29 June 2021
Re Sifan Triyono  SGHC 55
Under Part 14 of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”), an insolvent debtor who intends to make a proposal to the debtor’s creditors for voluntary arrangement may apply to the court for an interim order provided that (1) the gateway conditions are satisfied, and (2) the court deems that it would be appropriate for such an interim order to be granted for the purpose of considering and implementing the debtor’s proposal. In determining the appropriateness of granting such an interim order, the court will consider whether the debtor’s proposal for voluntary arrangement is “serious and viable”.
In the recent reported Singapore High Court decision of Re Sifan Triyono, the court dismissed the appeal by the applicant, Sifan Triyono (“Triyono”), against an earlier decision of the Assistant Registrar (“AR”) to dismiss his application for an interim order under Part 14 of the IRDA. The main issue on appeal was whether Triyono’s draft proposal for a voluntary arrangement satisfied the requirement of being “serious and viable”, such that it would be appropriate for the court to make an interim order under section 279(2) of the IRDA.
Allen & Gledhill Partners Corina Song and Daniel Liang acted for Flame S.A. (“Flame”), a substantial creditor of Triyono, in successfully resisting Triyono’s moratorium application based on the lack of a serious and viable proposal.
Triyono was an Indonesian businessman and a Singapore Permanent Resident and allegedly an indirect shareholder holding a majority stake in an Indonesian company, PT Kapuas Tunggal Persada (“KTP”). Triyono owed a debt in the sum of US$900,735.47 to Flame pursuant to a settlement agreement. On 2 October 2020, Flame commenced a High Court suit against Triyono for default of payment of the sum owing.
In anticipation of execution and bankruptcy proceedings against him, Triyono filed an application on 27 October 2020 for an interim order under Part 14 of the IRDA (“Application”) to consider his proposal for voluntary arrangement (“Proposal”). Under the Proposal:
- Related and unsecured creditors were to be excluded;
- The three unsecured and unrelated creditors were required to take a 60% discount of their present debt. The balance 40% (“Compromised Total Debt”) was to be paid in monthly instalments progressively over a period of five years from 2022 to 2026;
- Payment for the Compromised Total Debt of approximately S$2,740,789.01 was to come from KTP’s repayment of its US$1,077,322 debt owed to Triyono; and
- KTP would fund a total of US$2,526,080 from its forecasted revenue from 2022 to 2026.
In the decision below, the AR found that there were serious doubts about the viability of the Proposal and dismissed the Application for the following reasons:
- It was unclear what the legal basis of KTP’s payment to Triyono’s creditors was and how the creditors would enforce any failure to pay on the part of KTP, which remained a separate legal entity despite Triyono claiming to be the controlling mind of KTP. Even if KTP were bound, enforcement against KTP was uncertain given that KTP was an Indonesian company.
- There were issues with KTP’s ability to pay and it was undisputed that KTP was in the red. Whilst Triyono provided projected revenue and cash flow, he did not provide information on operating costs and expenses, which would have had a bearing on the actual revenue available for payment to creditors.
- KTP’s projected revenue streams were based on three contracts which KTP had allegedly entered into with various parties, but the terms of the contracts were not sufficiently clear and/or there was no evidence on whether the contracts would be in place from 2022 to 2016 and/or there was no evidence on how the contract terms translated into the figures set out in the Proposal as the projected revenue stream.
High Court decision
On appeal, the Singapore High Court observed that the effect of an interim order, which holds off all proceedings against the debtor, is a serious incursion into the rights of creditors to proceed against a debtor to recover what is owed, and laid down the following principles in considering the making of an interim order under section 279(2) of the IRDA:
- The court will be conscious that one of the reasons for the discretion is to filter out proposals which are not serious and viable, so as to avoid the unnecessary and wasteful convening of creditors’ meetings.
- In order for the court to decide whether a proposal is serious and viable, the debtor’s plan must contain sufficient details at the outset.
- If the judge concludes, taking into account all the evidence available, that the proposal is not one which can be described as serious and viable, such as where there is no apparent likelihood of benefit to the creditors, nor any real prospect of the proposal being productive, it would be expected that as a matter of discretion, the judge would refuse to make an interim order. Otherwise, an interim order would simply become a means of postponing the making of bankruptcy orders.
In this case, the High Court found that Triyono had not shown that the Proposal was serious and viable on the following findings:
- The dismal financial state of KTP called into question its ability to make future repayments;
- The lack of clarity about the contracts that underpinned KTP’s ability to make future payments, and the lack of transparency about how the financial and operational costs would affect future revenue, affected the viability of the proposed repayments;
- The uncertainty arising from enforcement against a foreign third party raised another set of doubts, which remained unanswered.
This case clarifies the level of detail and clarity required of a proposal for voluntary arrangement and the robust approach which the Singapore courts will adopt when considering an interim moratorium application under the IRDA. Notably, the court has emphasised the severity of the prejudice caused to creditors when an interim order is granted, and has made clear that it would not allow interim moratoriums to become a means for debtors to postpone bankruptcy and enforcement proceedings.