Amrae Benchuan Trading Pte Ltd (in liquidation) v Lek Benedict and Others

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 05 May 2006
• Neutral Citation: [2006] SGHC 75
• Docket Number: Suit No 424 of 2005
• Date: 05 May 2006
• Published date: 08 May 2006
• Year: 2006
• Plaintiff Counsel: Vijay Kumar (Vijay & Co)
• Citation: [2006] SGHC 75
• Defendant Counsel: The first and second defendants in person
• Court: High Court (Singapore)
• Subject Matter: Sections 99, 100, 101, 102 Bankruptcy Act (Cap 20, 2000 Rev Ed),Avoidance of transactions,Insolvency Law,Liquidator of company claiming certain company transactions amounting to unfair preference and breach of directors' duties,Whether directors acting bona fide in interest of company,Whether directors breaching fiduciary duties to company and s 99 read with ss 100 to 102 of Bankruptcy Act by transferring stock of company to another company which they were directors and shareholders of and by paying themselves directors' fees when company insolvent

5 May 2006 Judgment reserved.

Lai Siu Chiu J:

The facts

1 The plaintiff, Amrae Benchuan Trading Pte Ltd (“the Company”), was wound up by an order of court on 19 September 2003 in Companies Winding Up No 216 of 2003 (“the Winding-up Petition”) and the Official Receiver was appointed the liquidator. By an order of court dated 25 May 2005, Don Ho Mun-Tuke (“the Liquidator”) replaced the Official Receiver as the liquidator. The Company was incorporated on 30 May 1990 and prior to its winding up, its business was distributing Bohemia crystal ware and gifts.

2 Benedict Lek and Joseph Lim Wee Chuan (“the first and second defendants” respectively and collectively the “defendants”) were shareholders and directors of the Company at the material time. The defendants were also shareholders and directors of the third defendant, Axum Marketing Pte Ltd (“Axum”), together with one Gregory Tan Te Teck (“Gregory”), who was Axum’s employee. Axum was incorporated on 28 April 2001 under its former name, Memco Pte Ltd. The name change to Axum was effected on 4 June 2001. The Company started supplying goods to Axum on 15 August 2001 or thereabouts.

3 Gregory is also the sole proprietor of Concept Gifts which business was registered on 29 September 1994. A company by the name Concept Gifts Pte Ltd was incorporated on 8 August 2002 with Gregory as a director and shareholder. The defendants have no shares in either Concept Gifts or the limited company.

4 The first defendant used to work for a company called Tri Sindo International Pte Ltd (“Tri Sindo”) between 1982 and late 1988. During that period, Tri Sindo purchased crystal ware from Zlin Co, a Czechoslovakian trade representative in Singapore. The sales manager of Zlin Co was one David Chan Chon Tuck (‘David”).

5 After resigning from Tri Sindo, the first defendant established Benchuan Trading (“Benchuan”) with the second defendant. Benchuan dealt in crystal ware, buying from a wholesaler and supplying to departmental stores such as Robinsons, Daimaru and some shops.

6 After the Company was incorporated, the defendants starting sourcing crystal ware from Czech factories to supply to Robinsons, CK Tang and Takashimaya department stores. Eventually, the Company became the exclusive supplier to Robinsons and Takashimaya. From 1994 onwards, the Company also obtained supplies of crystal ware from David. The Company was invoiced for its orders of crystal ware not by David but by Niklex Supply Company (“Niklex”) a sole proprietorship of David’s wife, Tang Yoke Kheng (“Tang”). Although David is described as the manager of Niklex, there is little doubt he is using his wife to front his business. The defendants have never met Tang, which statement in para 17 of the first defendant’s affidavit of evidence-in-chief has never been challenged by the Liquidator or his counsel. Neither Tang nor David appeared at this trial.

7 In 1994, the defendants started attending European trade fairs. They would meet buyers from Robinsons, CK Tang and Takashimaya to discuss the purchase of new crystal items and concepts. Their success did not escape David’s notice. After their return from Europe in 1994, David approached the defendants and proposed that he be given a 50% stake in the Company. By then, the Company was owing Niklex almost $1m for the supply of crystal ware, due in large part to the fact that some invoices from Niklex were rendered as late as two years after the crystal ware was supplied. Thinking they had no choice in the matter, the defendants agreed but on condition that David became a registered shareholder. David refused as he was then still working for Zlin Co and was also supplying crystal ware to other companies on the side. After becoming a shareholder, David had access to the Company’s books of accounts as well as to its modus operandi.

8 By 1997, the Company’s business had grown steadily and had been profitable over the years. However, because the defendants did not take directors’ fees due and owing to them, the accounts of the Company under the item “Amount owing to directors’ account” reflected an amount in excess of $500,000. David now wanted 60% share in of the Company. The defendants reluctantly agreed.

9 In 1998, Niklex started supplying crystal figurines known as Preciosa Bohemia (“Preciosa figurines”) to the Company. When Swaroski Crystal withdrew its product lines from Robinsons and Takashimaya, the two stores approached the defendants for a substitute. The defendants supplied them with Preciosa figurines. However, by 1999, Niklex demanded the return of the Preciosa figurines. Subsequently, Niklex took over the business of supplying Preciosa figurines to the Company’s customers.

10 In 1999, David wanted 70% of the Company as well as a salary but again without registering himself as a shareholder. Whilst the defendants acceded to his request for an increase in his shareholding (in order to stop his meddling into their operations, they said), they rejected his request for a salary. By 1999–2000, the defendants had obtained alternative sources of Bohemia crystal ware from other suppliers at prices that were 30% lower than what David/Niklex charged them. They asked David to match the pricing they obtained, but he refused. Consequently, they decided to and did, terminate the Company’s relationship with Niklex.

11 The defendants agreed with David that 1 April 2000 would be the cut-off date when the Company would stop buying crystal from Niklex; David would be free to compete with the Company in the market.

12 As the Company still owed Niklex in excess of $1m, the defendants proposed to David that the Company settle the debt by monthly instalments of $50,000 each spread over three years. Although David neither agreed nor disagreed, Niklex nonetheless accepted the Company’s 14 instalment payments totalling $720,000 between April 2000 and July 2001.

13 After the Company ceased buying from Niklex, David approached the Company’s customers in the hope that they would buy from Niklex. When the defendants learnt of David’s moves, they assured their customers that they would continue to supply the customers from better and more reliable sources than Niklex. It was then (according to the defendants) that David demanded that the Company pay its debt to Niklex in full.

14 While the Company was paying the monthly instalments of $50,000 to Niklex, it needed funds for its purchase of stocks and operations. The defendants resorted to making personal loans to the Company for this purpose. The first defendant lent the Company $24,000 while the second defendant lent it $6,000.

15 After April 2000, the first defendant devoted his energies to running the Malaysian branch of the company, namely, Amrae Benchuan Sdn Bhd (“the Malaysian company”), leaving the second defendant to run the Company and Axum with Gregory (after June 2001).

16 As Axum also needed funds, the first defendant consented (at the request of the second defendant and Gregory) to the withdrawal of his loan of $24,000 from the Company to tide over Axum.

17 On 7 January 2002, Tang, as the sole proprietor of Niklex, sued the Company in Suit No 21 of 2002 (“the suit”). In her statement of claim filed on 17 January 2002, Tang claimed $1,544,214.02 for the balance of goods sold and delivered to the Company totalling $4,704,627.53. By the date of commencement of the suit, it is noteworthy that the oldest invoice was almost five years old (dated 14 April 1997), lending credence to the first defendant’s complaint that Niklex was tardy in rendering its invoices to the Company.

18 On 21 August 2002, Niklex obtained judgment in the suit by way of Registrar’s Appeal No 190 of 2002 in the sum of $245,226.02, when it successfully appealed against the decision of the assistant registrar granting the Company unconditional leave to defend its claim. This was followed by consent judgment against the Company in the sum of $821,000 on 5 September 2002 at the trial before Tan Lee Meng J. After levying execution by other means (writ of seizure and sale, examination of the defendants and Gregory as the judgment debtors) which yielded a paltry sum of $59,710.46, Niklex presented the Winding-up Petition against the Company on 22 August 2003, based on its outstanding judgement of $1,010,289.54. By then, Gregory had resigned as a director (on 31 July 2002) and as a shareholder (on 14 August 2002) of Axum.

19 Besides the suit, Tang as the sole proprietor of Niklex sued the defendants and Gregory in two other actions, viz, Suit No 415 of 2003 (“the second suit”) and Suit No 864 of 2003 (“the third suit”).

20 In the second suit, Tang sued the defendants and Gregory for dissipation of assets of the Company, accusing them, inter alia, of drawing huge sums as directors’ fees and salaries. Tang prayed for a declaration that the defendants and Gregory be made liable for all the debts of the Company amounting to $1,010,289.54, which sum she also claimed. On 4 July 2003, the second suit was struck out at a pre-trial conference before the Registrar when counsel for Tang applied to withdraw the action against all three defendants.

21 In the third suit, Tang’s action was based on s 340 of the Companies Act (Cap 50, 1994 Rev Ed). The action was essentially a repeat of the allegations she had made in the second suit. It was Tang’s case that the defendants had aided and abetted in the transfer of $1,268,983.02 worth of crystal ware from the Company to Axum, a shelf company. After an eight days’ trial, the third suit was dismissed by Andrew Ang JC (as he then was) on 30 September 2004 (see Tang Yoke Kheng v Lek Benedict [2004] 4 SLR 788).

22 Tang appealed to the Court of Appeal in Civil Appeal No 100 of 2004 (“the appeal”) against the dismissal of the third suit and by Notice of Motion No 12 of 2005 (“the notice of motion”) for a stay of execution. On 23 March 2005, the Court of Appeal dismissed the appeal as well as the notice of motion (see Tang Yoke...