United States: Winding Up A Company In Record Time Despite Claim Of A Dispute Subject To Arbitration

Last Updated: December 18 2018
Article by Philip Jeyaretnam and Shobna Chandran

Introduction

In the recent High Court judgment in VTB Bank (Public Joint Stock Company) v Anan Group (Singapore) Pte Ltd [2018] SGHC 250, Dentons Rodyk, acting for the plaintiff, successfully obtained a winding up order on a debtor company just six weeks after the service of a statutory demand for an underlying debt of US$250 million.

This case concerns interesting and novel points of law, where there is a confluence of insolvency and arbitration. It is an important decision on what the standard of proof is for a debtor company to show that there is a dispute, and therefore stave off winding up proceedings by a creditor, where the underlying contract is subject to arbitration.

Fact

The plaintiff, VTB Bank, is the second largest bank in Russia. The defendant is a Singapore-incorporated holding company which owns a significant number of shares in SGXlisted AnAn International (AAI). In November 2017, VTB Bank entered into a global master repurchase agreement (GMRA) with the defendant, which essentially provided for a loan of US$250 million by VTB Bank to the defendant to assist in a purchase of shares in LSElisted, EN plus. Under the GMRA, the defendant had an obligation to maintain sufficient collateral in respect of the transaction. However, in April 2018, the shares of EN plus plummeted starkly as a result of sanctions imposed by the United States against various individuals who had a controlling interest in EN plus. This triggered a default under the GMRA. The GMRA contained an arbitration clause where parties agree to refer any dispute to the Singapore International Arbitration Centre. VTB Bank issued the necessary notices under the GMRA and triggered the termination of the same; however, the defendant did not make any payment nor dispute the liability or quantum of the debt.

On 23 July 2018, the plaintiff served a statutory demand for the sum of US$170 million on the defendant. Three weeks lapsed without the defendant paying the sum owed, or securing or compounding the same to the reasonable satisfaction of the plaintiff. VTB Bank then commenced winding proceedings. The proceedings which followed were heavily contested by the defendant at each turn.

In summary the defendant commenced injunction proceedings to restrain VTB Bank from winding up the defendant, contested against the appointment of provisional liquidators and also the subsequent winding up proceedings.

Court's Decision

The defendant contested the winding-up proceedings on the basis of three grounds, namely that the:

  1. Sanctions in the United States were an event of frustration;
  2. Sanctions were also a force majeure event; and
  3. The existence of the debt and its quantification was disputed and should both be resolved by arbitration pursuant to the GMRA.

The High Court accepted Dentons Rodyk's arguments that all three grounds of dispute were unsupported by the evidence. Therefore, the main issue was the applicable standard of proof required when there was an arbitration agreement contained in the contract from which the debt arose.

The defendant relied on BDG v BDH [2016] 5 SLR 977 (BDG), a Singapore Court case, and Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589 (Salford), an English Court of Appeal case, to argue that a lower standard of proof ought to apply where a dispute between two parties was governed by an arbitration clause.

The plaintiff argued that the High Court was bound by, inter alia, Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] 2 SLR(R) 268 (Metalform), a Court of Appeal case to rule that the test was not any different because the underlying contract was subject to arbitration.

With respect to this, the court observed that there were two distinct line of authorities submitted by the parties before it, noting particularly that the authorities relied upon by Dentons Rodyk all 'spoke with one voice' that the applicable standard of proof is consistent across the board, i.e. that of a genuine and substantial debt, even where there is an arbitration agreement. On the other hand, the court observed that the defendant's cases were all fairly recent, with the common underlying thread of according greater primacy to arbitration.

The Current Law

In his judgment, Dedar Singh Gill JC agreed with VTB Bank's position that the High Court was bound by the Court of Appeal decision in Metalform and that even if there is a dispute between the parties which is governed by an arbitration agreement, the standard of proof remains that of a genuine and substantial debt.

Nonetheless, Gill JC accepted that there is force in the policy reasoning in the defendant's case and that he would have been amenable to applying the BDG approach if His Honor himself were not bound by the Court of Appeal's decision. That said, His Honor held that the defendant would have failed to establish its case even if the lower standard of proof in BDG was applied as the defendant had not raised a bona fide dispute in relation to the three grounds that were cited (i.e. frustration, force majeure and the dispute on the alleged quantum).

Conclusion

This matter is highly relevant to financial institution and MNC clients in light of the prevalence of arbitration contracts in cross-border contracts.

This case shows that, even where there is an arbitration clause between the parties, if a debtor does not have any defence(s), a creditor should consider all options including proceeding by way of a statutory demand, and winding up the debtor. The present judgment also highlights the pragmatism and efficiency in the robust approach taken by the Singapore courts. It is a timely reminder that the courts, in its exercise of discretion in winding up proceedings, will always consider the entire facts and circumstances of the case. If the defence(s) raised lack merit, the court cannot and will not turn a blind eye, and allow its process to be abused by a recalcitrant debtor, simply because an arbitration clause is present in the underlying contract.

The defendant has appealed against this decision and the Court of Appeal hearing will take place in a few months' time.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
22 Jan 2019, Seminar, San Francisco, United States

Dentons is pleased to offer a full day of classes, just in time for the California MCLE compliance period deadline of January 31, 2019.*

23 Jan 2019, Seminar, Los Angeles, United States

Dentons is pleased to offer a full day of classes, just in time for the California MCLE compliance period deadline of January 31, 2019.*

24 Jan 2019, Other, New York, United States

Join Dentons’ Health Care Partner Lori Mihalich-Levin and White Collar & Government Investigations Counsel Christine Genaitis as they lead conference sessions at AHLA Academic Medical Centers and Teaching Hospitals Institute.

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions