Overview
We provide an update on the recent decision of the Singapore Court of Appeal in UT Singapore Services Pte Ltd v. Goh Thien Phong & Ors [2025] SGCA 17. The issues considered include the classification of creditors, the jurisdiction of the court in sanctioning the scheme, and the adequacy of disclosures made by the Liquidators. The appeals were dismissed, except on the issue of whether the Court below ought to have considered the appellant's objections on the classification of creditors raised at the sanction hearing regardless of whether the appellant had offered good reason for not doing so earlier. The Court of Appeal addressed for the first time, the issue of the consequences that should follow should a creditor, without good reasons, belatedly raise objections regarding class composition at the sanction stage.
Key facts of the case
Hin Leong Trading, a prominent oil trading firm, was placed under compulsory liquidation in March 2021. The Liquidators, subsequently proposed a scheme of arrangement to distribute US$80 million of the "Uninjuncted Proceeds" from the liquidation to creditors.
The proposed scheme prompted two classes of creditors:
- Potential Secured Creditors Class: Creditors asserting security interest over the Uninjuncted Proceeds, which included UTSS and several financing banks.
- Unsecured Creditors Class: Creditors without any asserted security interest over the Uninjuncted Proceeds.
The scheme essentially provided that the Potential Secured Creditors (including UTSS) release and waive any security they had in respect of the Uninjuncted Proceeds. This would facilitate the pari passu distribution of the proceeds, with a view to avoiding costly and complex litigation that is uncertain as to outcome.
UTSS, having a dispute over its claimed security interest and the sum owed to it, raised objections to its classification within the Potential Secured Creditors Class at the sanction hearing, despite failing to do so at the earlier convening hearing. The High Court ruled against UTSS, leading to the appeals in question.
Key issues and Court's decision
The Court of Appeal dealt with a few key issues:
- Classification of Creditors: The court
reinforced the principle that correctly classifying creditors is
critical for the court's jurisdiction to sanction a scheme. The
court noted that creditors must share a common interest, allowing
them to sensibly consult among themselves.
The Court of Appeal upheld the High Court's finding that the creditors' classification was appropriate, noting that while UTSS had a claim of security interest, it had not demonstrated sufficient dissimilarity from other creditors to justify separate classification. The court emphasised that a robust classification approach could be adopted even in scenarios involving complex security claims.
As for the appropriate comparator, it was not insolvent liquidation, since an appropriate comparator is the most likely scenario in the absence of scheme approval. The comparator here was proceeding with a determination of security claims, with all the time, trouble, and expense that entailed.
- Timing of Objections: A critical aspect of the
case was whether UTSS's objections could be considered at the
sanction hearing, given that they were not raised during the
convening hearing. The Court affirmed that it should consider and
determine any objections in relation to the classification of
creditors at the sanction stage, even if such objections were not
raised earlier without good reason or explanation. This is because
classification goes towards the Court's jurisdiction to
sanction the scheme. Rather than disregarding a meritorious but
dilatory challenge, the issue is best addressed through the
imposition of adverse costs.
In this case, the Court of Appeal was of the view that UTSS did not provide a compelling reason for not raising its objections earlier and as such adverse costs were imposed.
- Adequacy of Disclosure: UTSS also questioned the adequacy of disclosure provided by the Liquidators regarding the actual quantum of the Uninjuncted Proceeds and the full details of the Liquidators' financial incentives in passing the Scheme. The Court of Appeal found that the Liquidators had met their disclosure obligations, effectively dismissing UTSS's claims of insufficient information.
Analysis
It was also unsurprising that the Court was of the view that UTSS was not incorrectly classified as a Potential Secured Creditor. The approach to classification in Re Hawk Insurance Co Ltd has been followed by the Singapore Courts. This has placed less emphasis on the use of classification to protect the interests of creditors with nominally different rights1. Having fewer classes prevents minority holdup of meritorious schemes. In this case, allowing unnecessary class fragmentation prevented UTSS from arrogating a veto right to itself.
Before the High Court, UTSS had tried to rely on Section 70(4)(b)(i) of the Insolvency, Restructuring and Dissolution Act 2018 which gives the court certain powers to "cram down" where there is a dissenting class of creditors. UTSS basically argued that there could not be a class of Potential Secured Creditors – because for section 70(4)(b)(i) of the IRDA to work, one must know whether the creditors in the dissenting class are secured or not. The High Court was of the view that this section had no application to the present case given that there was no dissenting class of creditors here. This argument was not pursued before the Court of Appeal, otherwise it would have fallen flat. The general principles in respect of the scheme of arrangement process should not be circumscribed by section 70(4)(b)(i) which has specific and limited applicability. Otherwise, it will be a classic case of the tail wagging the dog.
Based on TT International which was decided over 12 years ago, a creditor, who seeks to raise objections regarding class composition at the sanction hearing, should be expected to offer a good reason for why any objection was not raised earlier. However, the issue of the consequences that should follow in the absence of good reasons was not considered in TT International and has not been litigated since. This is unsurprising. Given the cramdown ramifications of the scheme process, creditors typically zealously guard their interests and would raise their objections at the earliest opportunity.
That said, there could be justifiable reasons as to why objections to classification were not raised at the convening stage. For instance, if these objections could have not been brought earlier due to material non-disclosure of information by the applicant company. This is especially since a less onerous standard of disclosure is required of the applicant company at the convening stage than at the sanction stage2.
While the issues were not particularly novel or groundbreaking, the decision is still a useful one in setting out essential considerations regarding creditor classifications, procedures for raising objections, and disclosure obligations in the context of corporate restructuring. The Court of Appeal's decision is yet another reminder of the need for strategic planning and early intervention by creditors.
To conclude, the key takeaway is that creditors who wish to challenge a scheme must carefully consider the basis on which such a challenge is made and the prospects of success. This also highlights the importance of engaging experienced legal counsel familiar with the ins and outs of the scheme process. Any creditor intending to mount a challenge to a scheme should seriously consider, with the assistance of its advisors, whether it is simply throwing good money after bad.
Footnotes
1. As discussed in "Whither the Scheme of Arrangement in Singapore: More Chapter 11, Less Scheme?", Wee Meng Seng, https://www.law.ox.ac.uk/sites/default/files/migrated/wee_the_scheme_of_arrangement_in_singapore.pdf and "Singapore as International Debt Restructuring Center: Aspiration and Challenges", Wee Meng Seng and Hans Tjio, https://law.nus.edu.sg/wp-content/uploads/2021/02/002_2021_WeeMengSengHansTjio.pdf
2. Pathfinder Strategic Credit LP and another v Empire Capital Resources Pte Ltd and another appeal [2019] 2 SLR 77 at [48].
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.
