1 The liquidators of Aavanti Offshore Pte Ltd (“the liquidators”), who is the applicant in this Originating Summons, sought various orders, directions and declarations relating to the validity of certain security interests that the applicant had granted over its assets, as well as the validity of debit notes issued to the applicant’s subsidiary. The two respondents, creditors of the applicant, take different positions on these various matters sought.

2 The applicant is a Singaporean company currently in liquidation, ¹ which owns about 95% of the share capital in PT Palm Lestari Makmur (“PT Palm”), a company incorporated in Indonesia. ² The shares of PT Palm are key assets of the applicant. ³ The 1st respondent is Bab Al Khail General Trading (“BAB”), a United Arab Emirates entity. ⁴ The 2nd respondent, Aavanti Industries Pte Ltd (“AIPL”), is a Singaporean company which is now in liquidation after having gone through judicial management for some time. ⁵ AIPL is the sole shareholder of the applicant, ⁶ and had the same sole director as the applicant. ⁷

3 In June 2012, the applicant entered into a Convertible Loan Agreement (“CLA”) with Sawit Plantations Pte Ltd (“Sawit”). ⁸ Under the CLA, Sawit made available to the applicant a loan facility of up to US$10,000,000. ⁹ The applicant subsequently drew a total of US$9,885,000 from this facility. ¹⁰ Clauses 7.6 and 9.1 of the CLA contained putative arrangements for the applicant to grant security in favour of Sawit. ¹¹ These clauses are the subject of the dispute and are discussed in greater detail below.

4 Subsequently, Sawit entered into an Assignment Agreement (“AA”) with BAB under which Sawit unconditionally and irrevocably assigned to BAB all amounts due and payable by the applicant to Sawit under the CLA and “all Sawit’s rights, title and interest” under the CLA. ¹² BAB gave the applicant notice of this assignment. ¹³

5 Around 12 February 2018, the applicant passed a resolution to place itself in provisional liquidation. ¹⁴ About a week after, BAB issued a letter of demand to the applicant, stating that the applicant had breached their obligations under the CLA by failing to pay the annual interest owed to BAB, and hence that BAB could “immediately exercise the pledge on… all assets of [the applicant]”. ¹⁵ Pursuant to the AA, BAB then lodged a proof of debt against the applicant for the sum of US$13,202,051.40 against the applicant, ¹⁶ representing the drawdown from the loan facility, inclusive of interest and subject to additional interest. ¹⁷

6 The liquidators were appointed in March 2018. ¹⁸ BAB wrote to the applicant demanding that the liquidators execute the necessary security documents to perfect BAB’s entitlement to security over the applicant’s assets, including the shares of PT Palm that the applicant owns. ¹⁹

7 The liquidators obtained legal advice on the validity of the entitlement to security claimed by BAB. ²⁰ They were advised to execute the security documents to give effect to the entitlement to security. ²¹ BAB and AIPL’s consent was sought for the liquidators to proceed to give effect to BAB’s erstwhile entitlement to the security pursuant to the CLA, in order to resolve the matter expediently. ²² BAB agreed, ²³ but AIPL objected and disputed BAB’s entitlement to the security. ²⁴

8 While under judicial management, AIPL issued two debit notes (“Debit Notes”) to PT Palm for a total sum of US$455,000. ²⁵ The Debit Notes were described as “Being management fees for the following period: December 2010 to July 2017” and “Being management fees for the following period: January 2018”. ²⁶

9 BAB subsequently wrote to the applicant, raising concerns as to whether the Debit Notes were justified. ²⁷ PT Palm also wrote to AIPL, rejecting the validity of the Debit Notes. ²⁸ Thereafter, BAB wrote to the applicant requesting that the latter apply to court to determine the validity of the Debit Notes. ²⁹

10 The liquidators applied to court pursuant to s 310(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”), seeking the following: ³⁰

(a) a request that the liquidators be authorised to appoint solicitors to assist them;

(b) a declaration that the applicant is bound by the terms of the CLA;

(c) a declaration that the applicant is obliged to encumber all its assets, including the shares in PT Palm owned by the applicant, for the benefit of BAB;

(d) an order that the liquidators execute all security documents as appropriate to comply with the CLA; and

(e) declarations that the Debit Notes are void and/ or invalid, or in the alternative, a direction that the liquidators proceed with the liquidation on such a basis.

11 In relation to BAB’s entitlement to security, the legal opinion given to the liquidators concluded that the debt under the CLA was validly attached, the CLA was validly assigned from Sawit to BAB, and that BAB’s entitlement to security was enforceable, with the debt due to BAB having priority to unsecured debts. ³¹

12 The liquidators could not verify the proof of debt of the Debit Notes. ³² They claimed standing to apply for declarations in respect of these notes. They also argued that determination of the validity of the Debit Notes was necessary as recognition of the Debit Notes would affect the value of the applicant’s shares in PT Palm, and thus on the realisable value of such shares. ³³ They further contended that pursuant to s 269(1) of the Companies Act, affairs pertaining to the shares in PT Palm were within the applicant’s custody and/ or control, as the applicant is PT Palm’s majority shareholder. ³⁴ By letter, PT Palm agreed to submit to the court’s findings in this application. ³⁵

13 The liquidators were purportedly prepared to proceed on the basis of the legal opinion that they had obtained. They argue that they were compelled to take out the present application as AIPL disagreed with BAB’s entitlement to security while BAB disputed the validity of the Debit Notes. ³⁶

14 BAB argues that the applicant is obliged to encumber its assets in favour of BAB, and that the court should order the execution of the necessary security documents. Clause 9.1 of the CLA purportedly makes clear that parties intended for the applicant to confer on BAB the beneficial interest in all of the applicant’s assets as security for the loan. ³⁷ If the security documents are not executed now, the applicant would have unfairly obtained a windfall at BAB’s expense. ³⁸ Ordering execution of the security documents is not an unfair preference as it occurs after the commencement of winding up, which is outside the prohibited period, ³⁹ and it is not a void disposition under s 259 Companies Act as BAB already had beneficial title to the assets. ⁴⁰ The security interest is not void for lack of registration under s 131 of the Companies Act as it is not a charge, but merely an entitlement to security. ⁴¹

15 BAB also contends that the court should grant a declaration that the Debit Notes are void or invalid as the applicant is the proper party to apply to determine the validity of the Debit Notes for several reasons. First, as AIPL is in liquidation, PT Palm can only commence proceedings against AIPL with leave of court. ⁴² Moreover, the sole director of PT Palm cannot be found and/ or is uncooperative. ⁴³ On the other hand, the applicant is the majority shareholder of PT Palm and thus has an interest in PT Palm’s assets. ⁴⁴ The proceedings will also have an impact on the PT Palm shares, which are the main assets of the applicant, as the Debit Notes (if valid) will diminish the value of such shares. ⁴⁵ Finally, AIPL has not itself commenced proceedings against PT Palm to recover the sum allegedly due and owing under the Debit Notes. ⁴⁶

16 BAB further submits that PT Palm had, through its solicitors, agreed to be bound by the decision of this court in relation to the Debit Notes. ⁴⁷

17 BAB highlights PT Palm’s confirmation that there was no valid basis for the Debit Notes to have been issued, and contends that AIPL has failed to produce any credible evidence to substantiate the Debit Notes. ⁴⁸

18 AIPL argues that the applicant does not owe BAB any security interest since no security documents were executed. ⁴⁹ Since parties did not intend for cl 9.1 of the CLA to create an immediate security interest, cl 9.1 itself does not create any equitable security interest. ⁵⁰ Even if the CLA is intended to create or does create an equitable security interest, the equitable security interest created is a floating charge which is void against the applicant for lack of registration under s 131 of the Companies Act. ⁵¹ There has also been an inordinate delay in enforcing any such equitable security and the equitable doctrine of laches disentitles BAB from the benefit of any such equitable security interest created. ⁵²

19 Further, AIPL maintains that the Debit Notes are valid. It contends that the proper party to dispute the Debit Notes is PT Palm and not the applicant and/or BAB, who are not parties to the Debit Notes. ⁵³ In any case, the Debit Notes are valid and enforceable as they are based on an understanding reached at a meeting on 21 December 2017 between one Mr Perumal s/o Samikavandan (“Mr Perumal”) on PT Palm’s behalf, and the judicial managers of AIPL. ⁵⁴ Pursuant to this understanding, PT Palm would reimburse AIPL for paying Mr Perumal and Mr Edmond Perera’s (“Mr Perera”) salaries on its behalf. ⁵⁵

20 The issues to be decided are as follows:

(a) whether a declaration that the CLA is binding on the applicant should be granted;

(b) what security interest is conferred by cl 9.1 of the CLA, if any;

(c) the validity of any security interest(s) created by cl 9.1 of the CLA;

(d) whether the requirements to grant a declaration in respect of the Debit Notes are met;

(e) if such requirements are met, whether the Debit Notes are valid;

(f) if such requirements are not met, whether to give a direction to the liquidators to proceed as though the Debit Notes are void;

(g) whether to grant an order that the liquidators are authorised to appoint solicitors to assist them; and

(h) whether the court should order costs of these proceedings to be paid out of the applicant’s assets, before disbursement to the creditors.

While a number of the orders sought were not contested, the basis of such orders would still have to be considered.

21 The liquidators seek a declaration that the applicant is bound by the terms of the CLA. However, they have failed to satisfy the requirements for granting declaratory relief that were laid down by the Court of Appeal in Karaha Bodas Co LLC v Pertamina Energy Trading Ltd and another appeal [2006] 1 SLR(R) 112 (“Karaha Bodas”) (at [14]):

22 There is no real controversy or uncertainty as regards the CLA. Neither respondent contests the validity or the binding nature of the CLA. The language of the CLA appears quite definitive; cl 17.2 explicitly states that the CLA shall be a “valid and binding obligation” of the applicant. It is hard to see why any such declaration is in fact required. No order is made on this.

23 The questions in relation to the security purportedly created under the CLA were: what security interest was in fact granted; and whether the security is valid.

24 The CLA was originally between Sawit and the applicant; BAB’s arguments were made on the basis that the AA is valid and that any rights belonging to Sawit under the CLA now belong to BAB. There was no real dispute on this point. ⁵⁶ For ease of reference however, Sawit is taken as the lender mentioned in the CLA.

25 Clause 9.1 purports to grant security to Sawit: ⁵⁷

26 The difficulty in the present case is that the security documents were not executed, and AIPL has taken issue with the validity and perfection of the security.

27 There is an issue as regards the scope of the rights conveyed by cl 9.1(iii) – whether it extends to security over the shares held in the applicant and investments by the applicant in any other entity. BAB took an expansive view of the security granted under the CLA. ⁵⁸

28 A plain reading of cl 9.1(iii) gives Sawit the right to require the applicant to procure and ensure that all of its shareholders grant pledge over all issued and paid-up shares held by them in the applicant and the investments of the applicant in any other entity, for the benefit of Sawit or such other party appointed by Sawit. The sole shareholder of the applicant, ⁵⁹ AIPL, did not execute any security documents needed to grant any such pledge of its shares in the applicant. ⁶⁰ Nevertheless, any potential action that can be pursued by BAB against AIPL is not before me and I do not have to decide this issue.

29 BAB further submits that the CLA required the applicant to grant a pledge over its investments in other entities. ⁶¹ This interpretation seems to stem from a reading of cl 9.1 in the following manner: “[Sawit] shall require the [applicant] to… grant pledge over… the investments of the [applicant] in any other entity for the benefit of [Sawit]…” However, this reading omits crucial words from the original language of cl 9.1 and goes against cl 9.1’s natural plain meaning. The clause actually reads: “[Sawit] shall require the [applicant] to… [p]rocure and ensure that all of its shareholders grant pledge over all issued and paid-up shares held by them in the [applicant] and the investments of the [applicant] in any other entity for the benefit of [Sawit]…” BAB did not address why the clause should be construed in a way that is different from its plain meaning. I find that the plain meaning should be taken to be the objective intentions of the parties, and hence the clause does not require the applicant to grant any pledge, but merely to procure and ensure that its shareholders grant the stated pledge.

30 BAB argues that cll 9.1(i) and 9.1(ii) did not create charges and are merely entitlements to security, and the court should order execution of the necessary security documents. ⁶² BAB seems to have implicitly accepted that the clauses are agreements to create charges. ⁶³ Conversely, AIPL argues that the clauses created floating charges. ⁶⁴

31 The applicable approach when construing whether and what security interest is created was laid down in Diablo Fortune Inc v Duncan, Cameron Lindsay and another [2018] 2 SLR 129 (“Diablo”) at [57]): first, to identify the rights conferred under the security; and second, to identify the appropriate legal characterisation of such rights.

32 A plain reading shows that the rights conferred by cll 9.1(i) and 9.1(ii) are:

(a) the right of Sawit to “require” the applicant to encumber all of its assets for the benefit of Sawit or any other party nominated by Sawit (per cl 9.1(i));

(b) the right of Sawit to “require” the applicant to encumber the bank account registered under its name for the benefit of Sawit or any other party nominated by Sawit (per cl 9.1(ii)); and

(c) the right of Sawit to compel the applicant and its shareholders to “execute and deliver to [Sawit] the agreements” in respect of cl 9.1(i) and cl 9.1(ii) (per cl 9.1);

33 There are two issues of characterisation which need to be resolved: (1) whether the clauses convey legal security interests or are mere agreements to create security interests; and (2) what the nature of the security interests are.

34 Clause 9.1 is not stand-alone but only clarificatory in nature and meant “for purposes of clarity in addition to clause 7 hereinbefore”. Hence, cl 7, particularly cl 7.6, must first be considered. Clause 7.6 provides: ⁶⁵

35 If cl 7.6 is read in isolation from cl 9.1, it appears that a legal security interest is granted by the applicant to Sawit over all the applicant’s assets, because cl 7.6 does not mention that the security interest only takes effect on the occurrence of a contingent event or on a future date. This is supported by the finding in Diablo which deals with a clause substantially similar to cl 7.6. Diablo held that the clause was not merely an agreement to create a security, but created one itself, since the interest was not expressed to only arise in the future. The Diablo clause reads (at [10]):

36 The phrase “to have a lien upon all cargoes” in the Diablo clause is substantially similar to the phrase “shall have an exclusive lien on all assets” in cl 7.6 of the CLA in that both do not mention that the security interest only takes effect on the occurrence of a contingent event or on a future date.

37 Notwithstanding the above, cl 7.6 must be read in light of cl 9.1, which is intended to explicate cl 7. Clause 9.1 makes it clear that a security interest is not immediately granted, but that a further step through the execution and delivery of security documents is needed to execute these security interests. This is not disputed by the parties, who both agree that cl 9.1 does not convey any legal security interest. ⁶⁶

38 A difference in effect thus arises between construing cl 7.6 on its own, and reading it with cl 9; cl 7.6 in itself conveys a legal security interest, while cl 9.1 is merely an agreement to execute security interests. Reading the two clauses together harmoniously, cl 9.1 serves to develop the operation of cl 7.6 by setting out the mechanism by which the security interest in cl 7.6 will be granted, namely by way of the security documents that the applicant is bound to execute and deliver to Sawit. Hence, when cl 7.6 is read with cl 9.1, cl 7.6 should similarly be read as an agreement to execute security interests. In any case, it does not matter whether cll 7.6 and 9.1 are characterised as legal security interests or agreements to create security interests which potentially create equitable charges, because, as will be shown below (see [63] below), both characterisations constitute charges under s 4 of the Companies Act and are void for lack of registration.

39 Following from the above, cll 9.1(i) and 9.1(ii) are obligations to execute security interests in favour of Sawit, in respect of “all assets of the [applicant]” (per cl 9.1(i)), as well as “the bank account registered under the name of the [applicant]” (per cl 9.1(ii)). If cl 9.1(i) was read in isolation, I would have thought that “all assets” inherently include the bank account registered under the applicant’s name, since the bank account is also an asset. However, since the bank account is covered under cl 9.1(ii), the objective intention of the parties must be that cl 9.1(i) refers to all assets, excluding the bank account. Such an interpretation prevents cl 9.1(ii) from being otiose.

40 Clauses 9.1(i) and 9.1(ii) do not specify the nature of the security interest, only providing that Sawit shall require the applicant to encumber the security assets. “Encumber” is defined in cl 1.1(j) of the CLA to mean:

41 This definition is extremely broad and similarly does not specify the exact nature of the security interest that may be encumbered. Hence, it is necessary to first construe the nature of the security interest in cl 7.6 before returning to cll 9.1(i) and 9.1(ii), which are only meant to clarify cl 7.

42 The applicant adduced a legal opinion from their solicitors which argued that cl 7.6 was a contractual possessory lien. ⁶⁷ Neither AIPL nor BAB seems to have made submissions on the nature of the security interest conveyed by cl 7.6. ⁶⁸

43 In my view, the security interest conveyed by cl 7.6 is a floating charge. Although the security interest is described in cl 7.6 as an exclusive lien, the wording of the clause is not conclusive. As noted in Diablo at [57], the characterisation of a security interest should be done with an emphasis on substance, not form. The subjective intentions of the parties or the labels used are not determinative (Diablo at [57]).

44 Applying these principles, it is clear that the security interest in cl 7.6 is not actually a lien. A true lien requires the holder of the lien to have possession of the assets over which the lien is asserted. The same point is underscored in Michael Bridge et al, The Law of Personal Property (Sweet & Maxwell, 2nd Ed, 2018) (“Bridge”), which states at p 377: ⁶⁹ “As with all possessory liens, the holder of a contractual lien must have possession of the assets over which the lien is asserted; if this is not obtained, then there is no lien.”

45 The security interest granted by cl 7.6 is not a lien as it is non-possessory. It does not confer on Sawit a right to take possession of the applicant’s assets. Instead, it allows the applicant to possess and deal with the assets as it pleases, ⁷⁰ even being able to “[sell] or otherwise dispose[]” of them. ⁷¹ This must be the objective intention of the parties as the security is over all assets; if Sawit had possession over all of the applicant’s assets, it would be impossible for the applicant to conduct its business. Sawit has also never had any other form of possession over the assets as the applicant has never transferred possession of any of its assets to Sawit and/ or BAB. ⁷²

46 Clause 7.6 is hence a contractual non-possessory lien, which is not a true lien, but is in substance a charge. As stated in Bridge at p 377: ⁷³ “… A ‘contractual lien’ agreed between the parties but not requiring possession is therefore very likely to be characterised as a charge, a security that does not depend on possession.”

47 In Diablo, the Court of Appeal held (at [58]) that the contractual non-possessory lien over sub-freights was actually a floating charge because it exhibited the defining characteristics of a floating charge. These defining characteristics include the three requirements found in In re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284, that: (Diablo at [38], [58]):

(a) It is a charge on a class of assets of a company both present and future.

(b) This class of assets is one which would, in the ordinary course of business of the company, be changing from time to time.

(c) It is contemplated that until some future step is taken by or on behalf of those interested in the charge, the company may carry on business in the ordinary way so far as this class of assets is concerned.

48 In addition, the other characteristics exhibited by the security in Diablo were that (at [58]):

(a) The security created an equitable assignment of sub-freights earned by the grantor to the grantee, which was not absolute but by way of security.

(b) The grantee had a dormant right to claim the sub-freights in fulfilment of the grantor’s obligations under the charter.

(c) Such right was exercisable after notice of the lien was given to the grantor.

49 In making this holding, the Court of Appeal observed that “the holder of a lien on sub-freights enjoys rights that are no different from a floating chargee” (at [44]), and that (at [46]):

50 Clause 7.6 therefore appears to create a floating charge as it exhibits the defining characteristics of one: (1) the security created is a charge on the assets of the applicant both present and future; (2) the applicant’s assets would be changing from time to time in the ordinary course of business; (3) it is contemplated that until some future step is taken, the applicant may carry on its business in the ordinary way so far as its assets are concerned; (4) the cl is an equitable assignment of the assets by way of security, and not absolutely; and (5) the claim over the assets is a dormant one which has to be activated by giving notice to the applicant, as the assets are in the possession of the applicant for its business purposes.

51 Since cll 9.1(i) and 9.1(ii) are meant to clarify cl 7, and the nature of the security in cl 7.6 is a floating charge, cll 9.1(i) and 9.1(ii) must be similarly interpreted to refer to a floating charge.

52 For the above reasons, I find that cll 9.1(i) and 9.1(ii) are agreements to execute a floating charge in respect of all assets of the applicant, as well as the bank account registered under the name of the applicant.

53 BAB argued that s 131(1) of the Companies Act does not apply to an agreement to create a charge, and since no valid charge has been created, its security interests are not void for failure of registration. ⁷⁴ AIPL contended that an equitable floating charge arose at the time of contracting, and is void for want of registration under s 131(1) of the Companies Act. ⁷⁵

54 Section 131(1) of the present Companies Act provides that where a charge to which s 131 applies is not registered within 30 days of its creation, it shall be void against the liquidator and any creditor of the company. Section 131(3AA) of the present Companies Act provides that s 131 applies to any charge that:

(a) falls under the version of s 131(3) that was in force immediately before the date of commencement of s 63 of the Companies (Amendment) Act 2014 (Act 36 of 2014) (“Companies (Amendment) Act 2014”); and

(b) was created before that date.

55 Section 63 of the Companies (Amendment) Act 2014 provided for the amendment of s 131 of the Companies Act, and its date of commencement was 3 January 2016 (para 2 of the Companies (Amendment) Act 2014 (Commencement) (No. 2) Notification 2015). Hence, the version of s 131(3) which was in force immediately before the date of commencement of s 63 of the Companies (Amendment) Act 2014 is the version of the Companies Act as at 2 January 2016 (“Companies Act 2016”).

56 The charges that fall under s 131(3) of the Companies Act 2016 include:

57 It is noted that only s 131(3)(g) refers to a floating charge whereas the other sub-sections of s 131(3) refer to a charge. This difference must have been intentional, such that only floating charges of the undertaking or property of a company must be registered, whereas both fixed and floating charges of the other categories of assets listed must be registered.

58 The definitions of a charge are identical under both the Companies Act and the Companies Act 2016. Pursuant to s 4 of the Companies Act 2016, a charge includes “any agreement to give or execute a charge… whether upon demand or otherwise”. It was held in Diablo (at [67]) that an agreement to execute a charge does not have to be specifically enforceable in order to constitute a charge under s 4 of the Companies Act, and that s 4 of the Companies Act is broad enough to cover even an agreement to create a charge which is conditional on the occurrence of a contingent event. The court further affirmed (at [67]) the holding in United Overseas Bank Ltd v The Asiatic Enterprises (Pte) Ltd [1999] 2 SLRI 671 that “an option to take or create a charge is no different in truth from agreeing to give or execute a charge”.

59 Hence, an agreement to execute a floating charge on any undertaking, property, book debts or shares of a subsidiary of a company owned by the company, would all fall under s 131(3) of the Companies Act 2016. If they also fulfil the second criterion of being created before 3 January 2016, s 131(1) of the present Companies Act would apply to require registration.

60 As mentioned, cl 9.1(i) is an agreement to execute a floating charge over all the assets of the applicant, excluding the registered bank account of the applicant. Read with s 4 Companies Act 2016, cl 9.1(i) falls under s 131(3)(g) of the Companies Act 2016. Alternatively, to the extent that the assets contain shares of a subsidiary of a company owned by the applicant, cl 9.1(i) would also fall under s 131(3)(c) of the Companies Act 2016; and to the extent that the assets contain book debts, cl 9.1(i) would also fall under s 131(3)(f) of the Companies Act 2016.

61 Clause 9.1(ii) is an agreement to execute a floating charge over the registered bank account of the applicant. This would constitute a charge over “the undertaking or property of a company” and fall under s 131(3)(g) of the Companies Act 2016. ⁷⁶

62 The date of creation of both cll 9.1(i) and 9.1(ii) was 1 June 2012, before the date of commencement of s 63 of the Companies (Amendment) Act 2014. By virtue of s 131(3AA), the registration requirements of s 131(1) of the present Companies Act apply to both cll 9.1(i) and 9.1(ii). Since the charges were not registered within 30 days after their creation, ⁷⁷ they are void against the liquidator and any creditor of the applicant.

63 It is not necessary to discuss AIPL’s contention that an agreement to create a floating charge amounts to an equitable charge under the common law. Section 4 of the Companies Act makes it sufficiently clear that an agreement to create a floating charge amounts to a charge under the Companies Act, and this statutory definition is all that is needed to resolve this issue.

64 From the foregoing, there is no valid security interest owed by the applicant to BAB under cl 9.1.

65 I respond briefly to some points made by BAB. First, even if AIPL receives a windfall as a result of the invalidity of the charges, this is simply the legal consequence of the agreement that was entered into. Second, it is irrelevant whether AIPL had knowledge or notice of the CLA. The Companies Act makes it clear that non-registration of a charge renders it void, regardless of whether other creditors had notice of the charge.

66 There is no need to deal with BAB’s arguments on unfair preference and void disposition (per [14] above) as the security interests have been found to be charges, which have been found to be void. For the same reason, there is also no need to deal with AIPL’s argument on laches.

67 The applicant seeks a declaration that the Debit Notes are void and/ or invalid. The legal requirements to grant a declaration as established by Karaha Bodas have been set out at [21] above and are reproduced here for ease of reference:

68 Requirement (e) of the Karaha Bodas requirements provides that all parties with affected interests should be before the court. This rule originated from the case of London Passenger Transport Board v Moscrop [1942] 1 AC 332 (“Moscrop”). There, the plaintiff sought a declaration that a contract between his employer and a trade union was void for violation of an anti-discrimination provision, as it allowed the employer to discriminate against persons not in that trade union. However, the affected trade union was not joined as a party. Viscount Maugham refused the declaration, stating (at 345) that:

69 This requirement was first accepted by the Court of Appeal in Karaha Bodas. It was later applied by the High Court in Ng Foong Yin v Koh Thong Sam [2013] 3 SLR 455 (“Ng Foong Yin”) at [21]–[25] and The One Suites Pte Ltd v Pacific Motor Credit (Pte) Ltd [2014] 4 SLR 806 (“Pacific Motor”) at [97]–[101]. In both of these cases, the failure to join all interested parties was a reason for refusal of the declarations sought.

70 The rationale for this requirement is that it ensures that all persons who may be prejudiced by the declaration are given the opportunity to raise objections to the declaration (see Singapore Court Practice 2017 (Jeffrey Pinsler gen ed) (LexisNexis, 2017) (“Court Practice 2017”) at p 559; Ng Foong Yin at [23]). Further, it ensures that the court takes into account all considerations in the course of exercising its discretion (Court Practice 2017 at p 559), including evidence that could be adduced by the interested party (Pacific Motor at [100]). In addition, there is a general rule that only actual parties to the proceedings are bound by the remedy and that joining the interested party would also serve to bind him (Court Practice 2017 at p 559).

71 In the instant matter, PT Palm was not joined as a party, although their interests are clearly and directly affected by the declaration pertaining to the Debit Notes. That means that PT Palm would not be bound by an order made by this court. Both the applicant and BAB highlighted that PT Palm had consented to submit to the findings of this court, ⁷⁸ ostensibly implying that PT Palm therefore did not need to be joined as a party. However, the mere consent of PT Palm to be bound by the decision of this court is insufficient as PT Palm can conceivably resile from this consent. There is no legal basis to hold PT Palm to its consent, except for possibly some form of estoppel or other representation-based doctrine as between PT Palm and the parties. The court cannot by the order hold PT Palm to its supposed consent. Hence, no order made by the court can be expressed to extend to PT Palm, nor can it have the effect of doing so.

72 Further, this court would be making a decision based on incomplete knowledge, without the benefit of PT Palm’s evidence and arguments. PT Palm’s evidence is crucial as it is the party central to the dispute of whether it had agreed to reimburse AIPL for management fees. BAB’s submissions relied extensively on an email and a letter sent by Mr Perumal, the plantation manager of a plantation owned by PT Palm, in support of its claim that there was no agreement by PT Palm to reimburse AIPL. ⁷⁹ These emails were tendered by BAB as alleged witness evidence given by Mr Perumal concerning his knowledge about the dispute. This is not desirable as such evidence is many steps removed from the primary source. The court is effectively limited to relying on BAB’s representations that the contents of these emails allegedly sent by Mr Perumal, who is allegedly the agent of PT Palm, are indicative of PT Palm’s position in this dispute. PT Palm should have been joined as a party to the proceedings, and Mr Perumal should have given such witness evidence by way of affidavit.

73 For these reasons, I find that the requirement that all affected parties be before the court is not satisfied and the declaration should not be granted. The situation might have been different if PT Palm had been joined to the proceedings but had chosen not to take part. BAB argued that PT Palm was not joined because of practical concerns. ⁸⁰ However, even if true, these difficulties do not mean that the legal requirement can be ignored.

74 Parties also made substantial submissions regarding locus standi, which is another requirement for declaratory relief. The applicant argued that it has standing pursuant to s 269(1) of the Companies Act (per [12] above). BAB took the same position as the applicant and argued that the applicant is the proper party to apply to determine the validity of the Debit Notes for the reasons set out at [15] above. Conversely, AIPL argued that the proper party to dispute the Debit Notes is PT Palm, who is party to the Debit Notes, unlike the applicant and BAB. ⁸¹ AIPL also argued that the court should not entertain litigation by proxy. ⁸²

75 Given the finding above that PT Palm should have been joined, it is not strictly necessary to discuss the issue of standing, but I will do so for completeness. The locus standi rule in respect of declarations is that only a party with a legal right in the subject matter of the dispute should be able to seek a declaration. AIPL adopts this rule and argues that the applicant has no standing as it is not a party to the Debit Notes. BAB argues for a broader proposition that any party with a significantly affected interest will have locus standi, and that since the applicant owns 95% of the shares of PT Palm, it has locus standi as the validity of the Debit Notes would significantly affect its interests.

76 The simple answer to BAB’s argument is that Karaha Bodas has decisively dealt with this issue, establishing AIPL’s approach as the legal position in Singapore and rejecting BAB’s position. In Karaha Bodas, the Court of Appeal stated (at [15]) that “in order to have the necessary standing, the plaintiff must be asserting the recognition of a ‘right’ that is personal to him”, and (at [19]) that “the jurisdiction of the court to make declarations of rights was confined to declaring contested legal rights of the parties represented in the litigation”. The Court of Appeal also affirmed (at [15]) Lord Diplock’s remarks in Gouriet that “… for the court to have jurisdiction to declare any legal right it must be one which is claimed by one of the parties as enforceable against an adverse party to the litigation”.

77 The authorities in favour of the approach propounded by BAB were dealt with comprehensively in Karaha Bodas (at [22]–[26]).

78 In the present case, since the applicant is not a party to and has no legal right in relation to the Debit Notes, it also has no locus standi to seek a declaration.

79 There may also be an issue about whether Singapore is the appropriate forum for the resolution of the Debit Notes issue, as well as the relevance of Indonesian law and whether sufficient evidence about it was given. These may have to be matters considered on another day.

80 Given my holding that the requirements to grant a declaration are not met, there is no need for me to decide the merits of whether the Debit Notes are valid. Nevertheless, since parties have made extensive submissions, I make some brief comments for completeness.

81 In my view, the basis to support the validity of the Debit Notes seems to be thin. The primary basis for the validity of the Debit Notes seems to be an alleged oral agreement between Mr Perumal, acting on behalf of PT Palm, and AIPL, made at a meeting on 21 December 2017. ⁸³ It was alleged that under this agreement, PT Palm agreed to reimburse AIPL for the salaries of Mr Perumal and Mr Perera. ⁸⁴ However, no records or contemporaneous minutes of this meeting were adduced to substantiate this alleged oral agreement. Further, it is strange that this alleged oral agreement only occurred on 21 December 2017, but is alleged to be an agreement for PT Palm to reimburse AIPL for salaries dating all the way back to 2010. ⁸⁵ In relation to the Debit Note made on February 2018, it is also unclear whether management services were really rendered to PT Palm as claimed by AIPL, as PT Palm has denied that there were such management services. ⁸⁶

82 The liquidators sought a direction to proceed with the liquidation as though the Debit Notes are invalid. While the determination of the security interest issue was properly raised to the court, the issue of the Debit Notes should not have been raised for the reasons stated above. The basis for any direction by the court to authorise the liquidators to proceed as sought has not been made out.

83 I would further note that liquidators should only seek directions if in real legal doubt. It is not for liquidators to throw questions of commercial discretion to the court. In appropriate cases, in addition to the refusal of the court to substitute its directions for the commercial decision of the liquidator, the court may also disallow the liquidator the costs incurred both by him directly as well as in instructing counsel, leaving it to him to bear such costs personally.

84 The liquidators applied for the court to authorise them to appoint solicitors to assist them in their duties. This was not contested by the respondents. The appointment of solicitors sought appears necessary in view of the legal matters canvassed, and as such, the request is granted.

85 In conclusion:

(a) No declaration is granted as to whether the CLA is binding on the applicant, as there is no real controversy or dispute.

(b) In relation to the security interest issue, cll 9.1(i) and 9.1(ii) amount to charges under s 131 of the Companies Act that are void against the liquidator and creditors of the applicant for failure of registration. I also find that cl 9.1(iii) does not require the applicant to confer any security interest.

(c) In relation to the Debit Notes issue, I find that the conditions to grant a declaration are not met as PT Palm has not been joined to the proceedings and the applicant lacks locus standi. Further, no directions are given to the liquidator.

(d) The liquidators’ request for appointment of solicitors is granted.

86 Directions for cost orders will be given separately. Time for any application or appeal, as the case may be, is extended in the meantime.