Lee Seng Eder v Wee Kim Chwee

• Jurisdiction: Singapore
• Judgment Date: 31 December 2013
• Date: 31 December 2013
• Docket Number: Originating Summons No 407 of 2013
• Court: High Court (Singapore)

Lee Seng Eder

Plaintiff

and

Wee Kim Chwee and others

Defendant

[2013] SGHC 287

Andrew Ang J

Originating Summons No 407 of 2013

High Court

Companies—Members—Derivative action—Shareholder and former director of company seeking leave to commence proceedings in name and on behalf of company—Whether notice requirement under s 216 A (3) (a) Companies Act (Cap 50, 2006 Rev Ed) was satisfied—Whether s 216 A (4) Companies Act (Cap 50, 2006 Rev Ed) dispensed with notice requirement—Sections 216 A (3) (a) and 216 A (4) Companies Act (Cap 50, 2006 Rev Ed)

Lee Seng, Eder (‘Lee’) sought leave in Originating Summons No 407 of 2013 to commence a derivative action in the name and on behalf of the third defendant, Neu-Movers Logistics Pte Ltd (‘the Company’) against the first and second defendants, Wee Kim Chwee (‘Wee’) and Tien Shin (‘Tien’), pursuant to s 216 A of the Companies Act (Cap 50, 2006 Rev Ed) (‘the Act’).

Wee and Tien are directors and shareholders of the Company, which is in the business of providing transportation and warehousing services. Lee is one of the founders of the Company and was its managing director until his resignation on 29 March 2012. After his resignation, Lee remained a shareholder of the Company.

Lee's complaint was that Wee and Tien had allowed certain parties to appropriate the Company's assets and goodwill. In particular, they allowed NMSolution Pte Ltd (‘NMS’), a company incorporated by a former employee of the Company, to ‘take over’ the revenue to be earned from contracts with the Company's customers.

Held, dismissing the application:

(1) The requirements for leave to bring a derivative action under s 216 A of the Act were as follows: (a) 14 days' notice to the directors of the company; (b) the action had to be prima facie in the interests of the company; and (c) the complainant had to be acting in good faith: at [5] .

(2) The present facts were clearly distinguishable from those in Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd[2011] 3 SLR 980 because notice in that case had been given, albeit belatedly. On the present facts, Lee did not give notice at any point in time. His failure to comply with the statutory notice requirement was inexcusable in the circumstances. His explanation, that he was concerned that evidence might be tampered with or destroyed if he gave notice, was countered by the observation that such risk could still materialise after service of the originating summons: at [8] .

(3) Section 216 A (4) of the Act did not dispense altogether with the requirement to provide notice under s 216 A (3) (a) although the learned authors of Walter Woon on Company Law(Sweet & Maxwell, Rev 3rd Ed, 2009) (‘Walter Woon’) seemed to suggest otherwise at para 9.76. The suggested interpretation in Walter Woon did not comport with a plain reading of the provision. The words of the provision itself indicated that notice would still be required even if an interim order was made: at [9] .

(4) In addition, strict compliance with the notice requirement accorded with the intention of Parliament to prevent an abuse of s 216 A of the Act: at [13] .

(5) The Company's financial position was in a precarious state. It seemed unable to repay its creditors, who had either issued letters of demand or had obtained judgment against the Company. Therefore, liquidation of the Company was more than likely: at [14] and [15] .

(6) Since, in the course of winding up, the liquidator would be vested with the authority to decide whether to bring any action against the directors, it would not be in the interests of the Company to expend considerable sums of money to bring the action before liquidation. The issue of bringing the action against the directors should more appropriately be raised for the liquidator's consideration after the Company has been liquidated: at [15] .

[Observation: There were two important differences between s 239 (2) of the...