SAAG Oilfield Engineering (S) Pte Ltd (formerly known as Derrick Services Singapore Pte Ltd) v Shaik Abu Bakar bin Abdul Sukol and another and another appeal  2 SLR 189;  SGCA 7 – whether workmen who have tortious claims against a company (contingent creditors) are creditors under a scheme of arrangement.
Two workmen suffered injuries in industrial accidents in the course of their employment under a company (Derrick Services), which was later bought over by SAAG, and initially lodged claims under the then Workmen’s Compensation Act (“WCA”). The company was subject to a Scheme of Arrangement. The two workmen did not attend the creditors’ meeting and did not submit any proof of debt to the Scheme administrators. After the Scheme had terminated, the workmen withdrew their WCA claims and commenced common law tort actions against SAAG. SAAG applied to the High Court to determine whether these tort actions had been extinguished by the implementation of the Scheme.
The High Court held that the workers’ tortious claims were not extinguished by the Scheme as they did not participate in the Scheme and their claims were covered by insurance policy which the former company, Derrick Services, and SAAG had in respect of the workmen’s claims. SAAG appealed, so their tortious liability would be effectively borne by the insurer.
The Court of Appeal allowed the appeal and held that the workmen (who were contingent creditors) were deemed creditors for the purposes of section 210 of the Companies Act and specifically for the purposes of the Scheme.
The fact that the workmen’s claims were covered by insurance (or guarantee or indemnity) made no difference to the analysis of whether the workmen were creditors (at ).
The Court thought that it would render section 210 (which provides for Schemes of Arrangement) pointless if tort claimants, who may form a substantial class of a company’s creditors, are excluded from a Scheme (at ).
Where claims against a company have not been agreed, it is usual to allow creditors to vote for the amounts for which they estimate that the company is liable to them, subject to reasonableness. Where there is serious doubt over the existence and/or size of a tort claimant’s unliquidated claim, and if such a claim is critical to determining whether there is the requisite majority for the Scheme to be executed, then the creditors’ meeting should be adjourned and the matter be decided by the courts: at .
The Court followed the English decision of Re Midland Coal, Coke, and Iron Co, Re  1 Ch 267 and held that creditors include contingent creditors whose claims could be admitted to proof in a winding up, even if it was for an unproven, unliquidated amount (at , ).
The Court then held that the workmen were Scheme Creditors under the definition of the Scheme (based on contractual interpretation) because SAAG was liable to them, notwithstanding that they were indemnified against that liability by virtue of the insurance policy (at ).
It was not open for a creditor (who was intended to be bound by the Scheme) to argue that he was not bound because he did not consent to or participate in the Scheme and thus did not receive any payouts, because a Scheme was a statutory contract and was not subject to common law requirements of contractual formation, e.g. need for consideration etc: at -.
The workmen were therefore bound by the terms of the Scheme and therefore precluded from maintaining their common law claims against SAAG: at .
There would be no injustice in this case because the workmen still had recourse to their WCA claims as the WCA claims were under the terms of the Scheme: at -.
However, this was merely fortuitous. In future cases, tort claimants who were not aware of and/or did not participate in a Scheme could find their claims entirely barred without their knowledge: at .
Thus, the Court stated several guidelines adopted from the Australian decision of R L Child & Co Pty Ltd (1986) 10 ACLR 673 so that such a wide interpretation of ‘creditors’ taken would not cause injustice (at ):
A responsible officer of the company proposing the scheme should provide evidence that the company has received no notice of any pecuniary claim against it and it is not aware of any circumstances likely to give rise to a pecuniary claim against the company other than what was disclosed to the court.
The courts should be slow to approve a scheme which would have the effect of barring a potential claim with no effective notice of the scheme given to the potential claimant and where this can be avoided without frustrating the commercial purpose of the scheme.
It would be appropriate to qualify the definition of a creditor in a scheme of arrangement to exclude any person having a claim in respect of which the company is entitled to indemnity under a policy of insurance, to the extent of the amount recoverable under such policy in respect of such claim.
Significance: entities who act as Scheme Managers should advise the company in respect of the above guidelines laid down by the SGCA in relation to contingent creditors vis-a-vis a Scheme.