Case Update: The Royal Bank of Scotland NV v TT International Ltd [2012] 4 SLR 1182; [2012] SGCA 53 – disclosure of professional fee arrangements to scheme creditors and the court

The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal [2012] 4 SLR 1182; [2012] SGCA 53 – disclosure of professional fee arrangements to scheme creditors and the court

Significance: entities who act as Scheme Managers should take note of the duties and principles involved in implementing a Scheme as laid down by the SGCA in both judgments of RBS v TT International; the breach of duties may result in the Scheme being set aside and costs of the Scheme manager being forfeited.

1. The company entered into an agreement with an entity owned by the scheme manager of the Scheme of Arrangement where the company was to pay the entity a success-based fee for professional services rendered upon successful implementation of the Scheme. However, this agreement was not disclosed to the scheme creditors and to the Court prior to the sanction of the Scheme.

1. The Court of Appeal in this decision held that the agreement should have been disclosed so that scheme creditors could make an informed decision on whether to support the Scheme given the potentially large amount involved that could affect their financial interests: at [23].

1. The Court held that a company to be subject to a Scheme had an obligation to disclose all material information to the scheme creditors, including contingent liabilities, and not use the device of ‘excluded creditors’ in a Scheme to keep actual or contingent liabilities hidden from other creditors: at [20]-[23].

1. The Scheme Manager likewise had an obligation to act in good faith to the scheme creditors and not mislead or suppress material information from them. He also has an obligation to not place himself in conflict of interest; where there is conflict, informed consent of the scheme creditors is required: at [25]-[27].

1. The Court emphasised the need for companies proposing schemes of arrangement and proposed scheme managers to be mindful of the interests of the creditors in discharging their duties, and to have “transparency … be the guiding principle of all corporate actions when creditors’ interests are affected, as is the case in a scheme of arrangement”: at [28]-[32], [37].

1. Generally, where there is a breach of duty to disclose material information by the company and the Scheme Manager, it would result in the Scheme being set aside and put to a fresh vote; the Scheme Manager would also have been deprived of his costs: at [33], [36].

1. On the facts of this case, however, the Court decided not to set aside the Scheme because it had already been implemented for more than two (2) years and it was not practical to set it aside without causing more harm to the company and the creditors; instead, the parties are directed to reach an agreement on the appropriate amount of professional fees awarded for the Scheme Manager: at [33]-[34].

1. The Court further stated as obiter that “a commercial practice [in this case of the Scheme Managers disclosing success-based fee arrangements to scheme creditors or to the courts], no matter how widespread, does not have the force of law by dint of accident of vintage or absence of protest if it is contrary to legal principle”: at [14].