Re Goodwealth Trading Pte Ltd

• Jurisdiction: Singapore
• Judge: Yong Pung How CJ
• Judgment Date: 11 December 1990
• Neutral Citation: [1990] SGHC 109
• Docket Number: Companies Winding Up No 330 of 1989
• Date: 11 December 1990
• Published date: 19 September 2003
• Year: 1990
• Plaintiff Counsel: Evelyn Chia Ee Lin (Spencer Gwee & Co)
• Citation: [1990] SGHC 109
• Defendant Counsel: Patrick Wee Chow Sing (Chua Hay & Wee),Lawrence Chua Tong Yong, watching brief,Ng Kai Ming (PK Wong & Advani)
• Court: High Court (Singapore)
• Subject Matter: Whether irregularity can be cured,Meetings,Principles to be applied,Companies,s 254 Companies Act (Cap 50, 1988 Ed),No quorum at board meeting,s 392 Companies Act (Cap 50, 1988 Ed),Substratum of company ceasing to exist,Directors,Just and equitable grounds,Winding up,Whether business transacted invalid,Quorum,Directors having lost confidence in working with each other

Cur Adv Vult

This was a petition by Tan Ean Toon (the petitioner) who is a shareholder and director of Goodwealth Trading Pte Ltd (the company) that the company be wound up by the court under the Companies Act (Cap 50, 1988 Ed) (the Companies Act), that a liquidator be appointed for the winding-up, and that an order be made for costs.

The facts were set out in several affidavits. There were four by the petitioner filed on 15 November 1989, 8 January 1990, 27 February 1990, and 9 April 1990. There were seven by Chua Kien How, the chairman of the company filed on 19 December 1989 (two affidavits), 12 January 1990 (two affidavits), 19 March 1990, 11 April 1990 and 25 April 1990. There was also an affidavit filed by Lawrence Chua Tong Yong, a solicitor, on 25 April 1990, and another affidavit by Chia Chee Wee, the manager of the company` s restaurant business, filed on 9 April 1990.

It will be necessary to set out the background facts to this petition as disclosed by the affidavits in some detail. The company was a shelf company which was incorporated in Singapore on 22 December 1983 under the Act as a private company limited by shares, and was acquired by the petitioner sometime in 1984 for the purpose of incorporating a business which he was starting. The petitioner` s intention was to open a fast food restaurant in the Orchard Road area. For this purpose, he succeeded in obtai ning from the Shaw Foundation some space at their Shaw House in Orchard Road, and the business started there in December 1984 as the Chui Garden Noodle House specializing in the sale of Hong Kong noodles. The records show that the petitioner was the managi ng director of the company from 12 March 1984. The original capital of the company was $2m divided into two million shares of $1 each of which $600,000 was paid up or credited as paid up. This capital was held in equal shares by the petitioner, by a friend one Moez Abbas Nomanbhoy, and by an investor one Chung Kek Choo who was introduced to the petitioner by his lawyer Lawrence Chua Tong Yong. In November 1985 Lawrence Chua also became a shareholder and the shareholding pattern was then changed as follows:

Petitioner 176,400 shares

Nomanbhoy 188,400 shares

Chung Kek Choo 188,400 shares

Lawrence Chua 46,800 shares

Total 600,000 shares

The restaurant` s business, which was run on a day-to-day basis by the petitioner, was badly affected by the recession in 1985 and 1986. In fact, by August 1985, the rent was in arrears to the tune of $329,830 against a rent deposit of only $284,872.50. The landlords were willing to reduce the monthly rent from $94,957.50 to $70,000 but they insisted on full settlement of the accumulated arrears. No solution to this problem being in sight, the landlords issued Writ of Distress No 86 of 1986 which was executed against the company on 30 April 1986. The petitioner was still keen to continue the business, but the other shareholders wanted to close the restaurant. At this stage, another friend of the petitioner, Chua Kien How (Chua), who had known the petitioner since about 1980, came into the picture. He was known to the landlords` general manager and had a better credit standing with them. He was invited by the petitioner to be a shareholder of 50% of the capital of the company while the petitioner would hold the other 50%. Initially, howe ver, Chua was not keen to be a shareholder, but was willing to help. He intervened with the landlords, and the problem over rent was resolved, with Chua providing a personal guarantee to the landlords on 6 May 1986 for $280,000. The writ of distress was wi thdrawn. Having become involved to this extent, Chua changed his mind about not being a shareholder, and the shareholding structure of the company was altered. By an agreement in writing dated 2 May 1986 it was agreed by the shareholders that the petitione r and Chua should take over the company from the other shareholders by buying over their shares at a token price of 1 cent per share. As for the relationship between the petitioner and Chua, there remains a difference of opinion as to what was agreed. Acco rding to the petitioner, it was agreed that they would be 50/50 owners, but as Chua had represented to the petitioner that the landlords had agreed to help only if he was the majority shareholder, the restructuring was effected in a manner which left Chua holding 76,800 shares in trust for the petitioner. According to Chua, however, he had insisted at the time of his entry into the company that he should be the majority shareholder, in view of the potential exposure to the landlords which he had assumed, an d the petitioner had agreed to this. Whatever may have been the real understanding, this restructuring was effected by:

(a) Nomanbhoy and Chung Kek Choo each transferring his 188,400 shares to Chua, making him the registered shareholder of 376,800 shares or 62.80% of the capital;

(b) Lawrence Chua transferring his 46,800 shares to the petitioner making him (together with his original holding of 176,400 shares) the registered holder of 223,200 shares or 37.20% of the capital.

As a result of this restructuring Chua became a director and the chairman of the company in May 1986.

After the restructuring, Chua` s involvement as chairman appears from the affidavit filed on 9 April 1990 by Chia Chee Wee, the manager of the company` s restaurant business, to have been confined to signing cheques which were taken by the manager to his house or his office for his signature, and he was an infrequent visitor at the restaurant. The business of the restaurant continued to be run on a day-to-day basis by the petitioner and the manager. The restructuring coincided with the revival of the company` s business and its fortunes, as business picked up after the end of the recession. But this led to problems between the two shareholders, central to which was clearly the control of the company. Chua is alleged by the petitioner to have embarked on a systematic strategy to bring other members of his own family into the company and to throw the petitioner out. First, in March 1987 Chua transf erred 150,000 of his own shares to his wife Mdm Ng Seok Ngoh which made her a third shareholder. Then, in February 1988, he tried to transfer some other shares to his brother Chua Ah Boi, and from August 1988 he made attempts to get his brother appointed as a director. He is also alleged to have tried to replace the company secretary because she refused to be manipulated by him. The result of all this was that from some time in 1987 the relationship between the petitioner and Chua progressively deteriorate d until they had to communicate with each other through their mutual friend Lawrence Chua.

With regard to the 76,800 additional shares held by Chua, it is alleged by the petitioner that sometime in February 1987 Chua signed a transfer in favour of the petitioner at a price of one cent per share, and deposited the signed transfer with the company secretary. But on 13 March 1987, before it could be stamped and registered, he withdrew from the transaction and took back the transfer. Chua` s explanation for this incident was that he had only agreed to this on the understanding that the landlords would agree to release him from his guarantee which they refused to do, and also the petitioner had failed to pay him the $768 for the shares. On 14 October 1987 it is alleged by the petitioner that a meeting was convened at Lawrence Chua`s office, during which Chua proposed, inter alia, a 51/49 shareholding in his favour with a retransfer of only 70,800 shares out of the 76,800 shares to the petitioner for a total consideration of one cent. This was not agreed by the petitioner. On 13 November 1987, the petitioner offered Chua $30,000 for all his shares in the company, but this offer in turn was not accepted by Chua. As there was no resolution of the dispute over these 76,800 shares in the company, the petitioner eventually commenced an action in the High Court on 10 November 1989 in Suit No 2069 of 1989 against Chua claiming a declaration that Chua held the shares as trustee, that the petitioner was the beneficial owner of the shares and was entitled to have them transferred to him; and claiming damages for loss sustained by reason of the wrongful refusal to transfer the shares. At the date of the hearing of this petition, this other action for a declaration was still awaiting hearing.

Within the company, one defensive tactic which was used by the petitioner throughout this confrontation was to refuse to attend directors` meetings, so that there could not be the necessary quorum of two for a valid directors` meeting under art 100 of the company` s articles of association. In June 1988 Chua appointed a firm of solicitors Chua Hay & Wee to advise him, and it is of interest that thereafter he sent out to the petitioner a stream of notices calling directors` meetings. Lawrence Chua in his affidavit of 25 April 1990 listed directors` meetings called for the following dates: 31 August 1988; 5, 17 and 24 October 1988; 10 November 1988; 20 December 1988; 27 January 1989; 21 March 1989; 3 and 20 April 1989 and 12 and 25 October 1989. Because of the petitioner` s refusal to attend meetings, none of these meetings could be properly convened or take place. Presumably, if the petitioner had attended any directors` meeting, the chairman` s casting vote could have been used to appoint a third director to support Chua, and thereafter a more effective working control of the company would have passed to him. The result of the use by the petitioner of this defensive tactic was that, while the restaurant business could be continued in some sort of way, no corporate decisions of the board of directors could be made. In many ways, the virtual freezing of the company`s management led to defaults by the company in complying with various statutory duties. Thus, on 18 May 1989,...