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Hyflux lawyers WongP to discharge itself, cites confidence loss
IN A surprise turn of events, just as Hyflux appeared to be inching closer to the finish line of its rescue package deal, WongPartnership on Wednesday applied to discharge itself from representing the water treatment firm Hyflux, citing a serious "loss of confidence" between itself and the client, and other "good cause" as reasons from the Legal Profession (Professional Conduct) Rules 2015 for its withdrawal.
This took other stakeholders by surprise, especially at this advanced stage in the scheme process. At the High Court hearing on Wednesday morning, where the initial objective was to get an extension of the moratorium which had previously been extended to Jan 31, 2020, Justice Aedit Abdullah told the Court that Hyflux's lawyers from WongPartnership, led by Manoj Sandrasegara, had applied to discharge themselves due to difficulties in their working relationship with the client.
Throughout the session, Pang Yeong Piao, Hyflux's group senior vice-president, business legal, sat at the back of the room with the spectators.
Justice Abdullah made reference to issues relating to assurances given to the Court about adviser fees at the hearing last November, and said "there seems to be some conflict between (both sides) about the instructions and the factual basis for the assurance", although he later also added: "I don't know what has precisely happened in this case. It's not for me to go to that at this time."
Sources close to the company said that this was not related to fees payable to WongPartnership, but rather an issue that has arisen concerning assurances given on the ring-fencing of adviser fees for the Securities Investors Association (Singapore).
Sias had taken professional advice as part of its advocacy for the interests of Hyflux's retail investors regarding the proposed restructuring. The sources said that WongPartnership had assured the Court that such fees were being safeguarded to ensure that the advisers to Sias receive payment, but there is now disagreement as to whether the fees have indeed been safeguarded, and whether Hyflux undertook to implement such safeguards.
Justice Abdullah called WongPartnership's application for discharge a "significant development which needs to be resolved one way or another". He added that perhaps this latest development illustrates the problems that arise when a bond issuer that goes "belly up" has a large pool of retail investors who need both legal representation and financial advice. To this end, he noted that the Singapore Exchange (SGX) Regulation's retail bonds working group is reviewing several proposals for retail-investor protection.
Pointing out that concerns remain for the unsecured working group regarding other financial advisers' payments as well as questions over whether the scheme will be supported, he said he hoped that these matters can be resolved by the next hearing.
Earlier this month, a number of holders of Hyflux's perpetual and preference shares had expressed their dissatisfaction with white knight Utico's deal, and said they planned to vote against it at the scheme meeting in March.
Justice Abdullah adjourned the hearing to Feb 20 to give the company and WongPartnership time to resolve the conflict, failing which, Hyflux will have to consider alternative representation. The adjournment was accompanied by a shorter-than-usual four-week extension of the debt moratorium until Feb 28.
There will also be a pre-trial conference to be held in a week's time which Hyflux will attend with either its existing or newly appointed counsel.
In a statement filed to the Singapore Exchange on Wednesday night, Hyflux confirmed that "on its part, it has lost confidence and trust in WongPartnership".
In the session, Mr Sandrasegara from WongPartnership told the Judge: "In two weeks' time, we will be before Your Honour for a formal discharge if we can't work things out with the client in the next couple weeks, but just to give you assurance, we will do whatever we can to ensure that there's a proper handover."
Leaving the courtroom, both Mr Sandrasegara and senior partner Eddee Ng from Tan Kok Quan Partnership, which represents the unsecured working group comprising seven unsecured banks, declined comment.
Utico had on Tuesday night proposed to increase the pot for adviser fees from S$40 million to S$50 million if it receives support from all advisers for the scheme and restructuring agreement at Wednesday's court hearing. On the other hand, the Middle Eastern utility firm also said that the pot will shrink to S$30 million if the advisers fail to support the scheme at the hearing. Asked if the latter will now materialise, a spokesman for Utico on Wednesday said: "I think our statement which is on SGX's website is self-explanatory."
Sias president David Gerald said he was "surprised" by the news and lack of clarity on the reason for WongPartnership's withdrawal from representation. On the likelihood that it may have to do with adviser fees, he said: "As far as Sias is concerned, all its advisers have been fairly and adequately paid to-date and there is assurance in place for their future payments for work to be done."
He added that the restructuring process will probably go on as per normal, but any newly appointed counsel may need time to get up to speed on the case, which may delay the scheme process. "But I hope they (Hyflux and WongPartnership) patch up," he said.
A market commentator in the restructuring sector said it is rare for lawyers to apply to be discharged from representation. The Legal Profession (Professional Conduct) Rules 2015 state that legal practitioners must complete the work which they agreed to undertake according to their clients' instructions except under specific conditions. That said, any delay to the scheme process "is not fatal but will just cause slight disruption". He added that fees are one thing, but it would be more troubling if something had happened to cause a breach in trust and a falling-out.
Hyflux has until May 26 this year to meet all the key conditions to complete Utico's investment, including to conduct the scheme meetings by no later than April 1, 2020. The restructuring was originally expected to be completed by end-April 2020.
Apart from the Hyflux restructuring, WongPartnership also acts for Hyflux in its suit against ex-white knight SM Investments, and in a construction dispute between Hyflux Membrane Manufacturing and a sub-contractor supplier of high pressure pumps for a project in Oman. The construction dispute is in relation to the call of a performance bond and there is an injunction hearing in February 2020. WongPartnership will take instruction from Hyflux whether it should continue representing the company in these cases.