In this update, we highlight the key points raised by the apex court in Singapore in Affert Resources Pte Ltd (in court compulsory winding up) v. Industries Chimiques du Senegal and another [2025] SGCA 19.
Background
The appeal arose from the sale of shares representing a 66% shareholding interest in the then insolvent Industries Chimiques du Senegal (ICS) by Senfer Africa Limited to Indorama Holdings BV (the Share Sale). As part of the Share Sale, debts owed by ICS to its related parties, including Affert Resources Pte Ltd, were settled by payments to certain entities in the Archean Group (of which ICS, Affert and Senfer were all members). In connection therewith, Affert purported to have waived a debt of US$17.28 million owed to it by ICS (the Waiver). Subsequently, Affert was placed in compulsory liquidation, and it challenged the Waiver as a transaction at an undervalue, seeking orders to restore Affert to its pre-Waiver position.
Court of Appeal’s decision
The Court of Appeal overturned the High Court’s decision and held that there was no transaction at an undervalue. The following are the key points raised by the Court of Appeal.
1. Identifying the transaction to determine whether it was at an undervalue
In identifying the transaction (which must be measured for the purpose of assessing the adequacy of consideration) to determine whether it was at an undervalue, the wider commercial context should be considered.
If the insolvent company is part of an arrangement comprising a series of interconnected agreements entered into for a common purpose, the entire arrangement should be regarded as a transaction under section 98(1) of the Bankruptcy Act (now section 224(1) of the Insolvency, Restructuring and Dissolution Act 2018).
The Court of Appeal highlighted the need to contextualise the transaction in light of all the relevant circumstances to understand its true nature. The acquisition agreement consisted of three interlinked agreements entered into for the primary purpose of facilitating the Share Sale. One component of the acquisition agreement was a side letter under which ICS’s related parties, including Affert, confirmed that all of ICS’s related party outstandings were fully and finally settled following payment by Indorama of US$9 million (thereafter adjusted to US$8 million) to Senfer’s order. The Waiver was to be issued in connection therewith. As the issuance of the Waiver was inextricably connected to the acquisition agreement, the relevant transaction in this case was the Share Sale (the Arrangement) and not the Waiver.
2. Determining the value of the consideration of a transaction
In determining the value of the consideration of a transaction, the whole of the transaction and the totality of the benefits and detriments to the parties should be considered, and not just the market value of the consideration in isolation. Where a company, in consideration of a certain value received by it, agrees to waive an amount of debt owed to it by an insolvent company or a company in a parlous financial position, the actual value of the debt forgone should be measured as the likely recoverable value of the debt and not its face value.
In determining the actual value of the debt that Affert had waived, the Court of Appeal noted that it was incorrect to conclude that the amount Affert had given up was the maximum quantum of the debt that Affert could have waived. Since ICS was insolvent (or in a parlous financial position), Affert’s prospects of recovering the relevant debts from ICS were low. Hence, the actual value of the consideration of the transaction was the likely recoverable value of the debt and not its face value. In the circumstances, the Court of Appeal concluded that there was no transaction at an undervalue because Affert had not proven that the value it received from the Arrangement was significantly less, in money or money’s worth, than the value it had given in waiving the debts owed by ICS.
3. Restorative orders are not available as of right
The remedy in law for a transaction at an undervalue is a restorative order, which seeks to return parties to the positions they would have been in if the transaction had not been entered into – in other words, to revert to the status quo ante. However, courts are not permitted to reconstruct the position to where the company would have been if it had entered into a different transaction. Similarly, the order should not leave the company in a better position than before.
The Court of Appeal highlighted that even if the Arrangement had been a transaction at an undervalue, it would not be appropriate to grant a restorative order. Three reasons were provided. Firstly, the restorative order would require the Arrangement to be unwound, which appeared to be unworkable given the complexity of the transaction and the passage of time.
Secondly, making a restorative order would have put Affert in a better position than if the transaction had not occurred. Thirdly, if the Arrangement were unwound, Affert would be left with a potential paper judgment as ICS would be in a state of insolvency in the counterfactual.
Conclusion
The Court of Appeal’s decision in this case offers valuable clarifications on the law concerning transactions at an undervalue. The clear guidance will help insolvent companies avoid incurring unnecessary costs in disputing a transaction as undervalued or seeking a restorative order which may ultimately not be granted.
Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.
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