Babel Holding Limited

Babel Holding Limited, part of the Babel group of crypto-related companies, applied in Originating Application No 881 of 2023 under s 210(1) of the Companies Act 1967 for leave to convene a scheme meeting. The group's companies had obtained moratoria earlier in 2023, which were later extended. The proposed scheme used a deed poll structure, under which a single company would become a primary co-obligor for all claims against the group so that one scheme could compromise them together, on the basis of substantive consolidation. In exchange for releasing their claims, creditors could choose between tokens called the Babel Recovery Coin, giving a pro rata right to a sinking fund, or an option to subscribe for contingent value rights in another company.

Parastate Labs, Inc, a non-party creditor, opposed. It said it had transferred US$5m worth of the cryptocurrency USDT into a fund managed by Babel Finance, to be held on trust for it, and claimed to be a secured creditor deserving a separate class. It also relied on a possible claim for dishonest assistance against Del Wang, the group's chief executive, objected to the deed poll structure, and alleged a lack of full and frank disclosure. Aedit Abdullah J granted the application; Parastate pursued an urgent appeal.

1. Whether Parastate should be classified separately from the other unsecured creditors
2. Whether the deed poll structure and substantive consolidation made the scheme objectionable
3. Whether the applicant had made full and frank disclosure to the court
4. Whether the application was an abuse of process

On classification, the court applied the test of whether creditors' legal rights are so dissimilar that they cannot sensibly consult together, using insolvent liquidation as the comparator. Parastate was not a secured creditor: it gave no money on security of collateral, and it was undisputed that the alleged trust assets had been lost. There was also no certainty of intention to create a trust, as there was no segregation requirement or express declaration and commingling was expected. At best it had unsecured personal claims ranking pari passu with others. A possible claim against Del Wang, a third party, was not compromised by the scheme and was irrelevant, since the comparison concerns rights against the company.

On feasibility, the court conclusively affirmed the preliminary view in Re Babel Holding Ltd and other matters [2023] SGHC 98 that s 210 is broad enough to cover a deed poll structure and substantive consolidation. Relevant factors are whether the group's affairs are so hopelessly intertwined that pooling is the only sensible course, whether the structure unfairly overrides creditors' legitimate interests, and whether it demonstrably benefits creditors. Uncontradicted evidence showed the group could not tell which entity owned which cash and crypto assets; Parastate suffered no discernible detriment because its claimed trust assets were gone; and a consolidated scheme appeared to offer a significantly better return than liquidation.

Parastate's disclosure complaints, about the group's collapse, Del Wang's trading and unexplained crypto outflows, went to the fairness of the scheme, which is not decided at the leave stage; Parastate could vote against it. The threshold for abuse of process was high, and no one alleged it.

The court granted the application in its entirety, including an extension of the moratoria until three weeks after the scheme meeting is held, with liberty to apply in respect of that extension.