Kon Yin Tong and another v Leow Boon Cher and others

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 14 October 2011
• Neutral Citation: [2011] SGHC 228
• Court: High Court (Singapore)
• Hearing Date: 19 November 2010,19 April 2010,08 July 2010,05 July 2010,19 July 2010,12 July 2010,09 July 2010,16 July 2010,28 April 2010,05 May 2010,30 April 2010,20 July 2010,04 May 2010,29 April 2010,07 July 2010,03 May 2010,13 July 2010,14 July 2010,20 April 2010,06 July 2010,15 July 2010
• Docket Number: Suit No 37 of 2009
• Plaintiff Counsel: Paul Seah Zhen Wei and Vimaljit Kaur (Tan Kok Quan Partnership)
• Defendant Counsel: Daniel Tan Choon Huat, Angeline Tan Sze Mei (Drew & Napier LLC),Chiah Kok Khun and Diana Ho (Wee Swee Teow & Co)
• Subject Matter: Companies,Winding-up,Fraudulent Preference
• Published date: 18 October 2011

Judith Prakash J:

This case involves a company in liquidation and some of the various transactions that it undertook before it was wound up. The plaintiffs, who are the liquidators of the company, seek to recover what they say is the company’s money from the defendants who comprise two former directors and shareholders of the company and other firms who did business with the company.

The parties

The company in liquidation (“the Company”) is Woon Contractor Pte Ltd, a company that was set up in 1995 as a successor to a partnership, Woon Contractor, which carried on business in the construction industry. Woon Contractor was owned and run by the first defendant, Leow Boon Cher (“Mr Leow”), and his wife, Ong Chiew Ha (“Mdm Ong”), the second defendant. On the incorporation of the Company, Mr Leow and Mdm Ong became its sole directors and shareholders and ran it the same way in which they had run Woon Contractor. Mr Leow was the man in the field, getting business and supervising the Company’s construction activities and its workers, whilst Mdm Ong was the back office woman, in charge of administration and accounts. From time to time I shall refer to Mr Leow and Mdm Ong jointly as “the Directors”.

On 4 March 2005, Mr Leow made a Declaration that the Company was unable to continue business by reason of its liabilities. A winding up order was made against the Company on 20 May 2005 and the plaintiffs were then appointed its joint liquidators. The first plaintiff, Mr Kon Yin Tong (“Mr Kon”), was the lead witness for the plaintiffs in the present proceedings.

The third defendant, Aim Top Enterprise Pte Ltd (“Aim Top”) was incorporated on 9 September 2003. Aim Top has two directors who are also its sole shareholders. First, there is Mdm Chiew Kim Lian (who holds 99.99% of Aim Top’s shares). She is the mother of Mdm Ong. The other director and shareholder is Mr Chiow Yit Wah; he was an employee of the Company from its incorporation until 2003 and prior to 1995 had worked for Woon Contractor for several years.

The fourth and fifth defendants, Mr Ong Key Young (“OKY”) and Mr Ong Eng Seng (“OES”), are the partners of a partnership firm called Antah Forwarders (“Antah”) which has the same registered address as Aim Top. OKY is Mdm Ong’s father while OES is Mdm Ong’s brother. OES is also the sixth defendant in the action in his capacity as the sole proprietor of a business known as Western Express Resources Agency (“Wera”), another business sharing an address with Antah.

The seventh and last defendant is Yew San Construction Pte Ltd (“Yew San”). This company was incorporated in 1996 and carries on business as a general contractor in building construction. Its directors and shareholders are not related to the other defendants.

The dispute

The plaintiffs’ position was that during their investigation of the affairs of the Company, they discovered that the Company, acting at the behest of the Directors, had entered into a series of fraudulent and irregular transactions in order to siphon off the money and assets of the Company and put the same out of the reach of its creditors. The allegation made was that the Directors did this because they knew that the Company was insolvent. A summary of the specific allegations in the Statement of Claim (Amendment no 3) follows.

The plaintiffs averred that the Company was insolvent as at 30 April 2003 as it was unable as of that date to pay its debts as and when they fell due and it continued to be insolvent after that date. Further, the plaintiffs averred that the liabilities of the Company exceeded its assets as at 31 August 2003 and the Company was therefore insolvent as at that date as well. The plaintiffs pleaded that the Directors had masterminded a scheme to defraud the Company’s creditors and, in the course of the scheme, had made the Company a party to a series of irregular and fraudulent transactions which had the effect of siphoning moneys out of or removing assets from the Company. The plaintiffs sought to recover various payments made by the Company pursuant to such transactions. The particulars of these are: a number of payments totalling $537,738 from 5 May 2003 to 6 August 2004, made to Mr Leow allegedly in repayment of loans that he had made to the Company; a sum of $39,394.78 paid to Aim Top allegedly for rental of lorry, labour, driver service and rental of excavator, such payments being made between 17 February 2004 and 20 June 2004; a sum of $41,000 paid to Antah for transportation services allegedly provided by Antah; payments totalling $13,500 purportedly paid to Wera as a sub-contractor even though Wera was not in the building and construction business; and a sum of $13,111.35 paid to Yew San allegedly for excavation work done at a worksite in Bendemeer. In addition, the plaintiffs claimed that the Directors had acted in breach of their fiduciary duties by causing the Company to sell a used excavator to a company called Ban Guan & Co (“Ban Guan”) at an under value. It was also asserted that they had acted dishonestly, mala fides and against the interests of the Company and its creditors and, in the alternative, had given fraudulent preference to creditors of the Company who were connected to them. In relation to Mdm Ong, in the statement of claim, the plaintiffs sought to recover a sum of $6,000 paid to her on 27 August 2003 purportedly as a subsidiary for her private vehicle that was allegedly used in the course of the Company’s business. In their closing submissions, however, the plaintiffs did not deal with this claim and therefore I will not consider it.

In their defence, Mr Leow and Mdm Ong averred that the Company was not insolvent either as at 30 April 2003 or 31 August 2003. They asserted that they had undertaken to provide continued financial support to the Company to meet its obligations as and when they fell due and that, over the years, they had provided financial support to the Company by injecting capital amounting to $828,500 into the Company. Mr Leow and Mdm Ong also asserted that all the transactions referred to by the plaintiffs had been carried out in good faith and/or with the knowledge and/or belief that the Company was not insolvent. The other defendants have claimed that the various transactions in which they were involved were made in good faith and for good consideration and that the plaintiffs had not been able to establish fraud on the part of Mr Leow and Mdm Ong.

Arising from the pleadings, there are three main areas that have to be investigated and determined. The first relates to the solvency of the Company as at 30 April 2003 and/or 31 August 2003 and in relation to this situation, it is also important to establish the knowledge of the Directors regarding the Company’s financial position. The second area relates to the payments made by the Company to the Directors and whether they or either of them has to account for any or all of such payments. The third area covers the various transactions between the Company and the third to seventh defendants. In this connection, each transaction and relationship has to be examined to ascertain whether the payments made were regular or were in pursuance of sham transactions and/or were fraudulent preferences. My determination as to whether the Directors acted dishonestly or with intent to defraud the Company and/or the general body of its creditors will play a part in determining their liability for a number of the claims brought. This is an issue therefore to which much attention will have to be given. I will also have to examine whether in any of the impugned dealings the Directors were acting in breach of their fiduciary duties.

The plaintiffs’ narrative

It is important at this juncture to set out the framework of the plaintiffs’ case before I go on to consider the individual allegations and transactions. This framework provides the plaintiffs’ perspective on how the transactions should be viewed and keeping it in mind also prevents one from failing to see the wood because of the abundance of trees. It must, however, be remembered when the following paragraphs are read that they set out the story as the plaintiffs see it and what I have to do in this judgment is to determine whether or not the plaintiffs have mustered sufficient evidence to prove that the story is fact and not fiction.

The original business of Woon Contractor commenced in 1985. After its conversion into a company, the business was profitable for a few years but from 1999 onwards, losses were made every financial year (apart only from 2001) up to 2004.

In January 2003, a construction project referred to as the Fernvale Project was novated to the Company, as main contractor. The employer was the Housing and Development Board (“HDB”) and the works to be undertaken by the Company comprised (a) major infrastructural construction works and (b) earthworks. The lump sum price for the project was about $4,678,000 of which $1,622,800 related to the earthworks. The Company promptly sub-contracted the entire earthworks portion to another contractor called Soon Li Heng Civil Engineering Pte Ltd (“Soon Li Heng”) for a sum of $1,050,000. This sub-contract was on a back-to-back basis with the main contract.

It is the plaintiffs’ case that the Company was insolvent by 30 April 2003 and that from 5 May 2003 until 6 August 2004, a series of unexplained payments were made by the Company to Mr Leow without any supporting documentation to justify the payment vouchers which Mdm Ong prepared. Further, on 5 May 2003, the Company purportedly paid Wera $2,500 for its work as a “subcontractor”. Wera, however, was not in the building and construction business and the cheque was made payable to Mdm Ong instead of to Wera.

By 3 July 2003, Soon Li Heng had completed the earthworks under their sub-contract for the Fernvale Project. Prior to that date, the Company had made three progress...