Fustar Chemicals Ltd (Hong Kong) v Liquidator of Fustar Chemicals Pte Ltd

• Jurisdiction: Singapore
• Court: Court of Three Judges (Singapore)
• Judge: Chan Sek Keong CJ
• Judgment Date: 30 July 2009
• Neutral Citation: [2009] SGCA 35
• Citation: [2009] SGCA 35
• Subject Matter: Whether primary supporting documents of underlying transactions necessary for proof of debt,Related company proving debt when primary supporting documents unavailable,Liquidator,Proof of debt in winding up,Liquidator's power to look behind documents,Winding up,Members' voluntary winding up,Proof of evidence,Duty of liquidator to be fair and independent,Duty of liquidator in voluntary winding up,Proof of debt owed by related company,Related party claiming proof of debt on basis of audit confirmations and audited accounts,Whether liquidator should reject proof of debt when creditor was a related party unable to produce primary supporting documents of underlying transactions,Evidence,Companies,Whether liquidator entitled to reject audited accounts as evidence of debt,Insolvency Law
• Date: 30 July 2009
• Defendant Counsel: Kannan Ramesh, Paul Seah and Joanna Poh (Tan Kok Quan Partnership)
• Plaintiff Counsel: Indranee Rajah SC and Daniel Tan (Drew and Napier LLC)
• Docket Number: Civil Appeal No 112 of 2008
• Published date: 03 August 2009

30 July 2009 Judgment reserved.

V K Rajah JA (delivering the judgment of the court):

Introduction

1 This is an appeal against the decision of a High Court Judge (“the Judge”) affirming the decision of a liquidator to reject a proof of debt lodged against a company in members’ voluntary liquidation.

2 The appellant is Fustar Chemicals Ltd (Hong Kong) (“FCL”), the plaintiff below. The respondent is Ms Ong Soo Hwa (“OSH”), the liquidator of Fustar Chemicals Pte Ltd (the “Company”). FCL filed a proof of debt on 18 November 2005 for $614,560.71 but this proof was rejected by OSH on 3 July 2007 on the basis of insufficient evidence. In Originating Summons No 1088 of 2007 filed on 23 July 2007, FCL applied pursuant to r 93 of the Companies (Winding Up) Rules (Cap 50, R 1, 2006 Rev Ed) to reverse the decision of OSH not to admit the proof of debt submitted by FCL and for FCL’s proof of debt to be admitted in full. We now set out the pertinent facts.

Background

3 The Company was incorporated in Singapore on 30 July 1987 with an issued and paid up-capital of 5,000 ordinary shares of $1 each. From financial year (“FY”) 1997 to FY 1999, Wong Ser Wan (“WSW”) was the sole shareholder of the Company. From FY 2000 to FY 2004, WSW held 4,998 shares; WSW’s ex-husband Ng Cheong Ling (“NCL”) held one share; and their daughter, Ng Eharn (“NE”), also held one share. It bears mention that there is no evidence on record (nor has it been suggested otherwise in submissions) that either WSW or NE made any payments for their shares. At the point of winding up, the Company’s only directors were NE and WSW. They passed a special resolution for the Company to be placed under Members’ voluntary liquidation on 24 July 2004 as a solvent company. OSH was appointed the liquidator by WSW and NE at the same extraordinary general meeting.

4 FCL was incorporated in Hong Kong and was in the business of selling (mainly) paraffin wax obtained from the People’s Republic of China (“China”). Its shareholders were another Hong Kong company, Dynamic Pacific Ltd (9,999 shares out of a total of 10,000) and NCL’s brother, Ng Cheong Bian (one share). FCL was part of a group of companies with trade links to China that were controlled by the Ng family. It was represented in Singapore by NCL.

5 The Company’s primary business was that of an intermediary between FCL in Hong Kong and customers in Taiwan and South Africa. During that period, China had banned the sale of paraffin wax to Taiwan and South Africa. Goodwood Ltd, a company belonging to the same group of companies controlled by the Ng family, would buy paraffin wax from Chinese companies and sell them to Goodray Ltd, another Ng family controlled company. Goodray Ltd would in turn sell the paraffin wax to FCL which then resold them to the Company. FCL was the point of contact with customers in Taiwan and South Africa, but the actual sale and collection of revenue was made through the Company. In other words, the Company was mainly responsible for collecting debts that were in reality owed to FCL. It can be said that it discharged the role of a facilitator rather than that of a real trading company. There has been no suggestion by OSH that any of these arrangements offended the laws of Singapore. It is also not disputed that NCL was both the directing and controlling mind behind both FCL and the Company during the relevant trading period. WSW was, at all times, a homemaker and had neither any interest nor involvement in the business. According to NCL, the Company’s business activities stopped in 1997 when the relationship between NCL and WSW became intractable. This has not been disputed by either WSW or OSH.

6 NCL and WSW were married in 1976 but the marriage began to sour in 1993. WSW eventually filed a divorce petition in October 1996. The divorce proceedings were both protracted and acrimonious and resulted in several different lawsuits between NCL and WSW as well as the companies controlled by them. A decree nisi was finally granted in 2000. A detailed history of their legal skirmishes can be found in the case report of the ancillary proceedings in Wong Ser Wan v Ng Cheong Ling [2006] 1 SLR 416. We note that the Judge attached some significance to the finding in those proceedings that NCL had attempted to dissipate his assets to reduce the pool of matrimonial assets available for division. In Wong Ser Wan v Ng Bok Eng Holdings Pte Ltd [2004] 4 SLR 365 (“Ng Bok Eng Holdings”), Judith Prakash J allowed WSW’s claim that a series of property transfers by NCL to other related companies were in fact fraudulent conveyances. In due course, in 2002, NCL was made a bankrupt for failing to satisfy the judgment in another case involving Aromate Ltd, a company in which WSW was a shareholder and NCL a director. He currently remains an undischarged bankrupt.

7 The directors of the Company, WSW and NE, filed a Declaration of Solvency on 7 July 2004 (“the Declaration of Solvency”)^{[note: 1]} affirming that its assets exceeded its liabilities. The Declaration of Solvency further stated it was a true and correct statement of the company’s assets and liabilities as at 31 March 2004. It listed under the Liabilities column “trade accounts” a sum of $691,088 owing to unsecured creditors. The individual identities of these unsecured creditors were however not disclosed. WSW and NE eventually passed a special resolution on 26 July 2004 to wind up the company. We pause here to make, what is in our view, a crucial observation. While FCL is the major creditor of the Company, WSW is on the flip side its major debtor. The Declaration of Solvency records the amount due from one of the Company’s director as $857,222. Counsel for OSH clarified at the hearing of this appeal in response to a query from us that this debt was actually due from WSW. It is not clear from the documents filed when and how WSW withdrew this amount from the Company. However, as the amount is not in dispute, we need say no more. What is material for the purposes of these proceedings is to point out that the amount due from WSW to the Company substantially exceeds the claim of FCL. It also bears mention that there is no evidence before us that this debt has been paid by WSW or collected by OSH. This state of affairs could give rise to the perception that OSH regarded her principal role as liquidator was to search for reasons to reject the proof of debt filed by FCL. We now turn to examine the basis for FCL’s proof of debt.

The proof of debt

8 FCL submitted a proof of debt (“FCL’s debt”) in December 2005 for the sum of HKD2,832,891.04 (equivalent to $614,560.71) which it claimed was a debt incurred by the Company since 1988 for goods supplied. FCL was then invited by OSH to provide supporting evidence in the form of invoices, purchase orders, delivery orders, shipping documents and other relevant documents. However, all FCL could submit as proof of its claim were the following supporting documents: (a) copies of audit confirmations from the Company for FY 1997 to FY 2001; (b) copies of FCL’s own audited accounts for FY 2000; and (c) copies of ledger entries of the Company for FY 1995 to FY 1999. The audit confirmations signed by WSW acknowledged that in FY 1997, the Company owed FCL a sum of $2,615,269.56. This sum was reduced by $582,537.21 in FY 1998. Finally, in FY 1999, an audit confirmation also signed by WSW recorded the sum of $614,560.71 (ie, the sum of FCL’s debt). Each of these figures was matched by ledger entries made during the relevant accounting period. FCL’s own audited accounts for FY 2000 recorded that the Company owed FCL a debt of HKD2,832,891 (equivalent to FCL’s debt). FCL claimed that the primary documents were no longer available. Under Hong Kong law, it was only obliged to keep the documents and records for seven years.

9 Other than these materials, OSH also had the benefit of evaluating the Company’s audited financial statements from FY 1997 to FY 2003. These audited financial statements recorded the total debt the Company owed without detailing the individual trade creditors. The FY 1997 audited financial statement recorded the Company’s debt to trade creditors as $2,663,520. By FY 1998 this figure had been reduced to $634,389. In FY 1999, the Company’s debt to trade creditors increased marginally to $691,088. This amount remained constant in the audited financial statements of FY 2000 to FY 2003. The auditors for the Company were originally Chan & Chan Certified Public Accounts (“C&C”) for FY 1997 to FY 1998. After WSW commenced divorce proceedings, Goh Boon Kok & Co (“GBK”) were appointed as auditors of the Company by her. They took over the auditing of the Company’s accounts from FY 1999 onwards. A qualification was subsequently inserted in all of the following years’ audited financial statements to the effect that GBK had not received independent confirmation of the trade balance.

10 OSH rejected FCL’s proof of debt on 3 July 2007. The following reasons were given:

(a) FCL was a related company and OSH considered it necessary to look behind the acknowledgment of debt between the parties;

(b) the Company’s auditors, GBK, qualified the...