End of the road for Hyflux board as court appoints interim judicial managers

Singapore

HYFLUX has been placed under judicial management (JM) following the High Court's rule on Monday, putting an end to a more than two-year-long saga of debt moratorium.

Borrelli Walsh has been appointed interim judicial managers for the troubled water treatment company, and will take over its operations with immediate effect. This means that Hyflux's board of directors will no longer be in charge, including founder and chief executive Olivia Lum.

The move comes after Justice Aedit Abdullah said the debt moratorium had been in place for a "very long time", and "must come to an end at some point".

During Monday's hearing, Hyflux's lawyer Nish Shetty, from Clifford Chance Asia, had started off by again requesting an adjournment to the JM application that was filed by the UWG (unsecured working group of creditors), saying more time was needed to give the "SGI (Strategic Growth Investments) offer the opportunity to progress".

Last Friday, a detailed term sheet from SGI, the fourth white knight in Hyflux's saga, was filed to the Singapore Exchange, showing the American fund manager's proposal to acquire and privatise Hyflux, including all its subsidiaries, as well as its ownership interest in plants and other businesses.

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However, Justice Aedit said he was "not persuaded that sufficient grounds have been made out for any further extension".

Of the decision, Mak Yuen Teen, associate professor of accounting at the NUS Business School, where he specialises in corporate governance, said it was a "good decision", and that "the longer this dragged on, the less likely of a successful outcome under the current board in terms of bringing an investor".

"A JM is likely to place more emphasis on the priority of claims which, while disadvantageous to stakeholders such as the holders of the prefs and perps, is unfortunately the way it should be in the event a company becomes insolvent," he said.

Robson Lee, a partner in Gibson Dunn's Singapore office, was also in favour of the decision, and noted that as a result of the moratorium extensions, Hyflux has "incurred huge costs and expenses including substantial professional fees that are draining the company's reserves".

Monday's court hearing lasted nearly four hours, and was first held through a virtual hearing on Zoom before Justice Aedit ordered Mr Shetty and Tan Kok Quan Partnership lawyer Eddee Ng, who represents the UWG, to meet him physically in court.

In making his case for the extension, Mr Shetty said the SGI proposal "offers a significantly better recovery for the creditors than winding up and the JM".

Creditors such as the medium-term note holders (MTN), DBS and the Securities Investors Association (Singapore), or Sias, were also in favour of the extension, noting the terms of SGI's offer, whereby it will not continue with the transaction should Hyflux enter into JM.

However, Justice Aedit was sceptical of the details of the term sheet being shared only at the eleventh hour.

"Every time on the eve of the hearing... seems a bit suspicious doesn't it?" he questioned Mr Shetty.

He added: "I've given fair warning previously that I need to see something concrete... This is as far away from concrete as dough mixture for a cake would be."

Representing the UWG, Mr Ng was of the same opinion, saying that "(they) strenuously opposed the adjournment".

He noted that the fact that Hyflux had chosen to focus on investors like Aqua Munda and Pison, "who don't even have a clear plan... to engage the perps and the prefs underscores... that it is clearly an agenda here in place".

"They are naturally inclined to dealing with investors who only want to keep the board in place, who don't want a JM."

Under the SGI deal, executive chairman Lum will transition to a non-executive chairperson of the advisory board, while a new CEO will oversee the restructuring plan.

Mr Ng added that an objective investors' search can only occur when a JM has been put in place.

Following the court's decision, Hyflux requested a stay of the JM order, but was denied by Justice Aedit.

Separately, lawyers representing other stakeholders such as Sias and DBS had raised concerns in court that the appointed JMs should not be closely connected to any stakeholder group of Hyflux, and should be an independent party.

Borrelli Walsh is the financial adviser to the UWG, which comprises Mizuho, Bangkok Bank, BNP Paribas, CTBC Bank, KfW, Korea Development Bank and Standard Chartered Bank.

In response, Justice Aedit said while he does not want to hold off the appointment of the JMs, he will allow parties to apply to court for additional or substitute JMs, and will "take that for another day".

Nonetheless, Gibson Dunn's Mr Lee is confident that having JMs in place "will ensure an orderly dissolution of the affairs and sale of the assets of the company if it is no longer possible to give the company a new lease of life through any white knight rescue".

Senior Counsel Thio Shen Yi, joint managing partner of TSMP Law, said that having independent professionals "will help restore the trust deficit and allow genuine progress".

"Though SGI has said it will not continue with its Hyflux-rescue plans if Hyflux enters judicial management, that may not be immutable," he added.

When contacted for comments, Utico chief executive Richard Menezes told The Business Times: "We are available to see if we can take part in asset purchases or otherwise."

Additional reporting by Anita Gabriel

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