OK Lim has accepted judgment debt of over US$3.5 billion, but creditors will likely claw back much less

Embattled Hin Leong Trading founder Lim Oon Kuin – the former Singapore oil tycoon better known as OK Lim – and his children, Evan Lim and Lim Huey Ching, have accepted the demands of the company’s court-appointed liquidators and top creditor HSBC.

In a hearing on Sep 30, the liquidators and HSBC secured consent from the Lims to a judgment by the court to agree to pay US$3.5 billion plus interest at 5.3 per cent per annum and costs.

Other creditors are following suit, and taking up the Lims’ offer to consent to the judgment.

Sembcorp Industries on Oct 1 said subsidiary Sembcorp Cogen has accepted an offer to settle and to enter a consent order for claims for gasoil that it purchased from Hin Leong Trading and stored with Universal Terminals. The Sembcorp unit will be settling its legal claims for US$50.9 million.

But OK Lim and his children have said they will be applying for bankruptcy, as the assets frozen by the Mareva injunction is insufficient to pay off the US$3.5 billion plus interest and costs.

Will the creditors be able to get back any of the money they are owed? And if so, how much? The Business Times takes a closer look at what happens if a debtor is unable to pay off creditors.

Freezing of assets

With a judgment entered into court, creditors will be able to claw back money from assets that have been frozen by a Mareva injunction filed by Hin Leong’s liquidators. The Mareva injunction will freeze worldwide assets that the Lims would have declared to the court under oath.

Typically, secured creditors – creditors backed by collateral – will get first dibs, followed by unsecured creditors, who will have to divide the remaining assets among themselves in proportion to the amount owed.

Should there be no secured creditors, the unsecured creditors will be ranked as equals, and will get returns proportionate to the debt.

In the case of the Lims, the exact value of the assets currently frozen is not known. However, it is likely to be far below the US$3.5 billion owed by the Lims. The family has indicated that it will file for bankruptcy, as it is unable to pay back the entire sum in full.

The interest on the amount owed will continue to accrue until the debt is fully paid off, or the court declares the Lims bankrupt, following which the interest will cease.

Declaring bankruptcy

Should the Lims be declared bankrupt, the court will appoint a bankruptcy trustee who will investigate if there are any other assets to claw back. This will also include monies that the bankruptcy applicant transferred out in the days prior to avoid being part of the assets to liquidate.

There are only a few statutory exceptions allowed by the bankruptcy trustee. These include funds in the Central Provident Fund accounts and assets such as HDB flats.

The bankruptcy trustee’s investigations will likely take some time.

Should overseas assets be discovered, they would need to get the bankruptcy order recognised in the other country before the assets can be seized as part of the bankruptcy proceedings.

Should the assets not cover the entire amount owed, creditors might work out a plan where part of the future income of the bankrupt will be distributed back to them.

Getting a haircut

It seems likely the creditors will have to take a haircut on the amount they would be able to recover from the Lims.

Suresh Nair, co-managing director at law firm PK Wong and Nair, noted that in another substantial bankruptcy case recently, the creditors’ return was around 3 per cent.

“In general, a return of 15-20 per cent would be very good,” he said.

A bankrupt can be discharged from bankruptcy if and when all the debts are settled. Otherwise, creditors will have a say on the discharge. Typically, bankrupt persons can apply for discharge in about three to five years.

In OK Lim’s case, given his advanced age – he is 82 – and that he is no longer working, Yam Wern-Jhien, director at law firm Setia Law, reckons there is a good chance the tycoon might be discharged after the bankruptcy trustee’s investigation.

“If there’s nothing further that can be done, the discharge may be allowed,” Yam said.

Source: Business Times © SPH Media Limited. Permission required for reproduction.

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