In Re XDC, Dentons Rodyk & Davidson LLP act for the successful application for the appointment of the judicial manager.

Introduction

Section 91 Insolvency, Restructuring and Dissolution Act 2018 (IRDA) allows for the court to make a judicial management order (JM Order) and to appoint a judicial manager if the Court is satisfied that the company is or is likely to become unable to pay its debts, and the Court considers that the making of the order would be likely to achieve one or more of the purposes of judicial management mentioned in section 89(1) IRDA. In contested judicial management applications, one of the considerations before the Court is the appropriate nomination of the judicial manager. A creditor seeking to oppose the nomination of the company seeking to apply for judicial management may seek to rely on section 91(3)(d) of the IRDA, which provides that a majority in number and value of the creditors (including contingent or prospective creditors) may be heard in opposition to the nomination.

In Re X Diamond Capital Pte Ltd (Metech International Ltd, non-party) [2023] SGHC 253 (Re XDC)(which involves an application by X Diamond Capital Pte Ltd (XDC) for a JM Order), the High Court sets out the principles behind the interpretation of section 91(3)(d) of the IRDA in its decision of whether to nominate XDC’s proposed judicial manager or to adopt the nomination of a judicial manager by Metech International Limited (Metech)(which was a creditor opposing XDC’s application for a JM Order).

The Court allowed XDC’s application for a JM Order and appointed XDC’s proposed judicial manager.

Brief Facts

On or around 27 September 2021, XDC entered into a joint venture agreement with Asian Green Tech Pte Ltd (AGT), which is a wholly owned subsidiary of Metech. Pursuant to the joint venture, XDC and AGT incorporated a Singapore company known as Asian Eco Technology Pte Ltd (AET). At the time of AET’s inception, XDC held 245,000 shares in it, while AGT held 255,000 shares in it. In total, XDC owned 49% of the shares in AET.

On 22 October 2021, XDC, Metech, and AET entered into a Loan and Guarantee Agreement (the LG Agreement). Pursuant to the LG Agreement, Metech agreed to grant AET loans of a total principal amount not exceeding $4m. In turn, XDC agreed to guarantee 49% of any amount outstanding from AET to Metech.

On 21 November 2022, Metech’s previous solicitors sent a letter, on Metech’s behalf, to AET demanding payment of the outstanding sum of $2,627,318.27 due under the LG Agreement, which comprised the principal sum of $2,565,216 plus interest.

On 26 January 2023, Metech served a statutory demand to XDC, in the latter’s capacity as a guarantor under the LG Agreement, for payment of $1,301,023.06, being 49% of the total outstanding sum under the LG Agreement. XDC has not repaid or satisfied the sum demanded, nor secured or compounded the same to the reasonable satisfaction of Metech.

XDC then applied for a JM Order, on the basis that the making of a JM Order would likely achieve two of the purposes set out in section 89(1) of the IRDA, namely: (a) the survival of XDC, or the whole or part of its undertaking, as a going concern; and (b) the interests of the creditors would be better served otherwise than by resorting to a winding up as XDC’s creditors will be able to realise a more advantageous realisation of XDC’s assets or property than on a winding up.

Holding of the Court

In Re XDC, XDC raised as a preliminary issue of whether Metech can even be heard in opposition. XDC submitted that on a “strict reading” of section 91(3)(d) of the IRDA, unless the creditors opposing a company’s nomination of the judicial manager constitute a majority in number and value of the creditors, the court “need not take heed to the opposing creditors opposition to XDC’s nomination of the judicial manager”.

The Court agreed with XDC’s interpretation on the basis that it is consistent with the legislative history behind section 91(3)(d) IRDA. The Court elaborated that as a starting point, the company applying for judicial management may nominate a judicial manager. If there is a majority in number and value of the creditors opposing this nomination, they may suggest another nominee. The Court may consider this nominee but is not bound to approve of him or her. However, the converse is not true, such that even if there is no majority in number and value of the creditors opposing the company’s nomination, the Court need not automatically approve of the company’s nominee. The Court will still consider factors such as the independence of the nominee, as well as the skill and expertise of the nominee. The Court referred to the decision of the High Court in Re Hodlnaut Pte Ltd [2022] SGHC 209, in which the Court stressed that the appointment of a judicial manager is “a fact sensitive exercise, with the court having to consider different factors from case to case”.

The Court also sets out the principle that section 91(3)(d) of the IRDA does not oblige the Court to appoint an unqualified judicial manager just because a majority of the creditors failed to oppose such an appointment.

Lastly, the Court also rejected Metech’s submission that XDC’s proposed judicial manager should not be nominated because he is overqualified. In this regard, the Court opined that there is a good reason why there is no statutory limit on the maximum level of qualification a nominee may have. This is because under the judicial management regime, judicial managers rely on their business experience to achieve the objectives of the IRDA (see the High Court decision of Re HTL International Holdings Pte Ltd [2021] 5 SLR 586 at [40]).

After considering the above factors, the Court held that Metech did not raise a valid opposition to XDC’s proposed nominated judicial manager, and they cannot rely on section 91(3)(d) of the IRDA to oppose XDC’s nomination because Metech is not a majority creditor of XDC either in number or in value.

Conclusion

Re XDC highlights the proper interpretation of section 91(3)(d) IRDA. In particular, it provides guidance for future cases in which an application for a JM Order is being opposed by a minority creditor.