One important factor behind the Pan Electric collapse and the unprecedented closing of the Singapore stock market was the widespread use of forward contracts. These were contracts relating to the sale and repurchase of shares. For example, A might sell shares in company Z to B at a price of $1.50, and agree to repurchase them from B in 30 days at a price of $1.60.
Depending on the actual facts of each pair of transactions, various challenges could be made against them -
- they were gambling contracts;
- they were disguised moneylending contracts;
- because of the previous 2 challenges, these contracts were beyond the powers of the various corporate bodies involved in the transactions, and
- such transactions were floating charges and required registration under the Companies Act.
Not all the issues were explored in the subsequent fallout from the case. However, they were a several leading cases on the nature of various share financing arrangements and whether such arrangements should be consider fixed or floating charges under the Companies Act.
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