Under s210(1) of the Companies Act (the “Act”), the Court has the power to grant leave to convene a meeting between a company and its creditors to consider and, if thinks fit, approve a scheme of arrangement. In Re Sembawang Engineers and Constructors Pte Ltd  SGHC 20, the Singapore High Court granted an application for a s210(1) order; this order and a similar order made in respect of the applicant’s parent company were successfully defended in Re Punj Lloyd Pte Ltd and another matter  SGHC 321 by Patrick Ang, Low Poh Ling, Chew Xiang and Ng Kexian from Rajah & Tann Singapore LLP.
The Court distinguished between the different factors to be considered at the stage of deciding whether to grant leave to convene a meeting and at the stage of deciding whether to grant sanction of a scheme of arrangement.
The s210(1) applications were made for leave of court to convene meetings for two related companies, PLPL and SEC, which had both run into financial difficulties. Both companies sought to call meetings of their creditors to consider the restructuring of their debts by way of separate schemes of arrangement.
However, certain creditors opposed the applications for leave to convene the meetings, citing concerns over various transactions and events within the group. These creditors alleged that there was no full and frank disclosure, and that the transactions were an attempt to dissipate assets and put the assets out of the hands of the creditors.
The Court disagreed with the objections, and allowed the meetings to proceed.
Leave to Convene Meetings under s210(1) of the Act
The process of proposing, voting on, and obtaining sanction for a scheme of arrangement consists of a few stages. The first stage is a meeting to be convened pursuant to a court order made under s21o(1) of the Act, where the creditors meet to consider a proposed scheme. If requisite support for the scheme is obtained at the meeting, then the company will seek the Court’s sanction and approval of the scheme pursuant to s210(3) of the Act.
At the s210(1) stage, the Court will not consider the merits and fairness of the proposed scheme. Rather, it will consider the following factors:
- Fairness of classification, if creditors are grouped into different voting classes.
- Anything showing futility of the meeting, such as whether the vote is bound to fail.
- Matters that may indicate possible abuse of process.
Applicants thus have a duty to disclose all material information which is relevant to these factors when making an application under s210(1) of the Act. Here, the Court held that there was no material non- disclosure on the parts of PLPL and SEC. The concerns raised by the opposing creditors pertained to the financial positions of the companies and the viability of the proposal, but were not relevant to the fairness of the meeting. There was no evidence that the vote would clearly go against the proposal, or that there was any abuse of process.
Amendment of Scheme Proposals
The Court’s main concern was in relation to the classification of SEC (as a creditor of PLPL) under the scheme proposed by PLPL. The creditors were informed that PLPL owed a large debt to SEC, which would make SEC the dominant creditor whose vote would affect the outcome of the PLPL meeting. The Court was informed at the hearing that SEC would be placed in a separate class from unrelated unsecured creditors for purposes of voting on the PLPL scheme. The amendment was made at this stage because the matter was finely balanced: SEC’s own position had to be taken into account, as it was also the subject of a scheme proposal.
The Court found that while this was a substantial matter affecting the fairness of the meeting, and that ordinarily such matters of classification should have been disclosed when making the s210(1) application, there was leeway for amendment and adjustment of the meeting composition at this relatively late stage.
The Court noted that for schemes involving group companies, the position could be complicated and intricate. The Court accepted the explanation that on the facts of the case, it was material that SEC was itself making a scheme proposal to its creditors, and therefore, some thought had to be given as to what would be fair to both PLPL’s creditors and SEC’s creditors.
Accordingly, the Court declined to set aside the orders made in this case, but highlighted that the general rule remained that applications under s 210(1) of the Act should address questions of fairness and classification head-on at inception.
Schemes of arrangement are a multi-stage process, and when applying to the Court, parties should bear in mind the different factors which will be considered at the different stages of the scheme process. At the stage of a s210(1) application, applicants should ensure that all relevant material information is disclosed.
The general rule remains that matters relating to fairness of meetings and the classification of creditors should be properly addressed from the outset of the s210(1) application, but the Court retains discretion to allow subsequent changes where they are justifiable in the appropriate circumstances.