I had been looking forward to reading the Singapore Court of Appeal grounds for its landmark decision relating to the TT International case decision. The grounds were obtained from Singapore Law Watch.As both Singapore and Malaysia do not have guidelines or Practice Directions (unlike in the UK) to guide the schemes of arrangement process, the development of procedures through common law is extremely important. The TT International decision analysed the sometimes different approaches in Australia and the UK and the decision touched on classification of creditors, in particular the vexed question of how to deal with the votes of related creditors or wholly owned subsidiaries, the fiduciary duties owed by scheme managers and how to deal with the proof of debt process in a scheme.
The issues before the Singapore Court of Appeal were:
- when a proposed scheme manager might be placed in a position of a conflict of interest;
- whether scheme creditors are entitled to examine the proofs of debt submitted by other scheme creditors in respect of a proposed scheme;
- when a scheme creditor should be notified of the chairman’s decisions to admit or reject its own and other creditors’ proofs of debt;
- whether a scheme creditor may appeal the chairman’s decisions to admit or reject its own and other creditors’ proofs of debt;
- whether the chairman’s decisions to admit or reject certain proofs of debt for the purpose of voting, in this case, were correct;
- when scheme creditors should be classified differently for voting purposes in a s 210 scheme of arrangement; and
- when scheme creditors should have their votes discounted.
- a proposed scheme manager is in a position of conflict of interest when he without good reason aligns his interests with those of the company, such as in this case, where the proposed Scheme Manager was the nominee for the individual voluntary arrangements (“the IVAs”) filed by Mr Sng and Ms Tong (see [74]–[78] of the decision);
- yes, scheme creditors are entitled to examine the proofs of debt submitted by other scheme creditors in respect of a proposed scheme (see [79]–[93]);
- a scheme creditor should be notified of the chairman’s decisions to admit or reject its own and other creditors’ proofs of debt before the votes are cast at the creditors’ meeting (see [94]–[99] );
- yes, a scheme creditor may appeal the chairman’s decisions to admit or reject its own and other creditors’ proofs of debt (see [100]–[110]);
- the proposed Scheme Manager’s decisions to partially reject Ho Lee’s proof of debt (to the extent that he did) and wholly admit St George Bank’s, Ascendas’ and First Capital’s proofs of debt for the purpose of voting were incorrect (see [111]–[129]);
- scheme creditors should be classified differently for voting purposes when their rights are so dissimilar to each other’s that they cannot sensibly consult together with a view to their common interest (see [130]–[151]);
- related party creditors should have their votes discounted in light of their special interests to support a proposed scheme, by virtue of their relationship to the company; wholly owned subsidiaries should have their votes discounted to zero and are effectively classified separately from the general class of unsecured creditors (see [152]–[171]).
It is a real pity that the law relating to schemes of arrangement is so underdeveloped in Malaysia. I still see too much of abuse of the restraining order in the Courts, a lack of sufficient understanding of the impact of schemes of arrangement, insufficient judicial safeguards of ensuring transparency and full disclosure in such schemes and with Courts not receiving enough guidance through reported decisions.
Of Counsel 
it’s pathetic to read that the liquidator is usually self-appointing themselves as a scheme manager to safeguard the scheme creditors interest – not to mentioned of independence issue here!
Land of the law crippled without proper laws and statutes…