X DIAMOND CAPITAL PTE LTD

Facts

X Diamond Capital Pte Ltd, a Singapore company selling jewellery made from precious metals and stones and making piezo-electric devices, applied in Originating Application No 148 of 2023 for a judicial management order under Part 7 of the Insolvency, Restructuring and Dissolution Act 2018. Its sole director is Mr Deng Yiming. Metech International Limited, one of its creditors, opposed.

In 2021 the Company formed a joint venture with Asian Green Tech Pte Ltd (AGT), a wholly owned subsidiary of Metech, through a new company, Asian Eco Technology Pte Ltd (AET), which makes and distributes lab-grown diamonds. Under a Loan and Guarantee Agreement dated 22 October 2021, Metech agreed to lend AET up to $4m and the Company guaranteed 49% of whatever AET owed. AET left an outstanding principal of $2,565,216 unpaid, and on 26 January 2023 Metech served a statutory demand on the Company as guarantor for $1,301,023.06, which went unsatisfied.

The Company said a judicial management order would likely achieve its survival as a going concern and a better realisation of its assets than a winding up. Metech also put forward its own nominee as judicial manager in place of the Company's nominee, Mr Tam Chee Chong.

Issues

1. Whether the Company was, or was likely to become, unable to pay its debts
2. Whether there was a real prospect that one or more purposes of judicial management would be achieved
3. Whether there was clear support from a majority of creditors and whether the application was brought in bad faith
4. Whether the Company's proposed judicial manager should be appointed over Metech's opposition

Holding

The High Court allowed the Company's application, made the judicial management order and appointed Mr Tam as judicial manager. Failing agreement on costs, the parties were to file submissions limited to seven pages each within 14 days.

Reasoning

Inability to pay debts was established on Mr Deng's unchallenged affidavit that the Company could not meet its debts as they fell due because of cash flow problems.

On the statutory purposes, the court applied the real prospect test, a lower bar than the balance of probabilities, citing Deutsche Bank AG and another v Asia Pulp & Paper Co Ltd [2003] 2 SLR(R) 320. Unlike the bare letters of interest rejected in Baltic, the two white knight letters of intent here gave details such as due diligence and audit arrangements. Metech had itself agreed to an initial valuation of $65m in a June 2022 announcement when it proposed to buy the Company. The Company also held a judgment for a $4m receivable against Mr Wu Yongqiang and remaining AET shares, so its assets pointed towards keeping it alive rather than winding it up.

On creditor support, letters of guarantee gave Mr Deng and two other individuals prima facie claims, so Metech was the only one of the 12 alleged creditors opposing. Those not opposing represented 76.42% in value. The solicitors' email evidence of support was admitted through a principled expansion of the common law business records exception to match s 32(1)(b)(iv) of the Evidence Act 1893, and the outcome would have been the same without it. Bad faith was rejected: unlike in Re Genesis, a list of creditors had been provided, and the disclosure requirements for a moratorium under s 64 do not carry over to s 91.

On the appointment, s 91(3)(d) lets only creditors holding a majority in number and value oppose a nominee, and Metech could not use s 91(3)(c) as a fallback, though the court keeps its own discretion over a nominee's suitability. Mr Tam had no links to Metech or AGT, whereas Metech's controlling shareholder, Mr Wu, was in litigation with the Company. The suggestion that Mr Deng had acted wrongfully was entirely speculative, and being overqualified was no reason to reject a nominee.

From the judgment