Ho Pak Kim Realty Co Pte Ltd (in liquidation) v Ho Soo Fong and another

• Jurisdiction: Singapore
• Judge: Audrey Lim J
• Judgment Date: 15 September 2020
• Neutral Citation: [2020] SGHC 193
• Court: High Court (Singapore)
• Docket Number: Suit No 1012 of 2018 and Summons No 1077 of 2020
• Published date: 22 September 2020
• Year: 2020
• Hearing Date: 13 July 2020,28 February 2020,26 February 2020,25 February 2020,27 February 2020,17 March 2020,03 March 2020
• Plaintiff Counsel: Lee Ming Hui Kelvin and Ong Xin Ying Samantha(WNLEX LLC)
• Defendant Counsel: Alfred Dodwell and Yap Pui Yee (Dodwell & Co LLC),Ronald Wong Jian Jie and Lopez Stacey Millicent Xue Mei (Covenant Chambers LLC)
• Subject Matter: Companies,Directors,Duties,Equity,Remedies,Civil Procedure,Limitation
• Citation: [2020] SGHC 193

Audrey Lim J:

The liquidator of the plaintiff company (“HPK”) commenced the present action against the first and second defendants (“D1” and “D2” respectively; “the Defendants” collectively) for breach of their duties as directors of HPK. The trial proceeded on both liability and damages.

Background

HPK was incorporated in May 1984 with its main activities in civil engineering and real estate development. D1 and D2, who are brothers, are its directors since its incorporation and hold 75% and 25% of HPK’s shares respectively.

In January 2006, HPK commenced Suit 36 of 2006 (“Suit 36”) against Revitech Pte Ltd (“Revitech”) over a construction dispute. Revitech filed a counterclaim. Both parties succeeded in their respective claims but Revitech’s counterclaim was eventually assessed by the court to be larger than HPK’s claim.¹ By various court decisions which culminated in the assessment of damages award on 29 October 2013, the net effect was that HPK owed Revitech around $1,585,723.08.² In June and July 2017, Revitech served statutory demands on HPK for an outstanding sum principally relating to Suit 36, which by then amounted to some $1.619 million. As HPK failed to pay, Revitech commenced winding up proceedings in October 2017. The winding up order was made on 27 October 2017 and Don Ho was appointed HPK’s liquidator (“the Liquidator”). Thus far, Revitech is the only creditor who has filed a proof of debt.³

The Liquidator’s claim

The Defendants’ purported misconduct is summarised as follows.

Failure to submit proper statement of affairs and destruction of plaintiff’s records

D1 had failed to submit proper statement of affairs (“SOA”) in accordance with s 270 of the Companies Act (Cap 50, 2006 Rev Ed) (“CA”) and D2 did not submit any SOA at all. The first SOA that D1 submitted (“1st SOA”) was defective as it was stated to be made as at 31 August 2012 rather than the liquidation date of 27 October 2017, and no supporting documents were provided to substantiate the figures therein.⁴ The Liquidator rejected the 1st SOA and requested for it to be amended. After repeated reminders, D1 submitted a second SOA (“2nd SOA”), which was also incomplete as it was stated to be made as at 31 August 2017 (and not the liquidation date) and D1 had only provided a profit and loss statement and balance sheet as of 31 August 2017 without supporting documents.⁵ The Liquidator again rejected the 2nd SOA and requested D1 to resubmit another SOA and further complained to the Accounting and Corporate Regularity Authority (“ACRA”), the Official Receiver and the Commercial Affairs Department (“CAD”). D1 then sent a third SOA (“3rd SOA”), which was also incomplete for the same reasons. In particular, it did not provide details of HPK’s largest claim of about $3.5 million, which were debts owing to it.⁶

D1 and D2 also did not provide the Liquidator any accounts, books or records of HPK, and the Liquidator had no means to verify the details in the SOAs apart from HPK’s 2012 Financial Statement (“2012 Financial Statement”) which D1 had provided. D1 and D2 had a duty to maintain proper books and records of HPK pursuant to s 199 of the CA, but D1 claimed that these documents had been destroyed. Furthermore, HPK did not prepare accounts from 2013 onwards, which coincided with the time the decision in Suit 36 determined damages to be paid effectively by HPK to Revitech.⁷ Additionally, D1 had refused to answer interrogatories administered in 2019. As for D2, his responses to the interrogatories were rather bare.⁸

The Defendants’ refusal to provide documents and information and their purported destruction of HPK’s documents were to cover their tracks and frustrate Revitech’s recovery of its debt in Suit 36.⁹

Breach of duties

HPK pleads that the Defendants owed the following duties to HPK as its directors:¹⁰ a duty to act honestly and to use reasonable diligence under s 157(1) of the CA and/or to act bona fide and with reasonable diligence in HPK’s interests under common law; a duty to take into account the interest of creditors when HPK is or was insolvent; a duty not to place themselves in a position of conflict of interest with HPK; a duty to maintain proper records, accounts and books of HPK under s 199 (read with ss 338 and 339) of the CA and to deliver them to the Liquidator under s 336(1) of the CA; and a duty to act for the proper purposes of HPK in relation to its affairs.

The crux of the Liquidator’s claim against the Defendants concerns a sum of $3,590,587 (“$3.59m Sum”) recorded in HPK’s 2012 Financial Statement as a debt owing from related parties (“Related Parties”) to HPK. The Liquidator was not given supporting documents or information at the material time to substantiate the amount and identify the Related Parties. The Defendants admitted that the $3.59m Sum was due from Related Parties and they were Wee Poh Construction Co Pte Ltd (“Wee Poh”), Revitech, and one Subramaniam (collectively “the Three Persons”). The Liquidator disputed this, as the Three Persons did not have common shareholding or directors with HPK.¹¹

The Liquidator pleads that the Defendants’ refusal to even provide a list of the Related Parties or any details or proof of the debt is a breach of their directors’ duties to HPK. They have not explained if the $3.59m Sum had been collected or what efforts (if any) they had made to do so, and they have failed to collect the $3.59m Sum. Also, they had prevented the Liquidator from collecting the $3.59m Sum or any part of it by failing, refusing or neglecting to provide any details or supporting documents to facilitate such a claim.¹²

The Defendants had thus breached their duty of honesty under s 157(1) of the CA and/or to act bona fide in HPK’s interest. They had also breached their duties to HPK by preferring the Related Parties’ interest to the interests of HPK and its creditors and failed to take into account the creditors’ interests when HPK is or was insolvent. In failing to collect the $3.59m Sum, the Defendants had also placed themselves in a position of conflict of interest with HPK. Additionally, if the Related Parties’ transactions were “never genuine”, then HPK was insolvent at all material times. Hence, HPK’s business had been carried out with the intent of defrauding its creditors and the Defendants were knowingly a party to this. The Defendants thereafter secreted away or destroyed the books and records of HPK to cover their tracks, and breached their duty to maintain proper records, accounts and books of HPK. They have also breached their duty to act for the proper purposes of HPK in relation to its affairs.¹³

Relief sought

Consequently, HPK seeks to claim S$3,590,587; damages for the Defendants’ breach of duties; and a declaration that they are jointly and severally liable for HPK’s debts.¹⁴ Although HPK had also pleaded claims in conspiracy and fraudulent trading, Mr Lee (HPK’s counsel) confirmed that HPK would not be pursuing them. Further, whilst the Liquidator also claimed for breach of trust, this claim was not pursued in closing submissions.¹⁵

First defendant’s case

D1 essentially denied that he had breached any duties owed to HPK.

D1 claimed that he could not provide HPK’s documents to the Liquidator as CAD had seized them (“Seizure Event”). As for any remaining documents at HPK’s premises after the Seizure Event, D1 had instructed his workers “to tidy up the place” but they “misunderstood” him and accidentally cleared away the documents belonging to HPK. In any event, there was no reason for him to have kept the discarded documents as they were then more than six years old and were discarded before the present Suit was filed.¹⁶

HPK did not prepare accounts from 2013 onwards as it had no business activity since 2006. At that time, D1 was also very caught up with the litigation in Suit 36 and he neglected the proper running of HPK. Hence, he did not call for an annual general meeting of, or appoint auditors for, HPK. D1 claimed that he had provided the best explanation possible in the SOAs and he remained ready, able and willing to assist the Liquidator and to file any further SOA. D1 claimed that whilst the $3.59m Sum was “justly due” to HPK, he had attempted to claim the sum from the Related Parties (who were the Three Persons) but they refused to pay.¹⁷ In any event, HPK’s claim for the $3.59m Sum is time-barred.¹⁸

D1 also claimed that HPK owed D2 and him a total of $3,132,356. This comprised directors’ loans to HPK of $2,707,356 and $425,000 which D1 had paid Revitech on HPK’s behalf for Revitech’s costs in 2006 or 2007.¹⁹

Second defendant’s case

D2’s case is as follows. Around 1984, D1 approached him to form HPK. D2 said that he was Chinese-educated and not well-versed in English and would not be able to contribute much to HPK. D1 told D2 that he only needed to “use” D2’s name to meet the administrative requirements to start a company and that D2 would not be involved in the day-to-day running of HPK. Subsequently, D2 also allowed D1 to “use” D2’s name to set up Invest Ho Properties Pte Ltd (“IH”) and Ho Tong Seng (“HTS”) in 1986 and 1989 respectively.²⁰

Although D2 was a shareholder and director of HPK, HTS and IH, he was a “silent” shareholder or partner and left the management of the three companies to D1. D2 worked full time for HPK from its incorporation until 1994; and thereafter worked part-time until around 2002 when he “retired”, although he remained as director. He supervised workers on construction sites and transported them, and saw to the repair of construction equipment.²¹

D2 left the management of HPK to D1 who made all the business and management decisions and handled all the financial matters. D2 never received nor read any correspondences addressed to HPK, which he would not have understood, and they were all dealt with by D1. D1 was in charge of preparing documents relating to HPK’s...