Parakou Shipping Pte Ltd (in liquidation) v Liu Cheng Chan and others

• Court: High Court (Singapore)
• Judge: Chua Lee Ming J
• Judgment Date: 08 February 2017
• Neutral Citation: [2017] SGHC 15
• Citation: [2017] SGHC 15
• Published date: 20 January 2018
• Docket Number: Suit No 434 of 2014
• Hearing Date: 07 April 2016,28 March 2016,17 March 2016,27 June 2016,06 April 2016,08 April 2016,23 March 2016,31 March 2016,16 March 2016,04 April 2016,18 March 2016,30 March 2016,29 March 2016,22 March 2016,05 April 2016,01 April 2016,24 March 2016,15 March 2016
• Plaintiff Counsel: Edwin Tong SC, Kenneth Lim Tao Chung, Chua Xinying and Yu Kexin (Allen & Gledhill LLP)
• Defendant Counsel: Tan Shien Loon Lawrence, Senthil Dayalan and Ng Jia En (Eldan Law LLP),Siraj Omar and Premalatha Silwaraju (Premier Law LLC),Sim Chong and Yap Hao Jin (Sim Chong LLC)
• Subject Matter: Insolvency Law,Avoidance of transactions,Transactions at an undervalue,Companies,Directors,Duties

Chua Lee Ming J: Introduction

The plaintiff, Parakou Shipping Pte Ltd (“Parakou”), is presently under creditors’ voluntary liquidation. The liquidator, Mr Cameron Lindsay Duncan, commenced this action in Parakou’s name against its former directors and shareholders (the 1st and 2nd defendants), its current directors and shareholders (the 3rd and 4th defendants), and two related companies (the 5th and 6th defendants), alleging that they orchestrated various transactions to strip Parakou of assets in anticipation of it being put into liquidation.

The defendants

The defendants are as follows: The 1st defendant, Mr Liu Cheng Chan (“CC Liu”), and the 2nd defendant, Mdm Chik Sau Kam (“Chik”), are husband and wife. They were shareholders and directors of Parakou from the time of its incorporation but ceased to be shareholders after 21 December 2008 and directors after 31 December 2008. The 3rd defendant, Mr Liu Por, is the son of CC Liu and Chik. Liu Por joined Parakou in 2005. From 2006, he held a general management role as its Vice-President and oversaw its day-to-day operations.ⁱ He became a shareholder of Parakou with effect from 1 January 2005 and currently holds 70% of its shares. He was appointed as a director of Parakou on 22 December 2008. He was also a director and shareholder of the 5th and 6th defendants at all material times.ⁱⁱ The 4th defendant, Mr Yang Jianguo (“Yang”), was appointed as President of Parakou from 2006, overseeing its day-to-day operations together with Liu Por. From 22 December 2008, Yang became a 30% shareholder of Parakou and was appointed one of its directors.ⁱⁱⁱ He was also a director of the 6th defendant at all material times.^iv The 5th defendant, Parakou Investment Holdings Pte Ltd (“PIH”) was incorporated in Singapore on 8 January 1997. One of its businesses is general wholesale trade. At all material times, CC Liu, Chik and Liu Por were directors and shareholders of PIH, with CC Liu holding 70% of the shares in the company.^v The 6th defendant, Parakou Shipmanagement Pte Ltd (“PSMPL”), was incorporated in Singapore on 18 November 2008. Its businesses comprise shipping lines and freight. At all material times, (i) CC Liu, Chik, Liu Por and Yang were directors of PSMPL and (ii) CC Liu, Chik and Liu Por were shareholders of PSMPL holding 50%, 30% and 20% respectively.^vi

The undisputed facts

Parakou was incorporated in Singapore on 13 October 1995. By 2007, Parakou was involved in three separate lines of businesses: (a) outer port limit services, ie, providing offshore supply vessel services to ships in and around Singapore (“the OPL business”), (b) ship management and (c) ship chartering.^vii

At incorporation, CC Liu and Chik each held 50% of the shares in Parakou. In 2005, Liu Por became a shareholder with an 11.67% shareholding. CC Liu’s shareholding increased to 80% whilst Chik’s reduced to 8.33%.^viii

Mr Du Hong joined Parakou in July 2007.^ix At all material times, Du Hong was a Senior Manager with responsibility for the chartering business. Du Hong reported to Yang.

As of early June 2008, Parakou had chartered two vessels – the Maritime Newanda and the Thermidor – which it in turn sub-chartered to a company called Ocean Glory Shipping Ltd (“Ocean Glory”). Parakou was also looking to charter a third vessel, the Canton Trader and to sub-charter it to Ocean Glory.

On 17 June 2008, the shipbroker, Clarkson Asia Limited (“Clarkson”), sent Parakou a “Clean Recap” for the Canton Trader to “conclude a clean fixture” between Parakou and Galsworthy Limited (“Galsworthy”).^x The charterparty was for a minimum period of 5 years commencing March/April 2009. Later that day, Ocean Glory sent Parakou a similar “Clean Recap” for the Canton Trader to “conclude the clean fixture” for the sub-charterparty between Parakou and Ocean Glory.^xi

On 17 July 2008, Clarkson sent Parakou a copy of the charterparty for the Canton Trader signed by Galsworthy.^xii

On 15 September 2008, Lehman Brothers collapsed, triggering a worldwide financial crisis. The freight market collapsed in end-September/October 2008. The Baltic Dry Index (“the BDI”) fell from its peak of 11,793 points on 20 May 2008 to 3,000 points at the end of September 2008 after which it fell to a historical low of 770 points by the end of October 2008.^xiii The BDI is an authoritative index for dry bulk freight rates and therefore has a direct relation to Parakou’s chartering business.

On 30 October 2008, Parakou received an email warning it to “pay sharp attention to the financial condition of [Ocean Glory]” as it had redelivered a vessel which it had chartered from another entity (Cosco (H.K.)) “earlier than the minimum period with extremely short notice”.^xiv

The next day, Parakou received the original copies of the charterparty for the Canton Trader from Clarkson. Parakou replied that the file could not be found and questioned whether Parakou was the right party.^xv Clarkson replied on the same day confirming that Parakou was the charterer.^xvi Parakou did not respond.

On 14 November 2008, CC Liu and Chik (as directors of Parakou) passed a directors’ resolution authorising Liu Por and Yang to execute documents for the sale of ten vessels and two hulls (“the OPL Vessels”).^xvii On 17 November 2008, Liu Por and Yang signed the documents for the sale of the OPL Vessels to PIH.^xviii CC Liu and Chik, in their capacities as directors of PIH, also signed a directors’ resolution (prepared by Liu Por and Yang) resolving to purchase the OPL Vessels from Parakou; Liu Por was authorised to act on behalf of PIH.^xix Parakou claims that the OPL Vessels were sold at an undervalue resulting in a loss of S$2,263,900.^xx

On 18 November 2008, PSMPL was incorporated to take over the ship management business and the OPL business from Parakou. Subsequently, 12 ship management agreements (“SMAs”) between Parakou and 12 companies, the names of which all begin with “Pretty” (“the Pretty Entities”), were terminated with effect from 30 November 2008. The SMAs were for the management of 12 vessels (“the Pretty Vessels”). The sole shareholder in each of the Pretty Entities was Parakou International Limited, another company within the Parakou group. CC Liu, Chik and another son, Mr Lau Hoi, were the directors of the Pretty Entities. The three of them together with Liu Por were the shareholders of Parakou International Limited.^xxi

The Pretty Entities entered into SMAs with PSMPL for the management of the Pretty Entities with effect from 1 December 2008. The terms of the SMAs that the Pretty Entities entered into with PSMPL were substantially the same as those that they had previously entered into with Parakou.

On 22 December 2008, CC Liu and Chik (a) transferred their shares in Parakou to Liu Por and Yang,^xxii (b) appointed Liu Por and Yang as directors of Parakou^xxiii and (c) gave notice of their resignation as directors of Parakou with effect from 31 December 2008.^xxiv

Meanwhile, the following payments/set-off took place in November and December 2008: Between 12 and 24 November 2008, Parakou repaid PIH a total amount of S$9,812,542.80 that was owing to PIH (“the PIH Repayments”).^xxv Liu Por and Yang approved the PIH Repayments. On 9 and 15 December 2008, Parakou set-off a total amount of S$1,732,239.17 owing from PIH against amounts owed by Parakou to PIH (“the PIH Set-Off”).^xxvi Liu Por and Yang approved the PIH Set-Off. On 5 December 2008, Parakou repaid a sum of S$3,046,200 (“the PSSA Repayment”) that was owing to a related company named Parakou Shipping SA (“PSSA”).^xxvii CC Liu and Chik were the directors of PSSA which was wholly owned by CC Liu. PSSA’s request for payment was signed by CC Liu. Yang authorised the PSSA Repayment.^xxviii

On 23 December 2008, Liu Por and Yang, as directors of Parakou, signed a directors’ resolution noting, among other things, that (a) the SMAs had been terminated by the Pretty Entities with effect from 30 November 2008 and (b) 39 of Parakou’s employees (“the Affected Employees”) would be relieved of their duties with effect from 31 December 2008.^xxix

The employment of the Affected Employees with Parakou was then terminated with effect from 31 December 2008. In January 2009, the Affected Employees were employed by PSMPL. However, Parakou continued to pay the salaries of six of the Affected Employees for the period between January 2009 and December 2010 totalling S$309,376.85 (“the Employees’ Salary Payments”). As PSMPL was the employer, these payments were technically paid on behalf of PSMPL.

In December 2008, it was decided that bonuses would be paid to the Directors and that Liu Por’s and Yang’s salaries would be increased with effect from 1 January 2009. On 12 December 2008, bonuses totalling S$267,127.50 were paid to CC Liu, Chik, Liu Por and Yang (“the Bonus Payments”). CC Liu was paid S$100,000, Chik S$80.000, Liu Por S$39,000 and Yang S$48,127.50.^xxx The additional salaries paid to Liu Por and Yang between January 2009 and March 2011, as a result of the increase in their salaries, totalled S$108,000 (“the Salary Increases”).^xxxi

Between January 2009 and December 2010, Parakou paid a total amount of S$240,000 as rent either to or on behalf of PIH. PIH was the tenant and Parakou occupied part of the space tenanted by PIH. Parakou claims that an excess amount of S$213,270 was paid in respect of the rent (“the Excess Rent Payments”).^xxxii

On 26 January 2009, Clarkson sent Parakou a reminder for the executed charterparty for the Canton Trader (which was to be renamed the Jin Kang).^xxxiii On 11 February 2009, Parakou informed Clarkson that it would not be executing the charterparty; Parakou claimed that there was no fixture.^xxxiv

The charterparty for the Canton Trader provided for arbitration in London and in February 2009, Galsworthy commenced arbitration proceedings against Parakou in London (“the London Arbitration”).

On 27 June 2009,...