Topic 8 Scheme of Arrangement [Slide 11] Wah Wah Yuen Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Manufactu rers Pte Ltd (!!"# $easoning Wah Wa h Yu Yuen had applied ap plied to court under S210 CA, for leave to convene a meeting of its creditors • for the purpose of considering and, if thought fit, approving a scheme of arrangement with its creditors. Section 210(! onl" re#uires $0% in num&er and '$% in value of the creditors (or a class of • them! to vote in favour of the scheme (the percentage re#uirements)!. As the *1.$2% in num&er and the *2.2+% in value that had voted in favour of the scheme • complied with the percentage percen tage re#uirements of s 210(!, Wah Wah Yu Yuen applied to the igh Court for its approval to implement the revised scheme. Where a meeting is summoned under s 210 of the Act, s 211(1! re#uires the compan" to provide • its creditors with a statement e-plaining the effect of the compromise or arrangement and in particular stating an" material interests interests of the directors, whether as directors or as mem&ers mem&ers or as creditors of the compan" or otherwise, and the effect thereon of the compromise or arrangement in so far as it is different from the effect on the lie interests of other persons). /n other words, the creditors should &e put in possession of such information as is necessar" to mae a meaningful choice. As Selvam held in e alle"s 3epartmental Store 4 • Since s 210 does not la" down an" matters on which the application must &e &ased, it is of e-treme importance that the compan" furnishes full information to the creditors and the court &efore the" can give their approval.) While the courts have generall" adopted the stance from the case of /n e 5nglish, Scottish, and • Australian Chartered 6an 71*89 that the creditors : are much &etter ;udges of what is to their commercial advantage than the court can &e), this is premised on the assumption that the creditors have &een provided with such information as is necessar" to mae an informed decision. /n the case, the related part" ma" have &een motivated &" personal or special interests to • disregard the interests of the class as such and vote in a self% in a li#uidation scenario. ?he creditors were assured of pa"ment &ecause the funds came from an e-ternal investor as opposed to the struggling compan" itself. ?he related parties even went so far as to give the other creditors priorit" &" su&ordinating their claims to theirs. @nfortunatel", the creditors were not in a position to ascertain whether the scheme was in fact as attractive as it appeared &ecause of Wah Yu Yuens lac of transparenc". • or the creditors to evaluate the revised Scheme and for the court to approve the revised Scheme there needs to &e transparenc" in relation to the Compan"s accounts. /t would onl" &e fair (especiall" in cases where the re#uired creditor support was o&tained through the e-ercise of the related part" votes! that the Compan" made full disclosure of all relevant documents so that the &ona fides of the transactions could &e su&;ected to scrutin". scrutin". ailure to provide relevant accounting details would place third part" creditors at a disadvantage which the" would not &e under if the Compan" were wound up and a li#uidator appointed.
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/t was disingenuous for Wah Yuen to claim that it had neither the time nor the mone" to respond to Singapore Ca&les #ueries on the related part" de&ts when the circumstances in which the" were incurred were within the nowledge of its directors. Although Wah Yuen itself acnowledged that it was in possession of all that was • necessar" to esta&lish the e-istence of the related part" de&ts, it did not produce an" of its evidence. /nstead, Wah Yuen had the temerit" to dismiss Singapore Ca&les concerns &" telling it • that it could alwa"s raise its o&;ections &efore the court when the scheme came up for the courts approval. ?his was hardl" the sort of attitude that we would e-pect from a compan" that was at its • creditors merc". Wah Yuen could not legitimatel" e-pect its creditors to &e satisfied with the mere • assertion that the movements were not unusual) when the proposed scheme re#uired them to decide if the" should relin#uish their claims in toto in e-change for onl" a limited return4 e Bheon Bt" td (18*+! 11 AC 1>2 at 1$+. /n the a&sence of further information, it was not unreasona&le for Singapore Ca&les to • suspect that there ma" have &een some impropriet" in the manner in which the related part" de&ts were incurred.
$e Se%ba&ang Engineers and Constructors Pte Ltd (!1'# ssue ?he application was resisted &" one of the Compan"s creditors, which disputed the via&ilit" of • the proposed scheme of arrangement. ?he creditor su&mitted that the proposed scheme of arrangement was unliel" to &e approved given its lac of detail, that some of its measures were conditional upon actions or approvals &" the Compan"s related entities, and that the Compan" was Dhopelessl" insolvent $easoning Whether a compan"s Dhopeless insolvenc" should &e an automatic &ar to allowing that • compan"s application under s 210(1! CA, the court in the case of e Sem&awang 5ngineers declined to adopt the test of &alance sheet or commercial insolvenc" as a determining factor in an application under S210(1! CA. ?he court was of the view that even if the compan" ma" &e insolvent and hopelessl" insolvent • &" this measure, the compan" ma" still &e a&le to propose a via&le scheme of arrangement. ?he o&;ective of S210 is to permit companies in financial difficulties to see a wa" out &" wa" of an agreement wored out with their respective creditors. /n this sense, the compan" should generall" &e permitted to at least have a discussion with its creditors and allow them to consider its proposed scheme of arrangement. /t would also &e difficult for the court to scrutiniEe the commercial via&ilit" of a proposed scheme of arrangement, &ased onl" on the incomplete information at the S210(1! stage. /n general, the creditors are &etter a&le to protect their own interests &" speaing and voting at the meeting. /f the" are not satisfied with the proposed scheme of arrangement, the" could alwa"s e-press these at the meeting, and vote accordingl".
[Slide ] Leun Wah Electric Co (n Li)uidation# (!!*# *An example of a commentary by a local court on the value of legitimate commercial pressure in the context of unfair preference. $easoning Undue/Unfair Preference • ?he court held that a transaction is not liel" to &e an unfair preference in situations where a compan" maes a pa"ment in response to commercial pressure. ?he evidence showed that the compan" had intended to pa" off its most pressing de&t in • the &elief that it was in its commercial interests to do so. urther, the assignment helped the compan" to retain its principal supplier, which in turn ena&led it to carr" on its pro;ects and collect pa"ment. At &est, there was a misplaced optimism on the part of the compan". Although the compan" was insolvent at the time of the assignment, it could not &e shown • that the compan"s decision to give the assignment to the creditor had &een influenced &" a desire to produce the effect of an unfair preference. Undervalue Transactions ?he court held that the assignment to the creditor had not &een given to discharge a greater de&t, • and had &een given to provide part pa"ment to the creditor so as to eep the &usiness &etween the compan" and the creditor going. ?he court in eun Wah case did not thin it was necessar" to consider the defence in reg + of the CA6A, that is, that the assignment was a transaction which the compan" entered into in good faith and for the purpose of carr"ing on it &usiness, at a time when there was reasona&le grounds for &elieving that the transaction would &enefit the compan". +ut ,ou can consider in the e-a%....
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As such, the court noted that there was no indication of an" &ad faith. ?herefore, it was held that the assignment &" the compan" did not amount to a transaction at an undervalue.
