Jurong Aromatics Corp Pte Ltd v BP Singapore Pte Ltd [2018] SGHC 215 – Charges over receivables as security; contracts prohibiting assignment

In Jurong Aromatics Corp Pte Ltd (receivers and managers appointed) and others v BP Singapore Pte Ltd and another matter [2018] SGHC 215, the Singapore High Court considered the nature of charges and whether contractual clauses prohibiting assignments applied to prevent the charge from arising. The court also considered decrystallisation, estoppel, waiver, and whether insolvency set-off applied.

A charge is not, and does not involve, an assignment of property: at [40], [44].

A charge represents an agreement between creditor and debtor by which assets are appropriated to satisfy debts in priority to unsecured creditors’ claims. It does not transfer ownership of the assets. It is merely an encumbrance subject to the bona fide purchaser for value without notice: [41].

A mortgage, in contrast, involves conveyance of property subject to a right of redemption, whereas a charge conveys nothing: [44].

An assignment is a transfer of ownership of some portion of interest in the property: [45].

An assignment involves a transfer of ownership interest from the assignor to the assignee: [46].

A charged interest can possibly be assigned by the chargee to another person. But a charge in itself is not an assignment. Neither is an assignment necessary to create a charge: [47].

A contractual lien gives rise to an equitable assignment by way of a charge (registrable under the UK Companies Act): [50].

Each asset does not need to be separately assigned for it to fall under the charge. Once a charge takes effect, any asset that comes into the hands of the chargor is appropriated to the chargee without anything more: [52].

The consequence is that if notice is had of an existing charge, a person dealing with the chargor who attempts to protect assets such as receivables from coming under the charge cannot simply invoke a contractual clause to prohibit the existing charge from applying: [54].

Receivables which arose out of contracts which were concluded subsequent to a debenture are caught by and subject to the fixed and floating charge arising from the debenture, if expressed to include future assets of the company. The charges would have been operational by the time a contractual prohibition against assignment came into being: [55].

A floating charge does not fix on specific assets until crystallisation occurs. Before that time, the assets subject to the floating charge are free to be dealt with and disposed of by the chargor: [56].

A floating charge may be crystallised by appointment of receivers and managers: [58].

Whether a charge is fixed or floating depends on the factual circumstances, focusing on whether the company has been given such freedom to deal with the receivables as to render the charge ambulatory and shifting. In other words, the issue is whether the use of company’s funds for its operations goes against the existence of a fixed charge: [65].

A receiver and manager is usually the agent of the company by virtue of the security instruments but this does not mean that the property subject to the charge remains within the control of the company: [69].

Thus, receivers and managers appointed by the creditors in respect of charged assets and the use of funds pursuant to that appointment on the facts show control exercised by the creditors: [70].

On the facts, the court construed a (typical) contractual clause prohibiting assignments as not prohibiting a charge: [78].

Such clauses generally do not prohibit declarations of trust or equitable charges as they do not involve transfer of rights: [80].

The evidence (extrinsic or otherwise) did not show any intention by parties to construe the relevant contract to prohibit the charge.

A floating charge can be decrystallised, that is a charge ceasing to operate, either because of the restoration of the chargor’s management powers over the assets in question which reverts the charge to one that is floating, or the inaction of the debenture holder which allows the chargor to continue to deal with the charged assets in the ordinary course of business: [94].

There should be clear evidence before the court can find any decrystallisation. Parties can expressly agree to decrystalliation; this is generally for scenarios of unintended crystallisation: [95].

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