Amrae Benchuan Trading Pte Ltd (in liquidation) v Tan Te Teck Gregory
|High Court (Singapore)
|Sundaresh Menon JC
|13 October 2006
| SGHC 181
| SGHC 181
|The defendant in person
|Companies,Whether defendant "associate" of company at time payments made,Winding up,Defendant ex-employee of company and married to niece of company director,Payments made by company to defendant two years before winding up,Whether payments constituting undue preference recoverable by company liquidators upon winding-up of company,Sections 98, 99, 100 Bankruptcy Act (Cap 20, 2000 Rev Ed), s 329(1) Companies Act (Cap 50, 1994 Rev Ed)
|16 October 2006
|Narayanan Vijay Kumar (Vijay & Co)
13 October 2006
Sundaresh Menon JC:
1 The plaintiff is a company in liquidation. It brought this claim against the defendant, Gregory Tan Te Teck, who had been its employee. The action was brought with a view to recovering payments that had been made to the defendant by the plaintiff. Just under two years after these payments had been made, insolvency proceedings were commenced against the plaintiff. The plaintiff alleges in this action that these payments constitute an undue preference and hence are liable to be recovered by the liquidator. The principal question raised is one that concerns the circumstances in which a liquidator may properly challenge transactions that were entered into prior to the onset of a company’s insolvency. However, it also presents an occasion to re-examine the appropriate role and approach of liquidators to the initiation and prosecution of litigation in the name of the company.
2 It is significant to note at the outset that this was the latest in a series of lawsuits that have their genesis in a business relationship involving some or all of the plaintiff, its former directors, the defendant and another entity known as Niklex Supply Co (“Niklex”) in relation to commercial arrangements for the sale and supply of crystal ware. I refer here to the decisions of:
(a) Lai Kew Chai J in Tang Yoke Kheng v Lek Benedict
(b) Andrew Ang JC (as he then was) in Tang Yoke Kheng v Lek Benedict (No 2)
(c) The Court of Appeal in the appeal from the decision of Ang JC in Tang Yoke Kheng v Lek Benedict
(d) Tan Lee Meng J in Re Tang Yoke Kheng
(e) Lai Siu Chiu J in Amrae Benchuan Trading Pte Ltd v Lek Benedict
3 Benedict Lek and Joseph Lim Wee Chuan (collectively “Lek and Lim”) were shareholders and directors of the plaintiff. The defendant was an employee of the plaintiff from 1994 until December 2001. At the material time, the defendant was employed as a sales executive and was paid a monthly salary of $2,400.
4 On 22 August 2003, Niklex presented a petition to wind up the company. The company was wound up some weeks later on 19 September 2003. The Official Receiver was originally appointed as the liquidator but subsequently by an order of court dated 25 May 2005, Mr Don Ho Mun Tuke was appointed as the liquidator and I refer to him as such.
5 The company had been carrying on business as a distributor of Bohemian crystal, supplying its wares to a number of leading retailers in Singapore. At some point, the company started to obtain supplies from Niklex. Lai Siu Chiu J in Amrae Benchuan found that Niklex was a sole proprietorship registered in the name of Mdm Tang Yoke Kheng but that in fact she was a front for her husband Mr David Chan Choo Tuck (“Mr Chan”). The learned judge in that case also noted that the litigation in question, although brought in the name of the company, was being funded by Mr Chan. The background to the relationship between Mr Chan and Niklex on the one hand, and the plaintiff, Lek and Lim and the defendant on the other, is set out in some detail in the judgment of Lai J in Amrae Benchuan at  to  and it is not necessary for me to repeat those matters here.
Liquidators and litigation
6 However, the history of the proceedings before Lai J in Amrae Benchuan, and indeed in Lek Benedict (No 2) ([2(b)] supra) heard before Andrew Ang JC, is of more than passing interest to the present proceedings.
7 Lek Benedict (No 2) was an action brought against Lek and Lim and the defendant in the present proceedings. Mdm Tang Yoke Kheng, trading as Niklex, was the plaintiff and she sought to make the defendants in that action liable for fraudulent trading under s 340 of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”). The plaintiff was unsuccessful but in dismissing the claim, Ang JC made the following observations at  and :
The Company could have used the money to keep instalment payments to the plaintiff but did not. I am not persuaded by the first and second defendants’ reasons for stopping the instalment payments. In my view, at the time these repayments of loans were made, the Company was already insolvent, the plaintiff’s demand of 31 January 2001 not having been met. A case could well be made out for saying that in making these and other payments (such as the payment of directors’ fees accrued from previous years) the company was unfairly preferring the defendants over the plaintiff. In many instances, as shown in the defendants’ document marked “DD-3”, moneys paid by the Company to the defendants were channelled (by way of loan or otherwise) into Axum [a related company] which then paid the moneys the same day, or shortly thereafter, over to the Company to run down the outstandings owed by Axum to the Company. The moneys simply went one full circle. However strongly suggestive of unfair preference they may be, the facts are insufficient, in my view, to warrant a finding that the defendants are liable for fraudulent trading under s 340(1). …
Accordingly, albeit with some regret, I dismiss the plaintiff’s claim. It is still open to the plaintiff to request the Official Receiver (or any other liquidator appointed in his stead) to consider instituting proceedings against any creditors who may have been unfairly preferred for the recovery of moneys paid by the Company. I am unable to say more as the question whether or not there had been unfair preference was not before me.
[emphasis in original]
8 When the matter went to the Court of Appeal, that court in Lek Benedict (No 2) (CA) ([2(c)] supra) dismissed the appeal but made certain other observations at  suggesting that there were some unanswered questions. I note in passing that these unanswered questions appear to have been considered and disposed of by Lai Siu Chiu J (see for example at  to  of Amrae Benchuan ([2(e)] supra)). In any event, driven by the observations of Ang JC in Lek Benedict (No 2), an action was brought by the liquidator of the plaintiff company against its two directors, Lek and Lim, in Amrae Benchuan seeking, inter alia, the avoidance of certain transactions under s 329 of the Act on the basis that these were undue preferences.
9 I think it is fair to say that Lai Siu Chiu J formed an adverse impression of Mr Chan (see – of Amrae Benchuan). The learned judge said as follows at :
It is no secret that the Liquidator’s costs in these proceedings are to be borne by David [ie, Mr Chan]. That being the case, I cannot accept the Liquidator’s assertion that Tang’s various actions against the defendants or that David’s conduct (according to counsel’s submission) is irrelevant to the Company’s claim herein or has no impact. On the contrary, Tang and David have everything to do with this suit. David used his wife’s sole proprietorship, Niklex, to sell crystal ware to the defendants. He then used Niklex to sue the defendants and through Niklex, he is funding this litigation to recover moneys the defendants transferred out of the Company. The Liquidator may well be duty-bound at law to recover money which belonged to the Company but the motive of the party behind[,] and funding, this litigation is highly questionable and his conduct reprehensible.
10 Although this is not directly relevant to the decision I have reached, I make reference to this only because I think a liquidator has a special responsibility to retain a measure of detachment in the course of discharging his functions even if, as in this case, he is being funded by the single creditor of the company. The point has been considered and commented upon in two judgments of V K Rajah JC (as he then was) and those passages bear reiteration so that those engaged in the conduct of liquidations may be reminded of the special favour with which the court tends to view them and hence the special responsibility that is imposed upon them. In Korea Asset Management Corp v Daewoo Singapore Pte Ltd
Liquidators should always view matters through objective lenses. … They must be seen to be properly wearing the mantle of objective neutrality untarnished by any special interests, including their own fee considerations.
11 Although that was articulated in the context of a challenge against the liquidators on an issue involving a potential conflict of interest, the principle stated is of general application in so far as the conduct of liquidators is concerned. The reason for this is spelt out in another judgment of the same judge in Liquidator of W&P Piling Pte Ltd v Chew Yin What
Court-appointed liquidators are officers of the court and enjoy a unique standing in the insolvency process as they are perceived as not only serving private interests but also as concurrently discharging a public function. Deference to the office of liquidator should not, however, be equated with the unquestioning acceptance of his views or opinions. He is in many ways discharging responsibilities, not unlike those of an advocate, and as such, owes a higher duty to the court than to his clients – a duty that is on occasion overlooked.
12 Then at [29(a)] of the same judgment, the learned judge made the following further observations:
There is an inclination to lean in favour of the views of the liquidator. He is presumed to be neutral, independent minded and acting in the best interests of the company: see Megarry J in In re Rolls Razor Ltd (No 2)
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