Case Details
- Citation: [2017] SGCA 51
- Title: SK Engineering & Construction Co Ltd v Conchubar Aromatics Ltd and another appeal
- Court: Court of Appeal of the Republic of Singapore
- Date of Decision: 30 August 2017
- Civil Appeals: Civil Appeals Nos 15 and 16 of 2017
- Coram: Sundaresh Menon CJ; Chao Hick Tin JA; Andrew Phang Boon Leong JA; Judith Prakash JA; Tay Yong Kwang JA
- Appellant: SK Engineering & Construction Co Ltd (“SKEC”)
- Respondents: Conchubar Aromatics Ltd and UVM Investment Corporation (“Conchubar” and “UVM” respectively)
- Legal Area: Companies — Schemes of Arrangement
- Statutes Referenced: Companies Act (Cap 50, 2006 Rev Ed); Companies Creditors Arrangement Act; United States Bankruptcy Code
- Procedural History: Appeals against the High Court’s approval of two schemes of arrangement and grant of a moratorium under s 210(10) of the Companies Act
- High Court Decision (reported): Re Conchubar Aromatics Ltd and another matter [2017] 3 SLR 748
- High Court Originating Summonses: Originating Summonses Nos 153 and 154 of 2016
- Key Statutory Provisions: s 210(3AB) (creditor approval thresholds); s 210(10) (moratorium)
- Representation (Appellant): Debby Lim and Jamal Siddique (Shook Lin & Bok LLP)
- Representation (Respondents): Andy Lem, Justin Chia, Akesh Abhilash and Kok Yee Keong (Harry Elias Partnership LLP)
- Representation (Non-parties): Leong Yi Ming and Tham Hsu Hsien (Allen & Gledhill LLP) for the non-parties, the Receivers and Managers of Jurong Aromatics Corporation Pte Ltd and BNP Paribas (Singapore Branch)
- Judgment Length: 30 pages, 16,068 words
- Parties / Entities Mentioned: SK Engineering & Construction Co Ltd; Conchubar Aromatics Ltd; UVM Investment Corporation; Jurong Aromatics Corporation Pte Ltd (“JAC”); JAC Project; SKEC Jurong Investment Pte Ltd (“SKECJI”); SK International Investment Singapore Pte Ltd (“SKIIS”); Conchubar Chemicals Ltd (“Chemicals”); Universal Petrochem Corp Ltd (“Universal”); Estanil Assets Ltd (“Estanil”); MacNair Group Inc (“MacNair”); Shefford Investment Holdings Ltd (“Shefford”); Emirates Resources Inc (“Emirates”); Bonquest Capital Ltd (“Bonquest”); Jurong Energy International Pte Ltd (“JEI”)
Summary
This Court of Appeal decision concerns the approval of two schemes of arrangement under s 210(3AB) of the Companies Act (Cap 50, 2006 Rev Ed) involving Conchubar Aromatics Ltd and UVM Investment Corporation. The High Court had sanctioned the schemes after the requisite creditor votes were obtained and had also granted a one-year moratorium under s 210(10) against pending, contingent and fresh actions. SK Engineering & Construction Co Ltd (“SKEC”), a judgment creditor of both scheme companies, opposed the schemes on the basis that the creditor votes in favour were tainted by “related creditor” status and should be discounted.
The Court of Appeal dismissed the appeals. While the parties framed the dispute around an “unsettled point of law” concerning how to discount votes of related creditors that are not wholly-owned subsidiaries, the Court held that the threshold relationship between the alleged related creditors and the scheme companies was not made out on the facts. More importantly, the Court focused on whether certain assignments of debts were genuine or were structured to circumvent the statutory approval thresholds in s 210(3AB)(a) and (b). On the evidence, the Court upheld the High Court’s conclusion that the statutory requirements were satisfied and that the schemes should be sanctioned.
What Were the Facts of This Case?
The dispute arose from financial distress affecting Jurong Aromatics Corporation Pte Ltd (“JAC”), an integrated condensate splitter and aromatics complex on Jurong Island. JAC was incorporated on 30 May 2005 as a joint venture vehicle to own and operate the JAC Project. The scheme companies—Conchubar Aromatics Ltd and UVM Investment Corporation—were indirectly exposed to JAC through shareholdings, and their primary assets were their interests in JAC. When JAC encountered substantial operational difficulties, it was placed into receivership on 28 September 2015, which in turn destabilised the scheme companies’ financial position.
SKEC is a creditor of both scheme companies. It is incorporated in South Korea and held judgment debts against Conchubar and UVM arising from indemnity arrangements. Specifically, SKEC was a creditor of Conchubar for US$14,527,732.33 and a creditor of UVM for US$4,129,333.57. These debts were incurred pursuant to court judgments and corresponding costs orders in a suit brought by SKEC against the scheme companies on account of indemnities each had given to SKEC.
Conchubar’s creditor base at the time of the scheme meeting included, among others, Conchubar Chemicals Ltd (“Chemicals”) with a debt of US$50 million, SKEC with US$14,527,732.33, and other creditors. Chemicals was incorporated in the Cayman Islands and was wholly owned by Conchubar Infrastructure Fund, which in turn wholly owned Conchubar. The parties shared a common director, Pardeep Dhir. Chemicals became a creditor of Conchubar under a 2010 Corporate Guarantee Agreement: Conchubar acted as guarantor of a US$50 million loan from Chemicals to SKECJI, which was used to subscribe for JAC shares. When SKECJI defaulted on repayment on 25 August 2015, Chemicals demanded payment from Conchubar pursuant to the guarantee.
In addition to the US$50 million, Chemicals was also a creditor of Conchubar for amounts arising from a 2011 Loan Agreement and related fees. The case also involved alleged “related creditor” claims concerning Universal Petrochem Corp Ltd (“Universal”) and Estanil Assets Ltd (“Estanil”). SKEC alleged that Universal and Estanil became creditors of Conchubar by assignments from Chemicals, and therefore should be treated as related creditors because Chemicals was itself related to Conchubar. The Court of Appeal examined these assignment structures, including the extinguishment of Chemicals’ debts to Universal and Estanil by the assigned receivables from Conchubar.
For UVM, the creditor base at the relevant meeting included MacNair Group Inc (“MacNair”) with a debt of US$28 million, SKEC with US$4,129,333.57, and other smaller creditors. MacNair’s claim arose from a convertible bond agreement under which MacNair subscribed for convertible bonds issued by UVM and UVM’s sole shareholder, Bonquest Capital Ltd. The convertible bonds could be converted into a substantial majority of UVM’s shares at MacNair’s option, and MacNair held a charge over its rights, title and interests in UVM. SKEC alleged that MacNair was a related creditor of UVM because of these contractual and structural arrangements. SKEC also contended that Emirates Resources Inc (“Emirates”) became a creditor of UVM through an assignment from MacNair, and therefore Emirates should also be treated as related.
What Were the Key Legal Issues?
The appeals raised two interrelated legal questions under the scheme regime in the Companies Act. First, the parties identified an “unsettled point of law” concerning the appropriate discount to apply to votes of creditors alleged to be “related” to the scheme company, particularly where the related creditors are not wholly-owned subsidiaries. The statutory scheme approval mechanism requires a majority in number and a three-fourths value threshold, and the question was how related-creditor votes should be treated when assessing whether those thresholds are met.
Second, and more centrally, the Court considered whether certain assignments of debts by creditors to other parties were genuine transactions or were made for the purpose of circumventing the statutory requirement in s 210(3AB)(a) and (b). In other words, even if the related-creditor discount question were not determinative, the Court needed to decide whether the voting outcomes were achieved through legitimate creditor arrangements or through manipulative debt assignments designed to engineer compliance with the headcount and value tests.
How Did the Court Analyse the Issues?
The Court of Appeal began by situating the appeals in the statutory framework for schemes of arrangement. Under s 210(3AB), a scheme requires approval by creditors (or shareholders, as applicable) meeting two thresholds: a “headcount test” (majority in number) and a “value test” (representing three-fourths in value). The Court emphasised that these thresholds are not merely procedural formalities; they are substantive statutory safeguards ensuring that the scheme has sufficient support among the relevant class of stakeholders.
On the related-creditor discount issue, the Court acknowledged that the law on discounting votes of related creditors—especially those not wholly-owned subsidiaries—was not fully settled. However, the Court held that the legal question did not need to be resolved in the present case because SKEC failed at the threshold stage: it did not establish the requisite relationship between the alleged related creditors and the scheme companies. The Court therefore declined to decide the broader doctrinal question and instead focused on whether the statutory voting requirements were satisfied on the facts.
Turning to the more important question, the Court analysed the assignments of debt claims. The Court’s approach reflected a concern with substance over form: where assignments are used to alter the composition of the creditor body voting on a scheme, the court must consider whether the assignments reflect genuine transfers of claims or whether they are structured to circumvent the statutory approval requirements. This analysis is consistent with the protective purpose of the scheme provisions, which aim to prevent schemes from being approved through artificial or manipulative means that do not reflect real creditor consent.
In assessing genuineness, the Court examined the corporate and contractual context surrounding the assignments. For Conchubar, SKEC alleged that Universal and Estanil were related creditors because they acquired their claims by assignment from Chemicals, which was related to Conchubar. The Court considered how the assignments operated, including the extinguishment of Chemicals’ debts to Universal and Estanil by the assigned receivables from Conchubar. The Court treated these arrangements as part of a broader set of transactions rather than as mere vote-engineering devices. On the evidence before it, the Court was not persuaded that the assignments were made for the specific purpose of circumventing the statutory thresholds.
For UVM, the Court similarly considered the assignment from MacNair to Emirates. SKEC’s argument depended on the premise that Emirates should be treated as related because it acquired its claim through assignment from MacNair, which SKEC alleged was related to UVM. The Court again focused on whether the relationship was established and, crucially, whether the assignment was a genuine transfer of a claim. The Court’s reasoning indicates that the court will scrutinise the transaction history and the surrounding commercial rationale, rather than accepting relatedness or circumvention allegations at face value.
Finally, the Court upheld the High Court’s overall evaluation of the scheme process. The Court’s analysis reflects that, while schemes of arrangement are collective insolvency-adjacent mechanisms, they still require careful judicial oversight to ensure that statutory conditions are met and that dissenting creditors are not unfairly deprived of their rights through procedural manipulation. Here, the Court found no basis to interfere with the High Court’s conclusion that the schemes were properly approved and that the moratorium should be granted.
What Was the Outcome?
The Court of Appeal dismissed both appeals. It affirmed the High Court’s sanction of the Conchubar Scheme and the UVM Scheme under s 210(3AB) of the Companies Act and upheld the grant of a moratorium under s 210(10) for one year from 29 August 2016 against pending, contingent and fresh actions involving the two scheme companies.
Practically, the decision confirms that where statutory creditor approval thresholds are satisfied and where allegations of related-creditor discounting or circumvention through assignments are not made out on the evidence, the court will be reluctant to disturb the High Court’s sanction. The moratorium therefore remained in place, providing the scheme companies with breathing space to implement the restructuring outcomes contemplated by the schemes.
Why Does This Case Matter?
This case is significant for practitioners advising on schemes of arrangement in Singapore because it clarifies how courts may approach disputes about creditor voting composition. Although the Court acknowledged that the law on discounting votes of related creditors—particularly non-wholly-owned subsidiaries—was unsettled, it avoided deciding that broader issue. Instead, it demonstrated that courts will first examine whether the factual threshold for “relatedness” is established. This is an important litigation strategy point: parties challenging schemes should focus on evidentially proving the relationship, not merely asserting it through corporate group structures or assignment chains.
More broadly, the decision underscores that courts will scrutinise debt assignments used to influence voting outcomes. Even where related-creditor discounting is not determinative, assignments may be attacked as circumvention of the statutory headcount and value thresholds. The Court’s emphasis on genuineness and substance over form provides guidance for both scheme proponents and objecting creditors: proponents should ensure that assignment documentation and transaction history can withstand scrutiny as genuine commercial transfers, while objectors should marshal concrete evidence of manipulative intent or artificial structuring.
For lawyers, the case also illustrates the interplay between scheme approval and moratorium relief. The court’s willingness to uphold the moratorium reinforces that once statutory conditions are met and the scheme is properly sanctioned, the restructuring protections will likely remain intact. This affects negotiation leverage and timing in restructuring processes, particularly where dissenting creditors seek to delay or unwind the scheme by challenging voting mechanics.
Legislation Referenced
- Companies Act (Cap 50, 2006 Rev Ed), including:
- s 210(3AB) (approval thresholds for schemes of arrangement)
- s 210(10) (moratorium on actions)
- Companies Creditors Arrangement Act
- United States Bankruptcy Code
Cases Cited
- Re Conchubar Aromatics Ltd and another matter [2017] 3 SLR 748
- [2017] SGCA 51 (this appeal)
Source Documents
This article analyses [2017] SGCA 51 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.