Cheng Tim Jin v Alvamar Capital Pte Ltd

• Jurisdiction: Singapore
• Judge: Vincent Hoong JC
• Judgment Date: 19 September 2019
• Neutral Citation: [2019] SGHC 220
• Court: High Court (Singapore)
• Docket Number: Originating Summons 636 of 2019
• Published date: 24 September 2019
• Year: 2019
• Hearing Date: 10 September 2019
• Plaintiff Counsel: Goh Kim Thong Andrew and Tan Hui Jin (Andrew Goh Chambers)
• Defendant Counsel: Fong Wei Li (Kuang Weili) and Leong Wen Jia, Nicholas (DC Law LLC)
• Subject Matter: Companies,Directors,De facto,Right to inspect accounts
• Citation: [2019] SGHC 220

Vincent Hoong JC: Introduction

By Originating Summons 636 of 2019, the plaintiff sought a declaration that he is a de facto director¹ of the defendant company for the purposes of s 4(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). The plaintiff also sought orders for him to inspect the accounts of the company.

Having heard the parties’ submissions, I granted the plaintiff’s application, and delivered an oral judgment detailing my reasons.

Given the novelty of the issue, I publish my grounds of decision herein.

Facts

The defendant is a company that was incorporated by the plaintiff on 9 September 2009. At the time of its incorporation, the plaintiff was the sole director of the defendant, while his wife was the sole shareholder. ²

In February 2010, one Chan Kam Piew (“KP”) and Hidayat Charles (“Charles”) took up shares in the defendant.³ Subsequently, Charles resigned as a director of the defendant, and transferred his 20% shareholding in the defendant to KP and the plaintiff in equal shares.⁴

In April 2012, the plaintiff arranged for all the shares in the defendant that were held by his wife and himself to be held by KP, pursuant to a trust deed dated 3 April 2012 (“the Trust Deed”). The result of the Trust Deed was that KP held 50% of the defendant’s shares absolutely, while he held the remaining 50% of the shares on trust for the plaintiff.⁵

Following the execution of the Trust Deed, on 13 April 2012, the plaintiff resigned as a director of the defendant.⁶

The plaintiff did not want to be a registered shareholder and director of the defendant because he “wanted to avoid the possible risk of transactions between the [d]efendant and the companies under [his] control being regarded as related party transactions under the [Act], which may then require certain disclosure or approvals.”⁷

After his formal resignation as the director of the defendant, on 8 December 2012, the plaintiff was appointed as the “Marketing Director” of the defendant.⁸ He continued to play an active role in the financial and operational matters of the defendant⁹ until about August 2018, when he was allegedly shut out of the defendant’s affairs by KP, who remained the only formally appointed director of the defendant.¹⁰

On this backdrop, the plaintiff sought a declaration that he is a de facto director of the company. Flowing from such directorship, the plaintiff also sought access to the defendant’s accounts so that he could investigate into suspected wrongdoings or mismanagement by KP.¹¹

The issues

I dealt with the issues in the following order: First, is the plaintiff a de facto director? Second, if the plaintiff is a de facto director, does this give him the right to inspect the company’s accounts? Third, even if the plaintiff is a de facto director and such directorship gives him the right to inspect the company’s accounts, does any consideration operate to deny him such right of inspection?

Before dealing with each issue, however, a preliminary matter that was disposed of related to the appointment of the plaintiff as a de jure director of the defendant. In this regard, KP stated in his affidavit that he “would not object to the [p]laintiff being formally appointed a director”¹² of the defendant, and he had in fact taken steps in early 2018 to formally appoint the plaintiff as such.¹³ However, the plaintiff declined to be formally appointed,¹⁴ allegedly because he suspected that doing so would allow KP to resign as a director. Given that the defendant no longer has any employees, KP’s resignation as the only formal director of the defendant could leave the plaintiff unable to investigate into the financial affairs of the company.¹⁵

During the hearing, I asked the defendant’s counsel, Mr Fong Wei Li (“Mr Fong”), if KP would be willing to give an undertaking that he would not resign as a director were the plaintiff to be formally appointed as a director of the company. In my view, such an approach would have been the most obvious mode of resolving the matters at hand, as the plaintiff could be a de jure director with the concomitant right to inspect the company’s accounts pursuant to s 199 of the Act while KP would stay on as a director to assist in any such inspection. However, Mr Fong explained that he did not have any instructions from KP as to whether the latter was willing to give such an undertaking but, in any event, it was also KP’s prerogative to resign as a director if he so wished. In the circumstances, I proceeded to consider the merits of the plaintiff’s application to be declared a de facto director, and to be granted the right to inspect the defendant’s accounts.

Plaintiff is a de facto director

Turning to the issue of whether the plaintiff is a de facto director of the defendant, I was cognisant of the following principles expressed in Gemma Ltd v Davies [2008] BCC 812, which were endorsed in Raffles Town Club Pte Ltd v Lim Eng Hock Peter and others (Tung Yu-Lien Margaret and others, third parties) [2010] SGHC 163 (“Raffles Town Club”) at [58]:

… [R]ather than an iron-clad test, in inquiring whether there had been de facto directorship … [the following propositions may be derived from the cases:] … (1) To establish that a person was a de facto director of a company, it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director (per Millett J. in Re Hydrodam (Corby) Ltd (in liq.) [1994] BCC 161 at 163). (2) It is not a necessary characteristic of a de facto director that he is held out as a director; such “holding out” may, however, be important evidence in support of the conclusion that a person acted as a director in fact (per Etherton J. in Secretary of State for Trade and Industry v Hollier [2006] EWHC 1804 (Ch); [2007] BCC 11 at [66]). (3) Holding out is not a sufficient condition either. What matters is not what he called himself but what he did (per Lewison J. in Re Mea Corp Ltd [2006] EWHC 1846 (Ch); [2007] BCC 288). (4) It is necessary for the person alleged to be a de facto director to have participated in directing the affairs of the company (Hollier (above) at [68]) on an equal footing with the other director(s) and not in a subordinate role (above at [68] and [69] explaining dicta of Timothy Lloyd Q.C. in Re Richborough Furniture Ltd [1996] BCC 155 at 169–170). (5) The person in question must be shown to have assumed the status and functions of a company director and to have exercised “real influence” in the corporate governance of the company (per Robert Walker L.J. in Re Kaytech International Plc [1999] BCC 390 [“Kaytech”]). (6) If it is unclear whether the acts of the person in question are referable to an assumed directorship or to some other capacity, the person in question is entitled to the benefit of the doubt (per Timothy Lloyd Q.C. in Re Richborough Furniture Ltd (above)), but the court must be careful not to strain the facts in deference to this observation (per Robert Walker L.J. in Kaytech at 401).

[emphasis added in bold]

Reviewing the evidence, I found that the plaintiff is a de facto director of the defendant for several reasons.

As a starting point, the plaintiff was held out as a “Marketing Director” of the defendant.¹⁶ While this is not sufficient in and of itself, this was at least probative of the fact that he was the de facto director of the defendant.

More importantly, the plaintiff clearly exercised real influence in the defendant, and participated in the management of the affairs of the company on an equal footing with KP, the defendant’s only formally-appointed director.

In this regard, even after his resignation as a de jure director of the defendant in April 2012,¹⁷ the plaintiff continued to participate as a director in almost all aspects of the company, be it with respect to the company’s finances, banking, human resource, or even in business dealings (which was client facing).¹⁸

That the plaintiff acted as a co-equal to KP was confirmed by Vina...