The High Court has granted OCBC Bank's application to place KS Energy and its principal unit, KS Drilling, under judicial management.
The ruling comes after the bank sent letters of demand to the two companies and six other subsidiaries to repay a US$230.7 million (S$313.9 million) term loan and US$5 million bridging loan made to KS Drilling.
Following a "heavily contested" hearing yesterday, High Court judge Aedit Abdullah granted the OCBC application and appointed Mr Andrew Grimmett and Mr Lim Loo Khoon of Deloitte & Touche as interim judicial managers.
OCBC, which was represented by Senior Counsel Sarjit Singh Gill and Mr Daniel Tan Shi Min of Shook Lin & Bok, cited "the alarming cash burn rates and losses incurred by the KS companies in recent years".
It noted that the firms are "clearly cash-flow insolvent and balance-sheet insolvent".
KS Drilling is an 80.09 per cent-owned subsidiary of KS Energy, which provided US$150 million in guarantees for the term loan.
The bank, which holds 61 per cent of the KS Energy group's debt, cited serious concerns regarding the group's management, given the filing of criminal charges against Kris Taenar Wiluan, former chairman and chief executive of both KS Energy and KS Drilling.
Wiluan, who is facing 112 charges for alleged market rigging and false trading, resigned from his positions at both companies on Aug 13 "to focus on his defence and to not let KS Energy group be distracted or be entangled by his personal problems".
OCBC said in court documents seen by The Straits Times that "the offence he has been charged with is especially egregious because the bank had accommodated the restructuring exercises during that period without knowledge that Mr Wiluan may have been trying to artificially prop up the value of KS Energy's shares".
But Wiluan disputed this as "disingenuous", adding: "The truth is that the share price of KS Energy was never the basis of any discussions with OCBC regarding the loan facilities, or the restructuring of the same.
"There is no covenant given in the loan facilities which relate to or deal with KS Energy's share price."
OCBC noted: "Instead of streamlining the bloated management of KS Drilling, some of whom had been transferred from KS Energy, KS Drilling chose to terminate two critical personnel - Ms Diana Leng, KS Drilling's former chief financial officer, and Mr Nicholas Fournier, its former chief operating officer - and left management largely in the hands of the Wiluan family."
After Wiluan stepped down, his son Richard Wiluan and son-in-law Samuel Paul Oliver Carew-Jones took over management, "as opposed to professionals", OCBC said.
But the elder Wiluan disagreed: "Richard and Carew-Jones have been part of the KS Energy group since 2007 and 2009 respectively, and are clearly fit and capable of carrying out their responsibilities."
Mr Richard Wiluan, KS Energy's group chairman and CEO, has pledged his full commitment to working with OCBC to resolve its concerns and maximise the interest of all creditors and the company.
KS Drilling's business has been in decline in recent years, with nearly its entire fleet of onshore and offshore drilling rigs being under-utilised or sitting idle, OCBC said.
"In light of the financial difficulties faced by KS Drilling and its related businesses under the KS Energy group, the bank had over the years agreed to several consensual restructurings of the group's debt," it added.
"As KS Drilling's financial position had not improved and it was unable to make payment pursuant to the repayment schedule, the company requested and the bank agreed on Aug 2, 2019, to extend the debt moratorium for one more year from Aug 1, 2019 to July 31, 2020.
"Unfortunately, KS Drilling has failed to make good use of the additional time given, with its financial position continuing to deteriorate... (and) has to date not made any payments."
Owing to the poor performance of KS Drilling, KS Energy's total liabilities of US$381.2 million for the 2019 financial year far exceeds its total assets of US$309.6 million.
"Taking into account the massive impacts that the Covid-19 pandemic will continue to have on the world's economy and the oil and gas industry, these projected trends are only likely to worsen," OCBC said.