsed in 2020. The liquidators sought to distribute approximately US$80 million in "uninjuncted proceeds"—funds derived from the sale of oil that were not subject to specific proprietary injunctions but were encumbered by broad general lien claims from storage providers and security interests from banks.

The liquidators proposed a scheme under Section 210 of the Companies Act 1967 to facilitate an interim distribution. The scheme categorized creditors into two classes: "Potential Secured Creditors" and "Unsecured Creditors." UT Singapore Services Pte Ltd ("UTSS"), a storage provider claiming a general lien over HLT’s oil, objected to this structure. UTSS argued that the court could not sanction a scheme that left the status of security unresolved, contending that such a classification was improper and that the scheme was inherently unfair to those whose security claims might later be vindicated.

Justice Andre Maniam rejected these objections, holding that the statutory framework for schemes of arrangement is sufficiently flexible to accommodate contingent and uncertain claims, including those involving disputed security. The Court emphasized that requiring the final adjudication of every security claim prior to a scheme would paralyze the liquidation process and prevent timely distributions to creditors. The judgment clarifies that as long as the scheme provides a fair mechanism for the eventual determination of those claims and distributes proceeds according to the established priorities, it meets the "business man" test for reasonableness.

Furthermore, the Court addressed a critical procedural point regarding the timing of objections. UTSS had failed to raise its classification concerns at the convening stage, despite having the opportunity to do so. The Court adopted the English position that creditors should not "wait and see" the outcome of a meeting before raising predictable procedural objections at the sanction stage. Ultimately, the Court sanctioned the scheme and dismissed UTSS's application to set aside the convening order, reinforcing the utility of schemes as a tool for efficient asset distribution in large-scale insolvencies.

Timeline of Events

1. 27 April 2020: HLT is placed in interim judicial management following its financial collapse.
2. 6 November 2020: HLT is placed in compulsory liquidation by the Court.
3. 7 February 2021: Goh Thien Phong and Chan Kheng Tek are appointed as the liquidators of HLT.
4. 17 May 2024: The liquidators send the proposed Scheme of Arrangement document to HLT’s creditors for review.
5. 6 June 2024: The liquidators file OA 555 (the "Convening Application") seeking leave to convene a meeting of creditors to vote on the scheme.
6. 14 June 2024: The Court grants the Convening Order, allowing the liquidators to proceed with the scheme meeting.
7. 1 July 2024: The liquidators issue the formal Notice of Scheme Meeting to all known creditors.
8. 15 July 2024: UTSS files SUM 1957 (the "Setting-aside Application") to set aside the Convening Order and defer the meeting.
9. 17 July 2024: The Court hears an urgent prayer to defer the meeting and declines to do so, allowing the vote to proceed.
10. 22 July 2024: The Scheme Meeting is held. The scheme is approved by overwhelming majorities in both the "Potential Secured Creditors" and "Unsecured Creditors" classes.
11. 25 July 2024: The liquidators file OA 726 (the "Sanction Application") seeking the Court's formal approval of the scheme.
12. 30 August 2024: Substantive hearing for both the Sanction Application and the remainder of UTSS's Setting-aside Application.
13. 15 October 2024: Justice Andre Maniam delivers the judgment sanctioning the scheme and dismissing UTSS's objections.

What Were the Facts of This Case?

HLT was a major player in the Singapore oil trading sector until its collapse in early 2020. At the time of its insolvency, HLT held vast quantities of oil stored across various terminals, including those operated by UTSS. The relationship between HLT and UTSS was governed by "Tankage and Storage Agreements" and various spot contracts (collectively, the "Agreements"), which incorporated UTSS’s "Tankage and Storage: General Terms and Conditions" (the "GTCs"). Under these GTCs, UTSS asserted a general lien over all oil stored in its facilities to secure any outstanding debts owed by HLT.

Following the commencement of interim judicial management on 27 April 2020, HLT’s assets became the subject of intense litigation. Specifically, competing claims arose between HLT, its financing banks (who claimed security over specific cargoes), and storage providers like UTSS. These disputes led to interpleader proceedings to determine the ownership and security rights over the oil. To prevent the deterioration of the assets, the oil was sold, and the proceeds—totaling hundreds of millions of dollars—were paid into court or held in escrow. A portion of these funds, approximately US$80 million (the "uninjuncted proceeds"), was not subject to specific proprietary injunctions but remained encumbered by the general lien claims of UTSS and the security interests of various banks.

The liquidators, appointed on 7 February 2021, faced a significant hurdle: they could not distribute these uninjuncted proceeds to the general body of creditors because the validity and priority of the security claims (including UTSS’s lien) were still being litigated in separate proceedings (SUM 4108 and SUM 1003). If the liquidators waited for the final resolution of all such litigation, which could take years, the creditors would receive nothing in the interim. To resolve this, the liquidators proposed a Scheme of Arrangement.

The Scheme was designed to allow an interim distribution of the US$80 million. It created two classes of creditors:

• Potential Secured Creditors: Creditors who claimed a security interest (such as a lien or a pledge) over the oil from which the proceeds were derived. This included UTSS and several major banks.
• Unsecured Creditors: The general body of creditors without security claims over these specific proceeds.

The Scheme provided that the US$80 million would be distributed according to a specific mechanism. If a "Potential Secured Creditor" eventually proved its security was valid and had priority, it would be paid from the fund. If the security claims were found invalid, the funds would flow to the unsecured creditors. Crucially, the Scheme did not *determine* the validity of the security; it merely provided the framework for distribution once those determinations were made by the court in the ongoing litigation.

UTSS was the primary objector. It argued that it should not be lumped into a class of "Potential" secured creditors. It contended that its lien was already a vested right and that the Scheme improperly treated it as a contingent claimant. UTSS further alleged that the liquidators had rushed the process and that the Scheme was a "sham" designed to bypass the protections afforded to secured creditors under the Companies Act 1967 and the Insolvency, Restructuring and Dissolution Act 2018.

What Were the Key Legal Issues?

The primary legal issue was whether a scheme of arrangement under Section 210 of the Companies Act 1967 could include creditors whose status as "secured" was disputed and "potential," rather than finalized. This raised several sub-issues regarding the boundaries of the court's power to sanction schemes in the context of a liquidation.

The first sub-issue concerned classification. UTSS argued that "Potential Secured Creditors" did not constitute a valid class because their rights were too heterogeneous. The court had to determine if creditors with different types of disputed security (e.g., contractual liens vs. bank pledges) could be grouped together for the purpose of voting on a distribution framework.

The second sub-issue was procedural timing. The court had to decide whether a creditor who remains silent during the convening stage (when the classes are set) is barred from objecting to those same classes at the sanction stage. This involved an analysis of whether the "wait and see" approach adopted by UTSS was permissible under Singapore law.

The third sub-issue related to the "Business Man" test. Even if the statutory requirements were met, the court had to decide if the scheme was one that an intelligent and honest man of business would reasonably approve. UTSS contended that the scheme was inherently unfair because it forced secured creditors to participate in a process that might dilute their rights or delay their recovery compared to a straight liquidation.

Finally, the court considered the statutory hooks of the Insolvency, Restructuring and Dissolution Act 2018, specifically whether the "cram-down" provisions under Section 70(4)(b)(i) were relevant to a scheme proposed within a compulsory liquidation where no dissenting class actually existed.

How Did the Court Analyse the Issues?

Justice Andre Maniam began by reaffirming the three-fold test for sanctioning a scheme as set out in The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd [2008] 3 SLR(R) 121 at [43]:

(a) the statutory provisions must have been complied with; (b) the attendees of the meeting must be representative of the class and the statutory majority must not have coerced the minority; and (c) the scheme must be one which an intelligent and honest man of business would reasonably approve.

1. The Procedural Objection: Timing of UTSS’s Challenge

The Court first addressed whether UTSS could even raise its objections at the sanction stage. UTSS had been served with the convening papers but did not file a reply affidavit or argue against the classification at the convening hearing on 14 June 2024. Instead, it waited until after the scheme was approved by the creditors to file its setting-aside application. Justice Maniam cited Re Smile Telecoms Holdings Ltd [2022] EWHC 740 (Ch) and DX Holdings Ltd [2010] EWHC 1513 (Ch) to emphasize that "it is not appropriate for a creditor to 'wait and see' what the outcome of the meeting is before raising a predictable objection to the constitution of the classes" (at [35]).

The Court noted that while the court has a duty to ensure statutory compliance at the sanction stage, the failure to object early is a "heavy factor" against the objector. The Court found that UTSS’s tactical delay was "regrettable" and undermined the efficiency of the scheme process (at [39]).

2. The Classification of "Potential Secured Creditors"

UTSS argued that the "Potential Secured Creditor" class was improper because it mixed creditors with different types of security claims. The Court rejected this, applying the test from TT International [2012] 2 SLR 213. The key question is whether the rights of the creditors are "so dissimilar as to make it impossible for them to consult together with a view to their common interest" (at [44]).

Justice Maniam reasoned that all "Potential Secured Creditors" shared a common interest: they all claimed a right to be paid out of the US$80 million fund in priority to unsecured creditors, but their rights were currently disputed. The Scheme did not alter their underlying legal rights or the priority of their claims; it merely provided a mechanism to hold the money and distribute it once the court decided those disputes. Therefore, their interests were sufficiently aligned to form a single class for the purpose of voting on this distribution framework.

3. The Inclusion of Contingent and Disputed Claims

A central pillar of the Court’s reasoning was the broad scope of Section 210 of the Companies Act 1967. The Court held that "claims with elements of contingency and futurity, and which are of uncertain quantum, can be included" in a scheme (at [59]). Justice Maniam noted that if schemes were limited to creditors with "undisputed" or "fully determined" claims, the utility of the Section 210 would be "unnecessarily limited" (at [59]).

The Court distinguished between a creditor whose *debt* is admitted but whose *security* is disputed. In such a case, the creditor is still a "creditor" of the company and can be bound by a scheme. The Court found that the "Potential Secured Creditor" mechanism was a sensible way to handle the reality of a complex liquidation where security is often the subject of protracted litigation.

4. The "Business Man" Test and Fairness

Finally, the Court evaluated the reasonableness of the Scheme. The voting results were compelling:

• Potential Secured Creditors: 85.3% in value and 89.07% in number voted in favour.
• Unsecured Creditors: 98.7% in value and 100% in number voted in favour.

The Court held that such overwhelming support from sophisticated commercial entities (including major international banks) was strong evidence that the Scheme was one that a "man of business" would approve. The Court rejected UTSS’s argument that the Scheme was a "sham," noting that the Scheme actually protected the rights of potential secured creditors by ensuring the funds were set aside specifically for them until their claims were adjudicated (at [68]).

What Was the Outcome?

The High Court granted the liquidators' application and formally sanctioned the Scheme of Arrangement. The Court also dismissed UTSS’s application (SUM 1957) to set aside the Convening Order. The operative order was stated as follows:

"For the above reasons, I sanctioned the Scheme, and dismissed the remaining prayers in UTSS’ Setting-aside Application." (at [71])

The effect of the sanction is that the liquidators are now authorized to proceed with the distribution of the US$80 million (approx. S$106 million) in accordance with the Scheme's terms. This allows for the immediate release of funds to creditors whose claims are undisputed, while maintaining a structured reserve for those whose security claims (like UTSS’s) remain pending in the SUM 4108 and SUM 1003 proceedings.

Regarding costs, the Court found that UTSS’s opposition was unsuccessful and had caused unnecessary delay. Justice Maniam ordered UTSS to pay the liquidators' costs, fixed at:

• S$20,000 (all in) for SUM 1957 (the Setting-aside Application).
• S$15,000 (all in) for OA 726 (the Sanction Application).

The total costs award of S$35,000 reflects the Court's view that UTSS’s late-stage objections, while permissible to be heard, were ultimately without merit and contrary to the efficient conduct of the liquidation (at [72]).

Why Does This Case Matter?

The decision in [2024] SGHC 256 is a landmark for Singapore’s insolvency jurisdiction, particularly regarding the flexibility of the Scheme of Arrangement as a tool within a compulsory liquidation. It establishes several critical precedents for practitioners.

First, it provides judicial endorsement for the "Potential Secured Creditor" classification. This is a pragmatic solution to the "deadlock" often found in large insolvencies where distributions are held up by disputed security claims. By allowing these creditors to vote as a class on a distribution *framework* (rather than a final determination of their rights), the Court has opened a pathway for interim distributions that would otherwise be impossible. This enhances the "utility and scope" of Section 210 of the Companies Act 1967.

Second, the judgment reinforces the "duty of early objection." By adopting the English Smile Telecoms approach, the Singapore High Court has sent a clear message to creditors: if you have an objection to how classes are constituted, you must raise it at the convening stage. Tactical silence followed by a "wait and see" approach will be viewed unfavourably and may result in cost penalties or the summary dismissal of objections at the sanction stage. This promotes certainty and prevents the waste of judicial and estate resources.

Third, the case clarifies the relationship between schemes and the Insolvency, Restructuring and Dissolution Act 2018 ("IRDA"). UTSS attempted to invoke Section 70 of the IRDA to argue that the scheme was an improper "cram-down." The Court’s clarification that Section 70 is irrelevant where there is no dissenting class—and where the scheme is proposed under the Companies Act rather than the IRDA’s specific restructuring provisions—is a helpful boundary-marking exercise for future litigation.

Finally, the decision underscores the Court’s deference to the "business man" test. When a vast majority of sophisticated creditors (85% to 98%) approve a path forward, the Court will be very reluctant to allow a single dissenting creditor to derail the process unless there is a clear breach of statutory duty or manifest unfairness. This reinforces Singapore’s reputation as a pro-restructuring, commercially-minded legal hub.

Practice Pointers

• Early Classification Strategy: Liquidators should consider using "Potential" or "Contingent" classes when dealing with disputed security to avoid the "all-or-nothing" adjudication of claims before a scheme can proceed.
• The "Wait and See" Risk: Counsel for objecting creditors must file affidavits and raise classification arguments at the convening stage. Failure to do so creates a heavy presumption against the creditor at the sanction stage and risks adverse cost orders.
• Evidence of Commercial Support: When seeking sanction for a controversial scheme, practitioners should emphasize the percentage of "men of business" (especially institutional banks) who voted in favour, as this is a primary factor in the Court's assessment of reasonableness.
• Preservation of Rights: Ensure the scheme document explicitly states that it does not determine the underlying validity of disputed security, but merely provides a mechanism for distribution. This helps defeat arguments that the scheme is "confiscatory" or "unfair."
• Statutory Choice: Be precise about whether a scheme is being brought under Section 210 of the Companies Act 1967 or the IRDA. The "cram-down" protections of the IRDA do not automatically apply to Section 210 schemes in a liquidation context.
• Cost Budgeting: Be aware that the Court may fix costs "all in" for unsuccessful scheme objections. In this case, the objector was penalized S$35,000 for two related applications.

Subsequent Treatment

As a recent 2024 decision, [2024] SGHC 256 stands as the current authority on the classification of potentially secured creditors in Singapore. It follows the doctrinal lineage of TT International and Pathfinder regarding class dissimilarity while extending those principles to the specific context of disputed security in a liquidation. Its adoption of the English "wait and see" prohibition from Smile Telecoms is likely to be followed in future scheme applications to prevent procedural maneuvering by dissenting creditors.

Legislation Referenced

• Companies Act 1967 (2020 Rev Ed), Section 210
• Companies Act (Cap 50, 2006 Rev Ed), Section 131(3)(d)
• Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed), Section 70(4)(b)(i)
• Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed), Section 70(4)(a)(i)
• UK Companies Act 2006, Part 26 and Part 26A

Cases Cited

• Applied: The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd [2008] 3 SLR(R) 121
• Referred to: ABN Amro Bank NV v TT International Ltd [2012] 2 SLR 213
• Referred to: Pathfinder Strategic Credit LP v Empire Capital Resources Pte Ltd [2019] 2 SLR 77
• Referred to: Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd [2003] 3 SLR(R) 629
• Referred to: Re Smile Telecoms Holdings Ltd [2022] EWHC 740 (Ch)
• Referred to: DX Holdings Ltd [2010] EWHC 1513 (Ch)
• Referred to: Re T&N Ltd and other companies [2006] EWHC 1447 (Ch)

Source Documents

• Original Judgment PDF (eLitigation)
• Case Summary on eLitigation