To pass the restructuring of Hyflux and accept the Utico rescue plan, the schemes of arrangement need to be approved by at least 75 per cent in value and 50 per cent in number of each creditor class. This seems to be in jeopardy based on the disgruntled retail creditors who attended the townhall on 20 January 2020. One PnP investor who invested S$70K in Hyflux preference shares but only getting S$1,500 back under the proposed plan mentioned that he would rather vote against the Utico offer and let Hyflux go into liquidation so that he can join a class action suit against the Hyflux Board of Directors for running the business to the ground.
Does it makes sense for disgruntled creditors and PnP holders to choose liquidation and pursue a lawsuit against the Board of Directors?
My own personal thoughts are that it is not a wise move as the disgruntled creditors and PnP holders get the logic and timing all wrong.
(1) Firstly, creditors and PnP holders need to accept the fact that investments and debt extension to companies are not risk free and that the businesses can go bankrupt. Under the scheme of the Utico rescue package, unsecured creditors stand to recover S$42Mil and PnP owners gets S$50Mil- a total of S$92Mil. If Hyflux went into liqudation, the creditors will only get between S$7.5Mil to S$16Mil with the PnP holders possibly getting nothing due to them being ranked almost to the last of the queue in such instance. This is a miserable recovery as compared to S$92Mil being put on the table by Utico.
(2) Secondly, choosing liquidation and pursuing a class action suit against the Board of Directors is a fallacy. My own view is that retail creditors and investors who chose this path are not thinking coherently. Utico is dishing out a S$92Mil package to help soften the alternate scenario of zero dollars return. There is no better deal out there. The pertinent question here is that even if the class action suit were to succeed, will the directors be able to cough up more than S$92Mil? Disgruntled creditors are probably looking towards at least S$200Mil from the Directors if they want to beat what Utico had to offer? How is this possible?
(3) The only winner out of all this mayhem will be the lawyers who charge legal fees for their professional services while bringing the class action lawsuit to trial since the creditors and PnP holders wanted lots of money that is way above what Utico can offer. In addition, I am not sure why some of these creditors and PnP holders are so confident that the court will find their arguments valid and find Olivia Lum and her fellow directors guilty of mismanagement of the company and award damages in the first place. For the case as aforesaid mentioned, there will not be any lawyer that can guarantee a 100% success rate in bringing a class action suit against Oliva Lum and her fellow directors.
Parting Thoughts:
The order of things and thought process are wrong. Utico is not the one that caused Hyflux to collapse and so, why are stakeholders still blaming Utico and upset about the one and only rescue package that is being offered for their benefit relative to the scenario of liquidation? The only best solution here is for the creditors and PnP holders to accept the Utico offer. Grab the package on the table and put them into their pocket as soon as possible. I think that the retail creditors and PnP holders can then still choose to continue pursuit a class action suit against the previous directors and fund it using Utico's rescue package offer (if they really still wanted to pursue this option). Let the Singapore Court decides whether there is any merit in the civil suit.
From a logical analysis perspective, I agree with your assessment that the retail creditors and PnP holders should accept the Utico offer. Get some money back (even if it's just a little) then pursue the class action suit after. Rather than get nothing back at all!
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