Case Summaries

Aathar Ah Kong Andrew v CIMB Securities (Singapore) Pte Ltd and other appeals and another matter [2019] SGCA 34

SUPREME COURT OF SINGAPORE

10 May 2019

Case summary

Aathar Ah Kong Andrew v CIMB Securities (Singapore) Pte Ltd and other appeals and another matter [2019] SGCA 34
Civil Appeals Nos 60, 61, 62, 63 of 2018 and Summons No 138 of 2018

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Decision of the Court of Appeal (delivered by Judge of Appeal Andrew Phang Boon Leong):

Outcome: The Court of Appeal dismisses appeal against the decision of the High Court to revoke the approval for the appellant’s proposed voluntary arrangement. In doing so, the Court of Appeal outlines the procedure during a creditors’ meeting to approve a voluntary arrangement. The Court of Appeal also elaborates on the duties of a debtor and nominee in a proposal for a voluntary arrangement.

Introduction

  1. The appellant, Mr Aathar Ah Kong Andrew (“Mr Aathar”) appealed against the High Court’s decision to revoke the approval for his second proposed voluntary arrangement on the basis of material irregularities. The respondents were some of his creditors.

Background to Mr Aathar’s first voluntary arrangement

  1. The appellant, Mr Aathar and Mr Fan Kow Hin (“Mr Fan”) were co-founders and substantial shareholders of the International Healthway Corporation Ltd (“IHC”), which is now known as OUE Lippo Healthcare Limited (“OUELH”). In 2015, Mr Aathar’s investments suffered heavy losses and he claimed his total liabilities amounted to more than $300m. His creditors initiated bankruptcy proceedings in February 2016.

     

  2. Mr Aathar’s first voluntary arrangement passed with an 83% approval. However, some of his creditors applied under section 54(1) of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (“the Act”) seeking to review and revoke the approval of this voluntary arrangement. The assistant registrar revoked the approval on the basis of material irregularities arising from Mr Aathar’s alleged lack of candour in his statement of affairs, and the first nominee’s reliance on the same. Mr Aathar subsequently withdrew his appeal against this decision.

     

Background to the appeals

  1. The present appeals concerned Mr Aathar’s second attempt at a voluntary arrangement. Two creditors’ meetings were held and chaired by the second nominee (“the Nominee”). In the course of the first creditors’ meeting, several of the respondents’ counsel raised issues with regard to the transparency and veracity of Mr Aathar’s debts. In the course of the second creditors’ meeting, the Nominee made available a list of liabilities to show how he arrived at his adjudication of the claims.

     

  2. The Nominee had written “Unable to determine” next to his adjudication of the claims from Mr Low See Ching (“Mr Low”), investment funds known as “the Crest entities”, and IHC (collectively “the Litigation claims”). However, the Nominee was asked to resort to the “objected to” procedure as outlined in the Court of Appeal’s decision in The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal [2012] 2 SLR 213 (“TT International”). It was suggested that if the Nominee had doubts, he should mark the votes as “objected to” and allow the creditor to vote subject to the vote being declared invalid in the event the objection was maintained. The Nominee appeared to accede to the request.

     

  3. The Nominee then conducted a vote. Based on his preliminary calculations, if Mr Low’s (voting against), Golden Cliff International Limited’s (“Golden Cliff”) (voting for), and the Crest entities’ (voting against) claims were taken into account, Mr Aathar’s proposal would not receive the requisite 75% approval. However, if these were not taken into account, there would be sufficient votes to pass the proposal. The Nominee proceeded to draw up his report (“the Nominee’s Creditors’ Meeting report”).

     

  4. On 25 October 2017, the Nominee wrote to the creditors indicating two sets of results. One showed approximately 80% approval, and ascribed a zero value to the Litigation claims. The other showed approximately 60% of the vote share when the Crest entities’ and Mr Low’s claims were admitted in full and OUELH’s claims were disregarded. A 75% vote share was required to pass a proposed voluntary arrangement. The Nominee’s Creditors’ Meeting report indicated that Mr Aathar’s second proposed voluntary arrangement had passed. The respondents brought an application to review and revoke the approval for Mr Aathar’s second voluntary arrangement, which was granted by the High Court.

 

The Court of Appeal’s decision

 

  1. The Court of Appeal remarked that it is important that the procedural rules of the Act and the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) (“the Rules”) were complied with as they could yield substantive outcomes. This was because a dissenting minority creditor may find itself involuntarily bound by a voluntary arrangement (at [42]).

     

  2. Rule 84 of the Rules provides a comprehensive and sequential process for the determination of claims in a creditors’ meeting (at [48]):

     

  1. Under r 84(1), there is a presumption that a creditor who is summoned to a meeting has an entitlement to vote (at [49]);

     

  2. Under r 84(3), a creditor with an unliquidated or unascertained debt would be unable to vote, unless the nominee agrees to place a just estimated minimum (at [50]);

     

  3. Under rr 84(3) and 84(4), if the nominee decides to reject, or otherwise exclude some or all of the creditor’s claim, he should provide written reasons, which are then subject to appeal (at [51]);

     

  4. Under r 84(4), when a debt was liquidated and ascertainable, or unliquidated and unascertainable (but for which an estimated minimum sum was agreed on), the nominee may still entertain doubts. He should mark such claims as “objected to” and allow the creditor to vote subject to the objection being maintained (at [52]); and

     

  5. Under r 84(7), it is for the court to decide whether the “objected to” votes are invalid. In the meantime, the effect of the “objected to” votes on the overall outcome nevertheless remains (at [54]).

     

  1. It was apparent that the Nominee had considered the Litigation claims to be of an unliquidated and unascertainable value. However, under the exception to r 84(3) of the Rules, he proceeded to ascribe a minimum sum. Although he had doubts, he had recourse to the “objected to” procedure. It followed that the Litigation claims were admitted on an “objected to” basis and it was a material irregularity to have backtracked on his decision in his Creditors’ Meeting report. There were insufficient votes for Mr Aathar’s second proposed voluntary arrangement to pass muster (at [56], [70][71]).

     

  2. The Court of Appeal went on to note that a debtor who proposes a voluntary arrangement should be not only honest, but should also take care to put all relevant facts before the creditors. If a debtor wishes to take advantage of a voluntary arrangement and to avoid the otherwise undesirable consequences of bankruptcy proceedings, the onus is on him to be forthcoming (at [76]). Serious doubts had arisen with respect to the source of the funding for Mr Aathar’s voluntary arrangement, the bona fides of the claims of 24 Indonesian creditors, and those of Golden Cliff (at [85]).

     

  3. There is a corresponding duty on the nominee to satisfy his doubts about the debtor’s proposal. Where the fullness or candour of the debtor’s information has come into question, the nominee must take such steps as are in all the circumstances reasonable to satisfy those doubts (at [77][78]). Given the various doubts that had already arisen about Mr Aathar’s first voluntary arrangement it would have been incumbent on the Nominee to be circumspect (at [86]). A nominee’s duty of diligence and scrutiny cannot be abdicated to the creditors, no matter how savvy or well represented they are (at [89]). The Court of Appeal agreed with the High Court Judge that there were several material irregularities and dismissed the appeals with costs to the respondents (at [91][92]).

 

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

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