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This article is provided to FT.com readers by Debtwire—the most informed news service available for financial professionals in fixed income markets across the world. www.debtwire.com


Distressed investors in the US accept high transaction risk as the cost of doing business but expect a modicum of legal leverage over obstreperous shareholders thanks to the Chapter 11 process. Vulture funds in the rest of the world operate under a very different assumption that shareholders must inevitably be bought off to execute restructurings, and that domestic courts rarely side with foreign investors against local owners.

A Singapore tribunal turned those precepts upside down last month when it ordered Florence Koh, a lawyer-cum entrepreneur, to pay out of her own pocket the court costs for her yearlong battle against Consult Asia bond creditors.

Fresh off that legal upset, bond holders are considering going after Koh personally in court for the shortfall in their recovery from the insolvent real estate developer, said three people familiar with the situation.

Koh would not comment on the situation because it is under judicial deliberation.

In making the cost ruling, the Singapore Court of Appeal tribunal noted that it was unusual for a company director to be personally liable for costs, but maintained that Consult Asia was simply Koh’s “alter ago” and “fig leaf.” The tribunal also rebuked her for “plainly abus[ing]” the system to delay the bond creditors from seizing the collateral.

The amount Koh owes still needs to be determined either via a mutual agreement or another court hearing, said another person familiar with the situation. Creditors will seek to further augment their recoveries by arguing that there were unaccounted withdrawals of Consult Asia funds, said the first three people familiar with the situation.


Koh was the only director and the 99.9999% shareholder of Consult Asia, which issued a USD 32m, 7% UBS-arranged bond in January 2007 to fund the development of a mall and serviced apartment complex in the Eunos neighborhood of Singapore. She attempted to refinance the note when it came due in June 2008 via a Merrill Lynch-arranged facility, but that deal collapsed because of a collateral valuation dispute.

The bond’s trustee, DB Trustees (Hong Kong), attempted to seize the underlying assets to sell them but Koh fought those efforts off successfully with law suits until mid-2009. DB finally put the bond security – the Eunos development site and a shophouse in Singapore’s Balestier area – up for auction last July, attracting a combined top bid of around SGD 40m (USD 23.57).

Because Koh dragged the court case on, default interest accrued on the defaulted bonds and creditors are now owed in excess of the USD 42.08m originally due at maturity, the judge noted.

The bond holders want Koh to cover at least some of the short fall between the sale value of the properties and the amount due on the bonds, said the first three people familiar with the situation. That, they argued, is why Koh should foot the bill for the fees incurred in litigation she began rather than forcing the creditors to pay out of the asset sale proceeds.

The judges concurred in their ruling on the fee payment on 24 May, which followed the August 2009 decision to allow DB to sell the assets backing the bonds

Koh initially blocked the sale by arguing in court that she would not have defaulted on the bonds had she not been prevented from refinancing them by an inflexible bond structure and a quirk of the calendar. The debt came due over a weekend, and while the payment had to be made by the prior Friday but the security was not slated to be released until maturity.

Repeating that argument, she twice convinced a Singapore court to extend the bond repayment date and hold off the receivers from taking over the properties. But those victories proved Pyrrhic.

In its order, the appellate tribunal stated that despite the two postponements, Koh still failed to raise the financing and that the refinancing effort likely foundered because of poor security coverage.

Debtwire reported at the time that Merrill Lynch’s syndication of a SGD 90m private placement loan deal collapsed when investors who had provisionally committed to the deal backed out because they found fault in the valuation report provided by Consult Asia. The report valued the Eunos land at SGD 90m, around three times the sum it actually attracted in the auction a year later.

The court cost ruling cannot be appealed, said one of the people familiar with the situation. The decision was in relation to civil appeals no. 19 and no. 90 of 2009.

Shook Lin & Bok was counsel for DB Trustees. Arfat Selvam Alliance and Clifford Law represented Koh as well as Consult Asia when she owned it.


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