Steven Chong J:
Introduction
On 13 May 2010, the first plaintiff, Living the Link Pte Ltd (“Living”) was placed in creditors’ voluntary liquidation.1Affidavit of evidence-in-chief of Leow Quek Shiong dated 7 October 2015 (“LQS affidavit”), para 3. Living was part of the Link Group of companies who were pioneers in the high end retail fashion business in Singapore. Prior to the voluntary liquidation, the remaining inventory and certain shares held by Living were transferred to its associate companies, Link Boutique Pte Ltd (“Link”) and Alldressedup International Pte Ltd (“Alldressedup”) (together “the associate companies”). Substantial inter-company cash transfers were also recorded between the companies, particularly between Living and Link, in the two years preceding the liquidation.
The bulk of Living’s unsecured debts are owing to Link and Alldressedup who had provided financial support to Living from its inception for its operation and the acquisition of inventory. The only substantial creditor not related to Living is its former landlord, Cheong’s Company Pte Ltd (“Cheong”) who has a claim for rental arrears and damages arising from the premature termination of the tenancy agreements between Cheong and Living.2Affidavit of evidence-in-chief of Sim Guan Seng dated 6 July 2015, Exhibit SGS-1 (Expert Report of Sim Guan Seng dated 6 July 2015) (“SGS Report”), paras 6.2.12 to 6.2.21. The present liquidators replaced the initial liquidators appointed by the defendants. This replacement was pursuant to an application by Cheong3LQS affidavit, para 4; Agreed Bundle (“AB”), volume 12, p 8290. who is also funding the present claim against the defendants, namely Living’s director and sole shareholder, Tina Tan Lay Yin (“Tina Tan”), and the associate companies. In this judgment, the plaintiffs are referred to as the liquidators.
As the impugned transfers of inventory and the majority of the cash payments were made to associate companies within the two years preceding the creditors’ voluntary liquidation (“the relevant period”), the liquidators are relying on the statutory presumption that these transactions were undue preferences under s 329 of the Companies Act (Cap 50, 2006 Rev Ed) read with ss 99 and s 100(1)(b) of the Bankruptcy Act (Cap 20, 2009 Rev Ed). The liquidators also assert that Tina Tan breached her duties as Living’s director by, inter alia, procuring these transactions.
The liquidators seek a reversal of all the impugned transactions, the total amount of which far exceeds the claims of the unsecured creditors not related to Living, particularly Cheong. This gives rise to a real risk of the remedy being disproportionate to the claim, with the associate companies paying monies over to Living only for a substantial portion to become repayable to them after their Proofs of Debt are assessed. The question arising from this state of affairs is whether the court is entitled to order a partial reversal of the impugned transactions only to the extent sufficient to meet the claims of Cheong and any other unrelated creditors even if all or most of the transactions constituted undue preferences. Initially, counsel for the liquidators indicated that this would be a sensible approach. However, after considering an issue which I had flagged to the parties when giving directions for the closing submissions, the liquidators changed their position and submitted that the court does not have the power to order a partial reversal because such an order would have the effect of approving and paying some of the debts owing to Link and Alldressedup even before they are adjudicated by the liquidators.
Additionally, the liquidators have sued Tina Tan in her capacity as director and seek against her, inter alia, an order that she pays a sum equal in value to the undue preference transactions. Although it has been observed that a director might be in breach of his or her fiduciary duties in procuring undue preferences, to-date there is no reported decision by our courts on whether this alone is sufficient to warrant such a finding against the director and if so, what orders can or should be made against the director as a defendant in such proceedings. This case thus raises several interesting issues on the law governing undue preferences which this judgment will examine.
Facts
Background to the dispute
Link was first founded by Tina Tan as a retailer of ladies’ apparel and high fashion merchandise in 1982.4Affidavit of evidence-in-chief of Tan Lay Tin Tina dated 9 October 2015 (“TT affidavit”), para 7. Subsequently, in early 2005, she began to design and produce fashion wear under Link’s own label “alldressedup”. Alldressedup was incorporated the same year to carry on the production and sale of this label.5TT affidavit, paras 11 and 12. At this point, the Link Group was mainly operating out of its flagship store located in the Mandarin Hotel.6TT affidavit, para 8.
In the third quarter of 2006, the Link Group had to relocate its flagship store after being given notice to vacate due to plans to renovate the building.7TT affidavit, para 19. A suitable location was available at 1 Nassim Road (“One Nassim”), just off the fashion boulevard of Orchard Road. In order to maximise this new space, Tina Tan conceptualised the launch of a fashion and lifestyle concept store which was to combine the retail of high fashion brands with food and beverage outlets.8TT affidavit, paras 20 and 21. This business was to be known as “Living the Link” and Living was incorporated on 9 January 2007 to carry on this new enterprise.9TT affidavit, para 23. Living then entered into a tenancy agreement for One Nassim with Cheong on 11 June 2007 for three years which was extended on 6 May 2008 till 31 March 2011.10LQS affidavit, Exhibit LQS-28.
The store at One Nassim opened for business sometime in the second half of 2007, but it never really took off.11TT affidavit, para 33. The launch of this new enterprise unfortunately coincided with the onset of the global financial crisis in 2008. Living faced cash-flow difficulties throughout 2008, and eventually closed the business and terminated the lease on 31 July 2009.12TT affidavit, paras 66–69 and Exhibit TT-16. This gave rise to a dispute with Cheong as to whether Living could validly terminate the lease on the basis that Cheong had failed to provide adequate power supply for the operation of a lifestyle café/bar in the premises.13TT affidavit, para 35. This was the subject matter of litigation between the two parties in Suit No 941 of 2009 which was subsequently discontinued after Living was placed in creditors’ voluntary liquidation on 13 May 2010 pursuant to a resolution passed at the creditors’ meeting held the same day.14SGS Report, paras 6.2.16–6.2.21; LQS affidavit, paras 13–15. Cheong has since filed a Proof of Debt in the sum of $1,297,135.75 against Living comprising:15AB, volume 12, p 7996. arrears in rental (from 1 February 2009 to 12 August 2009) and damages for lost rental (from 13 August 2009 to 10 May 2010) amounting to $1,685,167.77 (with interest); damages arising from the reduced rental derived as a result of the termination of the tenancy agreement by Living amounting to $404,198.90; reinstatement costs, legal costs and agents’ fees totalling $120,116.47; and less part payments of $362,346.89, replacement tenant rental of $349,440.60 and deposit set-off of $200,559.90.
At all material times, Tina Tan was a director and the sole shareholder of Living and the associate companies, Link and Alldressedup, through their parent company Fashionation International Pte Ltd.16TT affidavit, para 16.
Impugned transactions
In the period leading up to Living’s liquidation, the following transactions took place which, according to the liquidators, were wrongful:17Plaintiff’s Closing Submissions, para 6. transfers of inventory amounting to approximately $1.29m in book value from Living to Link; transfers of inventory amounting to approximately $1.34m in book value from Living to Alldressedup; net cash payments of approximately $3.86m from Living to Link over the course of 2008, comprising: $980,000 from 2 January 2008 to 12 May 2008 (ie, outside the relevant period), and $2,885,174.35 from 13 May 2008 to 31 December 2008 (see [45] below); on 1 April 2009, a transfer of 120,000 ordinary shares that Living held in Graha Lifestyle Pte Ltd (“Graha”) at the book value of $120,000 to Link; and between 1 May 2008 and 15 July 2009, payment by Living of the personal expenses of Tina Tan and her husband Lionel Leo, who was the CEO of the Link Group at all material times,18Affidavit of evidence-in-chief of Leo Lionel dated 12 October 2015 (“LL affidavit”), para 1. to the amount of $41,738.80.
There is no dispute that these transactions occurred. The liquidators accept that for all of these transactions, save for the payment of the personal expenses, there was value given by Link and Alldressedup in the form of a corresponding reduction in the debts owed by Living to the two associate companies. The defendants in turn acknowledge that all of the impugned transactions, except the cash payments made by Living to Link outside of the relevant period and the payment of the personal expenses, fall within the statutory presumption and are prima facie undue preferences.
For the inventory, the parties disagree as to whether the transfers took place on 31 December 2008, as reflected, inter alia, in Living’s accounts, or sometime later around April 2009. The impact of this disputed issue, if any, will be explored below.
Issues before the Court
There have been multiple shifts in the positions of the parties since the commencement of these proceedings. The defendants’ case, in particular, has morphed incessantly, with a total of seven amendments to their Defence and Counterclaim, including one which was made, with my...
