Vol 4 (2007) - Issue 4

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Re Horizon Knowledge Solutions Pte Ltd

Background

Horizon Knowledge Solutions Pte Ltd (‘the Company’) was part of a group of Singoporean companies con-trolled by Horizon Education and Technologies Limited (‘the parent company’). The Company was unable to pay its debts, and at least one judgment creditor applied to wind it up. Subsequently other legal and enforcement proceedings were brought against it, and the Company successfully applied for the convening of a creditors’ meeting to consider a scheme of arrangement. The Company now asked the court to sanction the scheme pursuant to s 210 of the Companies Act (Cap 50, 1994 Rev Ed) (‘the Act’).
Under the relevant sections of s 210:

(1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them or between the company and its members or any class of them, the Court may, on the application in a summary way of the company or of any creditor or member of the company, or, in the case of a company being wound up, of the liquidator, order a meeting of creditors or class of creditors or of the members of the company or class of members to be summoned in such a manner as the Court directs.

(3)If a majority in number representing three-fourths in value of the creditors or class of creditors or mem-bers or class of members present and voting either in person or by proxy at the meeting or the adjourned meeting agrees to any compromise or arrangement, the compromise or arrangement shall, if approved by the Court, be binding on all the creditors or class of creditors or on the members or class of members, as the case may be, and also on the company or, in the case of a company being wound up, on the liquidator and contributories of the company.

(4) Subject to subsection (4A), the Court may grant its approval to a compromise or arrangement subject to such alterations or conditions as it thinks fit.
The s 210 application was supported by an affidavit from Faisal Alsagoff (‘Alsagoff ’), a former director of the Company (and a current director of the parent company). Alsagoff deposed that unsecured creditors would receive approximately four cents in the dollar on liquidation, whilst under the scheme, the Company would pay unsecured creditors 15% of their claims. Since 86.96% of creditors had voted in favour of the scheme (and the 75% threshold had been crossed) the court’s sanction should be granted under s 210 (4). The parent company had agreed to absorb the Company’s liability to secured creditors, whilst the Company’s debts to the parent company would be subordinated to those of the unsecured creditors.

Objections to the scheme

The application was opposed by three creditors, includ-ing International Factors (Singapore) Ltd (‘IFS’). IFS’s criticisms centred on two arguments.
First, IFS complained of the lack of transparency of the proposed scheme, since the unsecured creditors did not know how the debts owed to the related party creditors had come about. IFS had repeatedly requested details of this, but the Company’s solicitors had merely forwarded its unaudited accounts. More importantly, IFS argued that no mention had been made of the impending reverse takeover (‘RTO’) of the parent company at the creditors’ meeting. This was significant because, if the RTO of the parent company was successful, there was a real possibility that the Company’s debts would be paid in full. IFS concluded that the proposed creditors’ meeting had failed to take into account material information.

Secondly, IFS pointed out that, without the claims of the four related creditors who voted in favour, the claims of the unsecured creditors who voted for the scheme totalled USD 414,765.56 (or only 63% of the overall value). This was a far cry from the 75% minimum value required under s 210 (3).

The decision

As to the first of these (lack of transparency), Lai Siu Chiu J referred to the recent case of Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufactures Pte Ltd [2003] 3 SLR 629. That decision had established that the court would take into account the adequacy of information provided in determining whether to the sanction the scheme. It was an independent principle of law that creditors should be put in possession of such information as is necessary to make a meaningful choice.