Jenton Overseas Investment Pte Ltd v Townsing Henry George

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 24 February 2006
• Neutral Citation: [2006] SGHC 31
• Court: High Court (Singapore)
• Year: 2006
• Published date: 28 February 2006
• Plaintiff Counsel: Rabi Ahmad (Rabi Ahmad and Co)
• Defendant Counsel: Cavinder Bull, Chia Voon Jiet and Lim Wei Lee (Drew and Napier LLC)
• Subject Matter: Companies,Directors,Duties,Whether director breaching statutory duties and fiduciary duties by making payments,Section 157(1) Companies Act (Cap 50, 1994 Rev Ed),Insolvency Law,Avoidance of transactions,Unfair preferences,Whether creditors unduly preferred by receiving payments,Section 100(1) Bankruptcy Act (Cap 20, 2000 Rev Ed)
• Citation: [2006] SGHC 31

24 February 2006 Judgment reserved.

Lai Siu Chiu J:

Introduction

1 The plaintiff, Jenton Overseas Investment Pte Limited, is a company incorporated in Singapore and holds all the issued shares in a New Zealand incorporated company called NQF Limited (“NQF”), which was formerly known as Newmans Quality Foods Limited. The plaintiff is in turn a wholly-owned subsidiary of Newmans Group Holdings (Pty) Ltd (“NGH”), a company incorporated in Australia. (In the later part of this judgment, the three companies will be referred to collectively as “the Newmans Group”.)

2 The plaintiff was placed in creditors’ voluntary liquidation on 9 July 2004. Chee Yoh Chuang and Lim Lee Meng (“the Liquidators”) from the accounting firm of M/s Chio Lim & Associates were appointed the liquidators. NQF was placed under receivership on 29 July 2004. Prior thereto, NQF carried on the business of fruit processing in Tauranga, New Zealand. The plaintiff and NGH are only holding companies and have no business activities.

3 The common shareholders of the plaintiff and NQF include Wong Peng Koon (“PK Wong”) and his son, Mark Wong Kuan Meng (“Mark Wong”). Father and son (hereinafter referred to collectively as “the Wongs”) are solicitors practising under the name and style of PK Wong & Associates LLC (since 1 March 2004).

4 The defendant, Henry George Townsing, who is an Australian, was a director of NGH, the plaintiff and NQF at the material time. The defendant (together with one Daud Yunus (“Daud”)) is also a representative of Normandy Nominees Limited (“Normandy”) of which he was a director between 1995 and 1998. Normandy is incorporated in the British Virgin Islands (“BVI”). Further, the defendant is a director of Normandy Finance & Investments Asia Ltd (“NFIA”), a wholly-owned subsidiary of a UK company known as Normandy Finance & Investments Limited (“Normandy UK”). (Henceforth, Normandy, NFIA and Normandy UK will be referred to collectively as the “Normandy Group”.) The principal activity of the Normandy Group is to invest in unlisted companies.

The facts

5 John Sharman (“Sharman”) is an investment director with CVC Venture Managers Pty Ltd (“CVC Venture”) which is part of a group of investment companies known as the CVC Group, which group is headed by its chairman, Vanda Gould. CVC Venture is itself a joint venture between CVC Investment Managers Ltd and Normandy Finance & Investments Asia Pty Ltd.

6 The defendant was told in late 2000 by Daud and Sharman of a possible investment opportunity in a New Zealand food manufacturing company for the Normandy Group as well as for the CVC Group. Prior thereto, Daud had been introduced first to PK Wong and then to Nicholas Chia, the managing director of NQF.

7 Subsequently, Daud introduced the defendant to PK Wong and Mark Wong, who are the chairman and director respectively, of the plaintiff and NQF. Daud also introduced Nicholas Chia to the defendant. Daud then negotiated with the Wongs on behalf of the Normandy and the CVC Groups.

8 The outcome of those negotiations was that on 13 February 2001, the defendant wrote to PK Wong to confirm that the Normandy and the CVC Groups would subscribe for two million redeemable preference shares in the plaintiff. On 30 April 2001, the Redeemable Convertible Preference Share Agreement (“the RCPS Agreement”) was executed by the plaintiff and Normandy. The RCPS Agreement was prepared by M/s PK Wong & Advani, the predecessor of PK Wong & Associates LLC. In the preamble, Normandy was described as a company incorporated under the laws of the Special Administrative Region of the People’s Republic of China with its registered office at 12th floor, China Merchants Tower, Shun Tak Centre, 168-200, Connaught Road Central, Hong Kong.

9 The $2m subscription sum for two million preference shares at $1.00 per share was paid to the plaintiff by Normandy in two tranches. On 18 April 2001, Normandy paid $250,000 while the balance $1,750,000 was paid on 2 May 2001. Both payments were effected by NFIA on Normandy’s behalf. Out of the $2m, approximately $1.125m was lent by the plaintiff to NQF. Under cl 6.2 of the RCPS Agreement, not more than $825,000 could be used to repay bank facilities and advances made to the plaintiff by its members. PK Wong, his other son Keith Wong, Nicholas Chia and the plaintiff’s bank were repaid their loans under this clause.

10 Pursuant to cl 4.2.1 of the RCPS Agreement, the plaintiff was to appoint a person nominated by Normandy to be a director of the company. The defendant was Normandy’s nominee and became a director of the plaintiff on 2 May 2001.

11 In May 2001, Normandy through its consultant, Ian Greenyer (“Greenyer”), discovered that the accounts of the plaintiff and NQF might have materially understated and misrepresented the losses of the plaintiff and NQF while overstating the value of assets and the potential of NQF’s business. This was a breach by the plaintiff of the warranties under para 3.1 of Sched 3 of the RCPS Agreement.

12 After the execution of the RCPS Agreement, Greenyer and CVC Venture discovered in the files of NQF a letter dated 14 February 2001 from its auditors, Hayes Knight, which inter alia cast serious doubts on the value of some of the assets of NQF and its financial viability. The defendant then received an
e-mail from Greenyer stating that the latter had been told by NQF’s bankers, ANZ Bank, that Nicholas Chia had promised to repay ANZ Bank loans of NZ$3m by 11 May 2001, using moneys invested by Normandy.

13 The defendant advised ANZ Bank on 10 May 2001 that NQF was not in a position to repay NZ$3m. At Normandy’s request, Nicholas Chia was subsequently removed from all positions in the plaintiff and NQF. At the defendant’s suggestion, Greenyer and Sharman were later retained by NQF as consultants to help turn the company around.

14 The plaintiff’s breach of the RCPS Agreement and Normandy’s right to terminate the RCPS Agreement were conveyed to the plaintiff by Normandy’s lawyers, M/s Rajah & Tann. In the event, the plaintiff did not issue or allot redeemable convertible preference shares to Normandy.

15 The defendant then discussed Greenyer’s findings with PK Wong. While he assured PK Wong that Normandy remained committed to invest in NQF, the defendant stipulated it was on the condition that the parties could reach agreement on a new deal. He then informed Daud, Greenyer and Sharman in an e-mail on 16 May 2001 that the terms of the RCPS would have to be renegotiated and the investment in the plaintiff and NQF restructured. It was to facilitate the restructuring of Normandy’s investment that NGH was incorporated in Australia on 21 August 2001. The plaintiff’s shareholders transferred all their shares to NGH in exchange for an equal number of shares in NGH.

16 Normandy decided to restructure its investment by subscribing to convertible notes to be issued by NGH amounting to $2m. The $2m owed by the plaintiff to Normandy under the RCPS Agreement would be assigned to NGH. Normandy also required NGH to secure its debt by a charge over the assets of the plaintiff and NQF as recommended by Greenyer.

17 After negotiations between the plaintiff and the defendant, the conversion price for the shares in NGH was reduced from $1.00 to $0.61. As an Australian company, NGH’s shares have no par value and new shares could therefore be issued to Normandy at $0.61 instead of $1.00.

18 Pursuant to the arrangement agreed between the plaintiff and Normandy, a loan and option agreement dated 8 July 2002 (“the Series 1 Agreement”) was executed between NGH, the plaintiff and Normandy wherein it was provided that the $2m owed to Normandy by the plaintiff was deemed to have been repaid by the plaintiff to Normandy and treated as borrowed by NGH from Normandy.

19 NGH further issued a loan note (“the Series 2 Loan Note”) to its shareholders in July 2002. NGH called for a rights issue under the Series 2 Loan Note in August 2002 to which Normandy subscribed for shares to the value of $431,844. Normandy, however, did not make full payment of the subscription sum as it set off $200,000 against a deposit of $400,000 which it had placed with ANZ Bank, as required under Recital D of the Series 1 Agreement. The documentation for the Series 1 Agreement and Series 2 Loan Note was drafted by Rajah & Tann.

20 A charge dated 8 July 2002 (“the NGH charge”) was executed by NGH in favour of Normandy for moneys owed to Normandy following the assignment mentioned at [18] above under the Series 1 Agreement. In turn the plaintiff executed a deed of debenture (drafted by Mark Wong) in favour of NGH on 9 July 2002 (“the Jenton debenture”). At the defendant’s request, a charge dated 22 August 2002 was also executed by NQF (“the NQF charge”) in favour of Normandy and registered in New Zealand. The Jenton debenture, however, was neither stamped nor registered with the Registry of Companies & Businesses (“the RCB”) in Singapore. Had the same been registered, this dispute would probably not have arisen as, if NGH could enforce the Jenton debenture against the plaintiff, Normandy would by virtue of the NGH charge have been able to enforce its rights against NGH and, in turn, against the plaintiff. In the defendant’s closing submissions, the Wongs were blamed for the non-registration of the Jenton debenture and for breaching ss 131 and 132 of the Companies Act (Cap 50, 1994 Rev Ed).

21 A charge dated 5 September 2002 was also executed by the plaintiff in favour of Normandy at the defendant’s request (“the Jenton charge”) and registered with the RCB in Singapore. The NQF and Jenton charges were in the exact same terms save for references to the respective companies.

22 PK Wong & Advani rendered a bill on 22 August 2002 to NGH[note: 1] for Mark Wong’s services relating to the drafting of the Jenton debenture, the Series 1 Agreement and the Series 2 Loan Note, including the issuance of notices to shareholders for convening the extraordinary...