PT BANK NEGARA INDONESIA (PERSERO) TBK, SINGAPORE BRANCH v FAROOQ AHMAD MANN (IN HIS CAPACITY AS JUDICIAL MANAGER) & Anor

Facts

Golden Mountain Textile and Trading Pte Ltd was a Singapore company whose parent was Golden Legacy Pte Ltd (GL), itself owned by the Indonesian company Sritex. The company was insolvent. Its three undisputed creditors were PT Bank Negara Indonesia (Persero) TBK, Singapore Branch (BNI), owed 63.99% of that debt, Emirates NBD Bank (PJSC), Singapore Branch (Emirates), and PT Peak Sekuritas Indonesia. In earlier moratorium, winding-up and scheme proceedings, the company had listed only those three creditors, and its financial statements showed GL as a net debtor of the company.

On 2 November 2022 the company's directors and shareholders placed it in interim judicial management under Mr Farooq Ahmad Mann. His list of creditors for the meeting of creditors on 2 February 2023 added GL, for US$30,950,054, and the restructuring adviser AJCapital Advisory Pte Ltd. According to BNI and Emirates, GL's claim made up 46.354% of the debt and gave it the swing vote. At the meeting he admitted all proofs for voting purposes, the statutory majority was reached, and he became judicial manager.

BNI and Emirates applied under s 115 of the Insolvency, Restructuring and Dissolution Act 2018 (HC/OA 130/2023 and HC/OA 184/2023) to have the resolutions declared void and the judicial manager removed, and sought personal costs against him. The judicial manager applied in HC/OA 448/2023 under s 107(3)(a) for more time to put forward his statement of proposals.

Issues

1. Whether the interim judicial manager's admission of GL's proof of debt for voting was unfairly prejudicial under s 115(1)(a) or (b)
2. What standard applies when an interim judicial manager adjudicates a proof of debt for voting at a pre-appointment meeting
3. Whether the admission of AJCapital's proof and the conduct of the meeting were open to challenge, and whether personal costs could be ordered
4. Whether the judicial manager should be granted an extension of time to put forward his statement of proposals

Holding

The High Court dismissed OA 130 and OA 184, the applications by BNI and Emirates, and allowed OA 448, the judicial manager's application, granting him an extension of two months from the date of the decision to put forward his statement of proposals. Unless the parties agreed on costs, they were ordered to file costs submissions within 14 days, limited to seven pages each.

Reasoning

Applying the two-stage test from Yihua Lifestyle Technology Co, Ltd and another v HTL International Holdings Pte Ltd and others [2021] 2 SLR 1141, an applicant must show harm in its capacity as creditor and that the harm was unfair, for example through a lack of legal or commercial justification. The court assumed harm and focused on unfairness.

It held that a less exacting standard governs an interim judicial manager adjudicating a proof solely for voting at a pre-appointment meeting. The usual proof requirements do not apply, no written grounds are required, and the appointment is temporary; at most he needs to be satisfied of a prima facie case. A stricter standard would be inconsistent with later, lighter adjudications.

On that standard the admission of GL's proof could not be impugned. It rested on an intercompany loan agreement dated 27 March 2017 and was reflected in audited accounts. The court accepted that set-off was inappropriate because the judicial manager needed more time to verify the much larger debt allegedly owed by GL, and explained why he suspected the company was not a true creditor of GL; in any case insolvency set-off under s 219 does not apply in interim judicial management. As an officer of the court he had to reach an independent view and could not simply rely on the company's earlier affidavits.

AJCapital's claim for US$48,280 was for fees on the abandoned scheme and could not have changed the vote. The meeting was properly run: a creditors' meeting is not the place for lengthy debate, and adjournment was impractical. Personal costs would not have been ordered even had the applications succeeded, as there was no misconduct, and the suggestion that he engineered his own appointment was rejected as conjecture. For OA 448, there was good reason for an extension, because any proposals would have been futile while his appointment was under challenge.

From the judgment