Re Zipmex Pte Ltd and other matters [2023] SGHC 88

These brief remarks encapsulate my decision allowing the present applications for the Court’s sanction of “pre-packaged” schemes of arrangement (“the Sanction Applications”) under s 71 of the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (“IRDA”) and the accompanying applications for extension of time of moratoria to allow for post-sanction administrative steps to be completed. The focus of these remarks is on the question of whether, for the purposes of voting on the “pre-packaged” schemes of arrangement (“the Schemes”), the Court may approve the creation of an administrative convenience class (“the Administrative Convenience Class”) comprising low value creditors which is intended to reduce the administrative burden on the restructuring entities.

Background

The Sanction Applications were made by three companies in the Zipmex Group: Zipmex Asia Pte Ltd (the group holding company incorporated in Singapore) (“Zipmex Asia”), Zipmex Pte Ltd (a Singapore subsidiary) (“Zipmex Singapore”), and Zipmex Australia Pty Ltd (“Zipmex Australia”). The applications for extension of moratoria were made by these companies as well as Zipmex Company Limited and PT Zipmex Exchange Indonesia. The Zipmex Group operates a cryptocurrency platform, accessible through an application known as the “Zipmex App”, on which various cryptocurrencies are traded.

The applicants previously came before this Court on 2 December 2022 to ask for an extension of time of the moratoria. At that hearing, they raised the proposal for the Administrative Convenience Class to be formed for the purposes of the voting exercise on the Schemes. I approved the applications for extension of time but indicated that it was premature then to determine the permissibility of the creation of this class. Nevertheless, I highlighted to the applicants my concerns regarding the existence of a juridical basis for the Court to grant such an order. At the present hearing, since the voting exercise had been completed and the applicants were bringing the Sanction Applications for the Court’s approval, it was appropriate to face this issue squarely.

In the voting exercise, the Scheme creditors of Zipmex Asia voted in one class whilst the Scheme creditors of Zipmex Singapore and Zipmex Australia voted in two classes: the “Vendor Creditors” and the “Customer Creditors” classes. The outcome of the voting exercise for all classes was overwhelmingly in favour of approving the Schemes. However, under the “Customer Creditors” class, the applicants had created the Administrative Convenience Class, which was a separate class of Customer Creditors comprising 67,130 customers whose withheld assets were below US$5,000 in value. In exchange for receiving the same benefits under the Schemes as the other Customer Creditors, ie, full access to their withheld assets following an investment in Zipmex Asia, members of the Administrative Convenience Class were by default excluded from the voting exercise unless they indicated their desire to participate in it. The rationale for doing so was to lessen the administrative burden on the applicants in conducting the voting exercise.

Creation of an administrative convenience class

The applicants argued that the concept of the Administrative Convenience Class arose from United States (“US”) jurisprudence; namely, jurisprudence concerning s 1122(b) of the US Bankruptcy Code, which permits the proponent of a plan to designate a separate class, “as reasonable and necessary for administrative convenience”, for all unsecured claims less than a specified dollar amount. The applicants argued that s 1122(b) codified the practice in pre-Code case law of providing a separate class for small claims so as to permit their payment in full and thus relieve the restructuring company from the administrative burden of soliciting the relevant claimants’ consent to the plan.

In support of these arguments, the applicants referred to the Senate Report that accompanied the 1978 enactment of the Bankruptcy Code (S Rep No 989, 95th Cong, 2d Sess 118 (1978)), which stated that s 1122(b) was a “codification of existing practice” and that payment in cash of small claims in full was common practice in reorganisation. The applicants also referred to several pre-Code US cases which illustrated the practices of either paying low value creditors in full prior to the approval of a reorganisation plan or stipulating in the plan itself for full payment to low value creditors despite other creditors receiving only partial payment.

From these authorities, the applicants sought to distil the principle that pre-Code, US courts had recognised that the payment of administrative convenience claims would benefit the debtor’s estate and other creditors by streamlining administration of the estate. They argued that this pre-Code practice of creating an administrative convenience class would be consistent with the practice in Singapore where in schemes of arrangement, debtor companies may choose to exclude low value creditors by paying them in full.

With respect to the juridical basis for the Court’s power to authorise the creation of the Administrative Convenience Class, the applicants cited the following legislative provisions:

(a) Section 3 of the IRDA, which establishes the High Court’s jurisdiction in corporate insolvency, winding up and related matters under the IRDA.

(b) Section 6(1) of the IRDA, which gives the Court the power to decide all questions of law or fact that may arise in any case or matter under the IRDA coming within the cognizance of the Court, or that the Court considers expedient or necessary to decide for the purpose of doing justice or making a complete distribution of property in that case or matter.

(c) Alternatively, O 3 rr 2(2) and 2(3) of the Rules of Court 2021 (“ROC 2021”), which permit the Court to do whatever it considers necessary in a case to ensure that justice is done and to impose any appropriate condition in exercising any power.

The decision

I granted approval for the pre-packaged Schemes, including the use of the administrative class. I was satisfied that the requirements under s 71 IRDA had been met, namely (a) the disclosure of information, and (b) the satisfaction of the statutory majority requirements in the notional counting of votes, which requires proper classification of the scheme creditors in accordance with case law on s 210 of the Companies Act 1967 (2020 Rev Ed) (“CA”): Re DSG Asia Holdings Pte Ltd [2021] SGHC 209 at [28], [29] and [44].

These brief grounds will focus primarily on the use of the Administrative Convenience Class. I was satisfied that categorising some of the applicants’ creditors in a class here, and taking their approval of the Schemes as deemed, was appropriate.

But the Court must always need to ensure that there is no undue prejudice. This is best catered for by some quid pro quo for the deemed consent to be taken from the Administrative Convenience Class, such as full payment. In addition, the mechanism introduced by the applicants allowing those in the Administrative Convenience Class to still vote if they want to, gives further strength to there being no prejudice arising here.

As for the statutory mechanism, I am doubtful that the ROC 2021 can be invoked in the manner argued for by the applicants, since class creation and composition are matters of substantive law under the IRDA and the CA. Rather, I would found it on the words of s 210 CA itself, which allows leeway to the Court to redefine the majority required for approval. Specifically, section 210(3AB) sets out the conditions under which a compromise or an arrangement is binding:

That to my mind can be then imported into s 71 IRDA, by its opening words in s 71(1) that “[d]espite section 210 of the Companies Act but subject to this section … the Court may, on an application made by the company, make an order approving the compromise or arrangement, even though no meeting of the creditors or class of creditors has been ordered under section 210(1) of that Act or held.”

The Administrative Convenience Class was thus a proper class created under the IRDA and the deemed approval fulfilled the requirements of s 71(3)(d) IRDA.