Fustar Chemicals Ltd v Ong Soo Hwa

• Jurisdiction: Singapore
• Judgment Date: 10 November 2008
• Date: 10 November 2008
• Docket Number: Originating Summons No 1088 of 2007
• Court: High Court (Singapore)

Fustar Chemicals Ltd

Plaintiff

and

Ong Soo Hwa (liquidator of Fustar Chemicals Pte Ltd)

Defendant

[2008] SGHC 198

Belinda Ang Saw Ean J

Originating Summons No 1088 of 2007

High Court

Companies–Winding up–Proof of debt–Debt owed by associated company–Effect of lack of primary documents–Whether liquidator entitled to go behind audited accounts and account confirmations to require satisfactory evidence of the debt proved for–Whether liquidator bound by estoppels against the company or an account stated with the company

The plaintiff, Fustar Chemicals Limited (“FCL”), filed a proof of debt for $614,560.71 in the liquidation of Fustar Chemicals Pte Ltd (“the Company”). The defendant, who was the liquidator of the Company, rejected the proof on account of the deficiencies in the evidence presented. The indebtedness allegedly arose from inter-company transactions solely handled by Ng Cheong Ling (“NCL”), who controlled the operations of both FCL and the Company. NCL was FCL's representative in these proceedings and FCL was an entity which was part of a group of companies owned and controlled by members of NCL's family. At the time of the Company's liquidation, NCL's ex-wife, Wong Ser Wan (“WSW”), was a majority shareholder and a director of the Company. The plaintiff appealed to the High Court for the liquidator's decision to be reversed and for the claim to be admitted in full.

No books or other records relating to the business that gave rise to the indebtedness such as contracts, invoices, delivery orders, bills of lading and other shipping documents were produced by FCL to the liquidator. The evidence submitted by FCL to substantiate its proof comprised, inter alia: (a) the Company's audited financial statements for the financial years ended 31 March 1997 to 2003; and (b) copies of the Company's audit confirmations sent by its auditors to FCL for the financial years ended 31 March 1997 to 2002.

FCL argued that the liquidator ought to have accepted the audited accounts at face value since they constituted prima facie evidence of FCL's claim and that the audit confirmation by itself was enough to give rise to a cause of action on an account stated. FCL also contended that the accounting documents signed by WSW as director of the Company constituted an admission of the debt by the Company and even in the absence of base or primary documents, the liquidator should have accepted the audited accounts by reason of the common course of business presumption in s 116 of the Evidence Act (Cap 97, 1997 Rev Ed).

Held, dismissing the application:

(1) In considering whether to admit or reject a proof of debt, the liquidator was not bound by the audited accounts and audited confirmations, and he was entitled to go behind them to form his own conclusions as to the existence or otherwise of the debt. The liquidator was also not bound to assume that all relevant documents were available when the accounts were prepared. The liquidator was in the same position as the trustee in bankruptcy and since the liquidator was not generally bound by estoppels against the company or an account stated with the company, he might properly reject a proof of debt if the liability, though enforceable against the company, unjustly prejudiced the interests of the creditors or contributories of the assets available for distribution. The reason the liquidator was not necessarily bound by an estoppel, or an account stated, or even a judgment against the company, was that the liquidator was not the person who defaulted on the judgment or engaged in the conduct that led to the estoppel being created or account stated: at [31] to [39].

(2) The documents submitted called for explanation. Apart from the ledger sheets submitted in evidence, there were no other documents emanating from and involving both entities that would afford or support details of the transactions entered into the ledger sheets. It was because of the materiality of the absence of the primary documents that the auditor exercised his judgment and deemed it necessary to make a statement in his audit report that he was unable to obtain independent confirmation of trade creditors and related party balances. This was a factor that had to be taken into account in evaluating the weight to be given to audited accounts. The statement put the reader of the financial statements on notice and once on notice, any reasonable person in the position of the liquidator would carry out other checks and enquiries to substantiate the balance: at [40].

(3) Related party balances featured prominently in the balance sheets of the two companies. With the limitation of details, it was difficult to determine how the balances were derived except to accept NCL's assertions that they were due to trading. With the auditors highlighting in the audit opinion the inadequacy and/or lack of information and documentation to independently verify the balances, it would be imprudent to just accept what NCL said. NCL was one of the principal architects of the group of trading companies if not the mastermind and it would appear that NCL made use of the web of companies like an ATM network to withdraw funds as and when required: at [41] and [42].

Adam Holdings Ltd, Re [1985] 2 HKC 608 (refd)

Bellmex International Ltd (in liquidation) v British American Tobacco Ltd [2001] 1 BCLC 91 (refd)

Capital Realty Pte Ltd v Chip Thye Enterprises (Pte) Ltd [2000] 3 SLR (R) 419; [2000] 4 SLR 548 (refd)

ERPIMA SA v Chee Yoh Chuang [1997] 1 SLR (R) 923; [1998] 1 SLR 83 (refd)

Gobind Lalwani v Basco Enterprises Pte Ltd [1998] 3 SLR (R) 1019; [1999] 3 SLR 354 (refd)

Government of India, Ministry of Finance (Revenue Division) v Taylor [1955] AC 491 (refd)

Grand Grain Investment Ltd v Cosimo Borrelli [2006] HKCU 872 (refd)

Home and Colonial Insurance Company, Limited, In re [1930] 1 Ch 102 (refd)

Ice-Mack Pte Ltd, Re [1989] 2 SLR (R) 283; [1989] SLR 876 (refd)

Ng Bok Eng Holdings Pte Ltd v Wong Ser Wan [2005] 4 SLR (R) 561; [2005] 4 SLR 561 (refd)

Rosseau v Jay-O-Bees [2004] NSWSC 818 (refd)

Thomson Plaza (Pte) Ltd v Liquidators of Yaohan Department Store Singapore Pte Ltd [2001] 2 SLR (R) 483; [2001] 3 SLR 437 (refd)

Trustee in Bankruptcy of Lo Siu Fai Louis, The v Toohey [2005] 4 HKC 51 (refd)

Van Laun, In re; Ex parte Chatterton [1907] 2 KB 23, CA (refd)

Van Laun, In re; Ex parte Pattullo [1907] 1 KB 155, HC (refd)

Westpac Banking Corporation v Totterdell [1997] 142 FLR 137 (refd)

Wong Ser Wan v Ng Bok Eng Holdings Pte Ltd [2004] 4 SLR (R) 365; [2004] 4 SLR 365 (refd)

Wong Ser Wan v Ng Cheong Ling [2006] 1 SLR (R) 416; [2006] 1 SLR 416 (refd)

Companies (Winding Up) Rules (Cap 50, R 1, 2006Rev Ed)rr 92, 93

Evidence Act (Cap 97,1997Rev Ed)ss 17, 18,116

N Sreenivasan (Straits Law Practice LLC) for the plaintiffs

Kannan Ramesh (Tan Kok Quan Partnership) for the defendant.

Belinda Ang Saw Ean J

1 This application made by way of Originating Summons No 1088 of 2007 was brought by the plaintiff, Fustar Chemicals Limited (“FCL”), under r 93 of the Companies (Winding Up) Rules (Cap 50, R 1, 2006 Rev Ed) to reverse the decision of the liquidator in respect of the proof of debt filed by FCL in the liquidation of Fustar Chemicals Pte Ltd (“the Company”), and for an order that FCL's proof of debt be admitted in full. The defendant, Ong Soo Hwa (“OSH”), is the liquidator of the Company. FCL's application was dismissed with costs on 31 July 2008. I now publish the reasons for my decision.

Background facts

2 FCL was incorporated in Hong Kong with an issued and paid up capital of 10,000 ordinary shares of HK$1 each. At all material times, the majority shareholder of FCL with 9999 ordinary shares was another Hong Kong incorporated company called Dynamic Pacific Ltd. One remaining share in FCL was held in the name of Ng Chong Bian, the brother of Ng Cheong Ling (“NCL”). NCL was one of the founders of FCL, an entity which was part of a group of companies owned and controlled by members of his family. NCL himself held 50% of the shares in Dynamic Pacific Ltd. He was FCL's representative in these proceedings. NCL is an undischarged bankrupt.

3 The Company was incorporated in Singapore on 30 July 1987 with an issued and paid up capital of 5000 ordinary shares of $1 each. The Company was placed in Members' voluntary liquidation on 26 July 2004 and OSH was appointed as the liquidator. At the time of the Members' voluntary liquidation, Wong Ser Wan (“WSW”) was one of its directors along with Ng Eharn, who is NCL's and WSW's daughter. WSW is the registered owner of 4998 ordinary shares in the capital of the Company, and Ng Eharn and NCL hold one share each. Prior to Ng Eharn's appointment as director on 17 July 2001, Ng Chan Ho was a director of the Company.

4 On 30 July 2004, OSH advertised in the Singapore Government Gazette and The Business Times to invite, inter alia, the creditors of the Company to file proof of debt in the liquidation of the Company. On 2 December 2005, FCL submitted its proof of debt dated 18 November 2005 for $614,560.71.

5 The proof of debt filed by FCL related to the supplies of goods such as paraffin wax. To substantiate its claim, the proof of debt was accompanied by an audit confirmation dated 22 November 2000. OSH requested further supporting documents and corresponded with FCL's solicitors on the matter. At different point in times, FCL made available the following documents:

(a) copies of the Company's audited financial statements for the financial years ended 31 March 1997 to 2003;

(b) copies of the Company's unaudited draft financial statement as at 25 July 2004;

(c) copies of the Company's ledger sheets of the FCL account for the period January 1995 to March 1999;

(d) copies of the Company's audit confirmations sent by its auditors to FCL for the financial years ended 31 March 1997 to 2002; and

(e) copy of FCL's audited financial...