The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal [2012] 2 SLR 213; [2012] SGCA 9 – classification of creditors in scheme of arrangement and principles on implementation of Schemes of Arrangement
- The Court of Appeal in this case laid down several principles on how schemes of arrangement are to be implemented.[1] Preliminarily, issues of creditors’ classification should be considered by a court when it first hears the application for creditors’ meetings.
- (a) A proposed scheme manager must act transparently and objectively and should not be in a position of conflict of interest (ie, if he aligns his interests without good reason with those of the company) (at [71]-[73]). In this case, the proposed scheme manager was conflicted because he was also the nominee for the individual voluntary arrangements filed by the chairman and an executive director (who was also the chairman’s wife) of the respondent (at [74]-[78]).
- (b) Scheme creditors are entitled to examine the proofs of debt submitted by other scheme creditors in respect of a proposed scheme (at [79]-[93]).
- (c) A scheme creditor should be notified of the proposed scheme manager’s decisions to admit or reject its own and other creditors’ proofs of debt before the votes are cast at the creditors’ meeting. In this case, the proposed scheme manager should have completed adjudicating all the proofs of debt submitted (and notified all scheme creditors of the admitted proofs) prior to the Scheme Meeting (at [94]-[99]).
- (d) A scheme creditor may appeal the proposed scheme manager’s decisions to admit or reject its own and other creditors’ proofs of debt for the purposes of voting. In this case, some of those decisions to admit or reject certain proofs of debt were held to be incorrect (at [100]-[110]).
- (e) 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. In other words, if a creditor’s position will improve or decline to such a different extent vis-à-vis other creditors simply because of the terms of the scheme assessed against the most likely scenario in the absence of scheme approval, then it should be classified differently. In this case, while the contingent creditors’ claims need not have been classified separately, the claims of certain substantial shareholders should have been classified separately. This was because the substantial shareholders’ claims would have been subordinated in a liquidation pursuant to s 250(1)(g) of the Act, but they would not have been subordinated under the Scheme (at [130]-[151]).
- (f) Related party creditors and contingent creditors should generally have their votes discounted; while wholly owned subsidiaries should have their votes discounted to zero and should effectively be classified separately from the general class of unsecured creditors (at [152]-[175]).
[1] See Supreme Court Note: The Royal Bank of Scotland NV v TT International Ltd 2012] SGCA 9 (principles governing implementation of schemes of arrangement), Supreme Court Note, Supreme Court, Mar 2012 (1).