Court dismisses moneylender’s bid to bankrupt debtor charged 240% annual interest rate

Court ruling on case involving 240% annual interest rate could cause ripples in industry

The Supreme Court in Singapore. PHOTO: ST FILE

The High Court has quashed a moneylender's bid to bankrupt a debtor who had borrowed $350,000 on an annual interest rate of 240 per cent - a ruling that could cause ripples in the moneylending industry.

Mr Ang Boon Kim, sole proprietor of ABK Leasing, had applied to bankrupt company director Goh Meng Leong, who in 2014 took out two unsecured loans totalling $350,000. Despite having paid back $700,000 - twice the principal sum - in instalments between December 2014 and September last year, Mr Goh still owed nearly $900,000.

That meant his initial $350,000 loan had grown to $1.6 million, including around $1.25 million in interest and late fees.

Mr Goh had agreed to interest of 240 per cent a year or 20 per cent monthly, with late interest at the same rate and a late fee of $10,000 every time payment was missed.

At issue in court was whether the moneylender could treat Mr Goh's repayments as settling the interest first, rather than the principal borrowed. If so, the principal sum would continue to incur the 240 per cent interest. The court can also intervene if the interest is excessive and the deal is substantially unfair.

Assistant Registrar Jacqueline Lee set aside the bankruptcy application in the closed-door session and ordered Mr Ang to pay $1,500 in costs to Mr Goh.

It is understood she considered, among other things, that Mr Goh's repayments should first be applied towards reducing the principal sum, and not just to satisfy the interest due.

ABK Leasing declined comment.

Both men had inked the contract before changes to the Moneylenders Act took effect on Oct 1 last year. The changes limit the maximum interest rate moneylenders can charge to 4 per cent a month, regardless of the borrower's income.

Before then, such loan terms as the ones for Mr Goh were allowed for borrowers earning at least $30,000 a year. His maximum loan amount was also unlimited as his declared annual income of $599,250 was above the stipulated $120,000 threshold, according to papers filed through East Asia Law.

The loans were on "open monthly" terms, meaning the borrower could keep the loan open by opting to pay only the interest.

But Mr Goh's lawyer, Mr Sarbrinder Singh of Sanders Law, pointed out that his client had already paid about $700,000 which went towards the payment of the $350,000 principal sum and the interest. He said ABK was wrong in claiming it was used only towards interest due.

He argued it was not for Mr Ang to unilaterally decide which payments were used to settle the principal sum and which for interest.

He urged the court to set aside the deal as the 240 per cent interest rates were "exorbitant"and the contract was " unconscionable".

Mr Goh, 36, who shuttles between Singapore and London for his business in electronic recycling, said he was relieved, having had to sell his HDB flat to settle the payments.

Join ST's WhatsApp Channel and get the latest news and must-reads.

A version of this article appeared in the print edition of The Straits Times on November 16, 2016, with the headline Court dismisses moneylender’s bid to bankrupt debtor charged 240% annual interest rate. Subscribe